RAKFUNDING CAYMAN LTD

(incorporated with limited liability in the Cayman Islands)

U.S.$1,000,000,000
Guaranteed Euro Medium Term Note Programme
guaranteed by
THE NATIONAL BANK OF RAS AL-KHAIMAH (P.S.C.)
(incorporated with limited liability in the United Arab Emirates as a public shareholding company)
Under the Guaranteed Euro Medium Term Programme (the Programme) described in this base prospectus (the Base
Prospectus), RAKFUNDING CAYMAN LTD (the Issuer), subject to compliance with all relevant laws, regulations and
directives may from time to time issue notes (the Notes) guaranteed by The National Bank of Ras Al-Khaimah (P.S.C.) (the
Bank or the Guarantor). The aggregate nominal amount of Notes outstanding under the Programme will not at any time
exceed U.S.$1,000,000,000 (or its equivalent in other currencies calculated as described in the Dealer Agreement (as defined
below)), subject to increase as described herein.
The Notes may be issued on a continuing basis to any dealer(s) specified under Overview of the Programme and any additional
dealer(s) appointed under the Programme from time to time by the Issuer (each a Dealer and together the Dealers), which
appointment may be for a specific issue or on an on-going basis. References in this Base Prospectus to the relevant Dealer shall,
in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to
subscribe for such Notes.
This Base Prospectus has been approved by the Central Bank of Ireland (the Central Bank) as competent authority under
Directive 2003/71/EC as amended (including the amendments made by Directive 2010/73/EU) (the Prospectus Directive). The
Central Bank only approves this Base Prospectus as meeting the requirements imposed under Irish and European Union (EU)
law pursuant to the Prospectus Directive. Such approval relates only to Notes that are to be admitted to trading on the regulated
market of the Irish Stock Exchange (the Main Securities Market) or on another regulated market for the purposes of Directive
2004/39/EC (known as the Markets in Financial Instruments Directive) and/or that are to be offered to the public in any member
state of the European Economic Area. Application has been made to the Irish Stock Exchange for Notes issued under the
Programme during the period of 12 months from the date of this Base Prospectus to be admitted to its official list (the Official
List) and trading on the Main Securities Market. References in this Base Prospectus to any Notes being listed (and all related
references) shall mean that, unless otherwise specified in the relevant Final Terms (as defined below), such Notes have been
admitted to the Official List and trading on the Main Securities Market.
Notice of the aggregate nominal amount of a tranche of Notes, interest (if any) payable in respect of such Notes, the issue price
of such Notes and certain other information that is applicable to such Notes will be set out in a final terms document (the Final
Terms). With respect to each Series (as defined below) of Notes to be listed on the Irish Stock Exchange, the relevant Final
Terms will be filed with the Central Bank. The Programme also permits Notes to be issued on an unlisted basis or to be admitted
to listing, trading and/or quotation by such other or further listing authorities, stock exchanges and/or quotation systems as may
be agreed between the Issuer and the relevant Dealer(s).
Each Series of Notes will be issued in bearer form (Bearer Notes) or registered form (Registered Notes). Bearer Notes will
be represented on issue by a temporary global note (a Temporary Global Note) or a permanent global note (a Permanent
Global Note and each of the Temporary Global Note and Permanent Global Note, a Global Note). Registered Notes will be
represented by registered certificates (each a Certificate), one certificate being issued in respect of each Noteholders (as
defined below) entire holding of Registered Notes of one Series. Registered Notes issued in global form will be represented by
registered global certificates (Global Certificates).
The rating of certain Tranches (as defined below) of Notes to be issued under the Programme and the credit rating agency
issuing such rating may be specified in the relevant Final Terms. The Programme has been assigned a long term rating of BBB+
by Fitch Ratings Ltd. (Fitch) and a long term rating of Baa1 by Moodys Investors Service Ltd. (Moodys). Each of Fitch and
Moodys is established in the European Union and is registered under Regulation (EC) No. 1060/2009 (as amended) (the CRA
Regulation). As such, each of Fitch and Moodys is included in the list of credit rating agencies published by the European
Securities and Markets Authority (ESMA) on its website in accordance with the CRA Regulation. Where an issue of Notes is
rated, its rating will not necessarily be the same as the rating applicable to the Programme. A rating is not a recommendation to
buy, sell or hold securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency.
Investing in the Notes involves risks. Prospective investors should have regard to the factors described under the
heading Risk Factors on page 1 of this Base Prospectus.
Arrangers and Dealers
National Bank of Abu Dhabi Standard Chartered Bank
The date of this Base Prospectus is 12 June 2014
This Base Prospectus constitutes a base prospectus for the purposes of Article 5.4 of the
Prospectus Directive and for the purpose of giving information with regard to the Issuer, the
Guarantor, the Guarantor and its subsidiaries taken as a whole (the Group) and the Notes
which, according to the particular nature of the Issuer, the Guarantor and the Notes, is
necessary to enable investors to make an informed assessment of the assets and liabilities,
financial position, profit and losses and prospects of the Issuer and the Guarantor.
The Issuer and the Guarantor accept responsibility for the information contained in this Base
Prospectus. To the best of the knowledge and belief of the Issuer and the Guarantor (each
having taken all reasonable care to ensure that such is the case) the information contained in
this Base Prospectus is in accordance with the facts and does not omit anything likely to affect
the import of such information.
This Base Prospectus should be read and construed together with any supplements hereto
and, in relation to any Tranche of Notes which is the subject of Final Terms, should be read and
construed together with the relevant Final Terms.
Certain information contained in Risk Factors, Description of the Bank, Overview of the
United Arab Emirates and The United Arab Emirates Banking Sector and Regulations (as
indicated therein) has been extracted from independent, third party sources. Each of the Issuer
and the Guarantor confirms that all third party information contained in this Base Prospectus
has been accurately reproduced and that, as far as it is aware and is able to ascertain from
information published by the relevant, third party sources, no facts have been omitted which
would render the reproduced information inaccurate or misleading. The source of any third
party information contained in this Base Prospectus is stated where such information appears
in this Base Prospectus.
No person has been authorised to give any information or to make any representation not
contained in or not consistent with this Base Prospectus or any other document entered into in
relation to the Programme or any information supplied by the Issuer or the Guarantor or such
other information as is in the public domain and, if given or made, such information or
representation should not be relied upon as having been authorised by the Issuer, the
Guarantor, the Arrangers or any of the Dealers.
To the fullest extent permitted by law, neither the Arrangers, the Dealers nor any of their
respective affiliates makes any representation or warranty or accepts any responsibility as to
the accuracy or completeness of the information contained in this Base Prospectus. The
Arrangers and the Dealers accordingly disclaim all and any liability that each of them may have
(whether in tort, contract or otherwise) in respect of the accuracy or completeness of any such
information or statements. Neither the delivery of this Base Prospectus or any Final Terms nor
the offering, sale or delivery of any Note shall, in any circumstances, create any implication that
the information contained in this Base Prospectus is true subsequent to the date hereof or the
date upon which this Base Prospectus has been most recently amended or supplemented or
that there has been no adverse change, or any event reasonably likely to involve any adverse
change, in the condition (financial or otherwise) of the Issuer or the Guarantor since the date
thereof or, if later, the date upon which this Base Prospectus has been most recently amended
or supplemented or that any other information supplied in connection with the Programme is
correct at any time subsequent to the date on which it is supplied or, if different, the date
indicated in the document containing the same.
The distribution of this Base Prospectus and any Final Terms and the offering, sale and
delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose
possession this Base Prospectus or any Final Terms comes are required by the Issuer, the
Guarantor, the Arrangers and the Dealers to inform themselves about and to observe any such
restrictions. For a description of certain restrictions on offers, sales and deliveries of the Notes
and on the distribution of this Base Prospectus or any Final Terms and other offering material
relating to the Notes, see Subscription and Sale. In particular, the Notes have not been and
will not be registered under the United States Securities Act of 1933 (as amended) (the
Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions,
the Notes may not be offered, sold or delivered within the United States or to U.S. persons.
Neither this Base Prospectus nor any other information supplied in connection with the
Programme or any Notes: (i) is intended to provide the basis of any credit or other evaluation;
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or (ii) should be considered as a recommendation by the Issuer, the Guarantor, the Arrangers
or any of the Dealers that any recipient of this Base Prospectus or any other information
supplied in connection with the Programme or any Notes should purchase any Notes. Each
investor contemplating purchasing any Notes should make its own independent investigation
of the financial condition and affairs, and its own appraisal of the creditworthiness, of the
Issuer and the Guarantor. Neither this Base Prospectus nor any other information supplied in
connection with the Programme or the issue of any Notes constitutes an offer or invitation by
or on behalf of the Issuer, the Guarantor, the Arrangers or any of the Dealers to any person to
subscribe for or to purchase any Notes.
Neither the delivery of this Base Prospectus nor the offering, sale or delivery of any Notes shall in
any circumstances imply that the information contained herein concerning the Issuer and the
Guarantor is correct at any time subsequent to the date hereof or that any other information
supplied in connection with the Programme is correct as of any time subsequent to the date
indicated in the document containing the same. The Arrangers and the Dealers expressly do not
undertake to review the financial condition or affairs of the Issuer or the Guarantor during the life of
the Programme or to advise any investor in the Notes of any information coming to their attention
This Base Prospectus includes forward-looking statements. All statements other than
statements of historical facts included in this Base Prospectus may constitute forward-looking
statements. Forward-looking statements generally can be identified by the use of forward-
looking terminology, such as may, will, expect, intend, estimate, anticipate,
believe, continue or similar terminology. Although the Issuer and the Guarantor believe that
the expectations reflected in their forward-looking statements are reasonable at this time, there
can be no assurance that these expectations will prove to be correct.
The Notes may not be a suitable investment for all investors. Each potential investor in the
Notes must determine the suitability of that investment in light of its own circumstances. In
particular, each potential investor should:
(a) have sufficient knowledge and experience to make a meaningful evaluation of the Notes,
the merits and risks of investing in the Notes and the information contained or
incorporated by reference in this Base Prospectus or any applicable supplement;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context
of its particular financial situation, an investment in the Notes and the impact the Notes
will have on its overall investment portfolio;
(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in
the Notes, including Notes with principal or interest payable in one or more currencies, or
where the currency for principal or interest payments is different from the potential
investors currency;
(d) understand thoroughly the terms of the Notes and be familiar with the behaviour of any
relevant indices and financial markets; and
(e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios
for economic, interest rate and other factors that may affect its investment and its ability
to bear the applicable risks.
Some Notes are complex financial instruments. Sophisticated institutional investors generally
do not purchase complex financial instruments as stand-alone investments. They purchase
complex financial instruments as a way to reduce risk or enhance yield with an understood,
measured, appropriate addition of risk to their overall portfolios. A potential investor should not
invest in Notes which are complex financial instruments unless it has the expertise (either
alone or with a financial adviser) to evaluate how the Notes will perform under changing
conditions, the resulting effects on the value of the Notes and the impact this investment will
have on the potential investors overall investment portfolio.
Legal investment considerations may restrict certain investments. The investment activities of
certain investors are subject to legal investment laws and regulations, or review or regulation
by certain authorities. Each potential investor should consult its legal advisers to determine
whether and to what extent (a) Notes are legal investments for it, (b) Notes can be used as
collateral for various types of borrowing, and (c) other restrictions apply to its purchase or
pledge of any Notes.
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Financial institutions should consult their legal advisers or the appropriate regulators to
determine the appropriate treatment of Notes under any applicable risk based capital or similar
rules.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISER, LEGAL
ADVISER AND BUSINESS ADVISER AS TO TAX, LEGAL, BUSINESS AND OTHER RELATED
MATTERS CONCERNING THE PURCHASE OF ANY NOTES.
NOTICE TO RESIDENTS OF THE KINGDOM OF BAHRAIN
In relation to investors in the Kingdom of Bahrain, Notes issued in connection with this Base
Prospectus and related offering documents may only be offered in registered form to existing
account holders and accredited investors as defined by the Central Bank of Bahrain (CBB) in
the Kingdom of Bahrain where such investors make a minimum investment of at least
U.S.$100,000 or any equivalent amount in other currency or such other amount as the CBB may
determine.
This Base Prospectus does not constitute an offer of securities in the Kingdom of Bahrain in
terms of Article (81) of the Central Bank and Financial Institutions Law 2006 (decree Law No. 64
of 2006). This Base Prospectus and related offering documents have not been and will not be
registered as a prospectus with the CBB. Accordingly, no Notes may be offered, sold or made
the subject of an invitation for subscription or purchase nor will this Base Prospectus or any
other related document or material be used in connection with any offer, sale or invitation to
subscribe or purchase Notes, whether directly or indirectly, to persons in the Kingdom of
Bahrain, other than to accredited investors for an offer outside the Kingdom of Bahrain.
The CBB has not reviewed, approved or registered this Base Prospectus or related offering
documents and it has not in any way considered the merits of the Notes to be offered for
investment, whether in or outside the Kingdom of Bahrain. Therefore, the CBB assumes no
responsibility for the accuracy and completeness of the statements and information contained
in this Base Prospectus and expressly disclaims any liability whatsoever for any loss
howsoever arising from reliance upon the whole or any part of the content of this Base
Prospectus. No offer of Notes will be made to the public in the Kingdom of Bahrain and this
Base Prospectus must be read by the addressee only and must not be issued, passed to, or
made available to the public generally.
KINGDOM OF SAUDI ARABIA NOTICE
This Base Prospectus may not be distributed in the Kingdom of Saudi Arabia except to such
persons as are permitted under the Offer of Securities Regulations issued by the Capital Market
Authority of the Kingdom of Saudi Arabia (the Capital Market Authority). The Capital Market
Authority does not make any representations as to the accuracy or completeness of this Base
Prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or
incurred in reliance upon, any part of this Base Prospectus. Prospective purchasers of Notes
issued under the Programme should conduct their own due diligence on the accuracy of the
information relating to the Notes. If a prospective purchaser does not understand the contents
of this Base Prospectus he or she should consult an authorised financial adviser.
CAYMAN ISLANDS NOTICE
No offer or invitation may be made to the members of the public in the Cayman Islands to
subscribe for the Notes.
STABILISATION
In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the
Stabilising Manager(s) (or any person acting for the Stabilising Manager(s)) in the relevant Final
Terms (the Stabilising Manager(s)), may over-allot such Notes or effect transactions with a view
to supporting the market price of the Notes at a level higher than that which might otherwise
prevail. However, there is no assurance that the Stabilising Manager(s) (or any person acting on
behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may
begin on or after the date on which adequate public disclosure of the final terms of the offer of
the relevant Tranche of Notes is made and, if begun, may be ended at any time but it must end no
later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days
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after the date of the allotment of the relevant Tranche of Notes. Any stabilisation or over-
allotment must be conducted by the relevant Stabilising Manager(s) (or persons acting on behalf
of the Stabilising Manager(s) in accordance with applicable laws and rules.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Presentation of financial information
The Bank prepared its audited consolidated annual financial statements as at and for the years ended
31 December 2012 (the 2012 Annual Financial Statements) and 31 December 2013 (the 2013
Annual Financial Statements) and its unaudited condensed consolidated interim financial
statements as at and for the three months ended 31 March 2014 (the 2014 Interim Financial
Information), which are appended hereto, in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IFRS). The 2013 Annual
Financial Statements and the 2012 Annual Financial Statements have been audited by
PricewaterhouseCoopers and the 2014 Interim Financial Information have been reviewed by
PricewaterhouseCoopers in accordance with International Standards on Review Engagements 2410,
Review of Interim Financial Information performed by the Independent Auditor of the Entity.
Non-GAAP measures
This Base Prospectus also includes certain references to non-GAAP measures, such as the Banks
capital base and risk weighted assets. The Bank uses these non-GAAP measures to evaluate its
performance, and this additional financial information is presented in this Base Prospectus. This
information is not prepared in accordance with IFRS and should be viewed as supplemental to the
financial statements. Investors are cautioned not to place undue reliance on this information and
should note that the capital base and risk weighted assets net interest margin, cost to income ratio,
return on equity, return on assets, non performing financings ratios, non performing financing
provisions ratio, total loans/total assets, customers deposits/total assets, advance to deposit ratio and
liquid assets ratio, as calculated by the Bank may differ materially from similarly titled measures
reported by other companies, including the Banks competitors (see Selected Financial Information
for further information).
Certain conventions
In this Base Prospectus, unless otherwise specified, references to U.S.$, U.S. dollars or dollars are
to United States dollars, references to EUR, or euro are to the single currency introduced at the
start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing
the European Community, as amended, references to GBP or are to the British Pound, references
to AED or UAE Dirham are to the United Arab Emirates Dirham and references to SAR are to the
Saudi Arabian Riyal. In addition, all references to the UAE are to the United Arab Emirates.
Certain figures included in this Base Prospectus have been subject to rounding adjustments;
accordingly, figures shown for the same category presented in different tables may vary slightly and
figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which
precede them.
Comparability of the Banks Financial Information
The financial information for the year ended 31 December 2013 included in the 2013 Annual Financial
Statements differs from the financial information for the years ended 31 December 2013 and
31 December 2012 included in this Base Prospectus and reflects a reclassification to appropriately
reflect the nature of balances and to conform with the presentation of the 2014 Interim Financial
information, as follows:
a reclassification from income from investment securities to interest income in the amount of
AED 107.1 million for the year ended 31 December 2013;
a reclassification from income from investment securities to income from Islamic financing in
the amount of AED 1.5 million for the year ended 31 December 2013; and
a reclassification from income from investment securities to interest income in the amount of
AED 73.1 million for the year ended 31 December 2012.
Certain Differences between IFRS and IFRS as adopted by the European Union (IFRS EU)
This Base Prospectus includes financial statements and other financial information prepared and
presented in accordance with IFRS. Certain differences exist between IFRS and IFRS EU which might
be material to the financial statements and other financial information herein. This Base Prospectus
does not include any reconciliation of the financial statements or any other financial information and
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related footnote disclosures between IFRS and IFRS EU. Further, this Base Prospectus does not
include any narrative description of the differences between IFRS and IFRS-EU and the Bank has
made no attempt to identify or quantify such differences that might be applicable to the Bank or its
financial statements or other financial information included in this Base Prospectus. It is possible that a
reconciliation or other qualitative or quantitative analysis would identify material differences between
the financial statements and other financial information included in this Base Prospectus were each of
these to be prepared under IFRS-EU. In making an investment decision, investors must rely upon their
own examination of the Issuer, the Bank and the Group, the terms of the Programme and the financial
statements and other financial information. Potential investors should consult their own professional
advisors for an understanding of the differences between IFRS and IFRS EU, and how those
differences might affect the financial information herein.
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SUPPLEMENTARY BASE PROSPECTUS
The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to
information included in this Base Prospectus which is capable of affecting the assessment of any
Notes, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in
connection with any subsequent issue of Notes.
Following the publication of this Base Prospectus a supplement may be prepared by the Issuer and
approved by the Central Bank in accordance with Article 16 of the Prospectus Directive. Statements
contained in any such supplement (or contained in any document incorporated by reference therein)
shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or
supersede statements contained in this Base Prospectus or in a document which is incorporated by
reference in this Base Prospectus. Any statement so modified or superseded shall not, except as so
modified or superseded, constitute a part of this Base Prospectus.
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TABLE OF CONTENTS
Headings Page
RISK FACTORS 1
OVERVIEW OF THE PROGRAMME 15
TERMS AND CONDITIONS 19
USE OF PROCEEDS 43
FORM OF FINAL TERMS 44
SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM 52
DESCRIPTION OF THE ISSUER 57
DESCRIPTION OF THE BANK 58
SELECTED FINANCIAL INFORMATION 80
FINANCIAL REVIEW 84
MANAGEMENT AND EMPLOYEES 95
OVERVIEW OF THE UNITED ARAB EMIRATES 100
THE UNITED ARAB EMIRATES BANKING SECTOR AND REGULATIONS 104
TAXATION 114
SUBSCRIPTION AND SALE 117
GENERAL INFORMATION 122
RISK FACTORS
Any investment in the Notes is subject to a number of risks and uncertainties. Prospective investors
should consider carefully the risks and uncertainties associated with the Issuers and the Guarantors
business and any investment in the Notes, together with all of the information that is included in this
Base Prospectus, and should form their own view before making an investment decision with respect
to the Notes. In particular, prospective investors should evaluate the risks and uncertainties referred to
or described below, which may have a material adverse effect on the Issuers or the Guarantors
business, results of operations, financial condition and prospects. Should one or more of the following
events or circumstances occur at the same time or separately, the value of the Notes could decline and
an investor might lose part or all of its investment.
Each of the Issuer and the Guarantor believes that the factors described below represent the principal
risks inherent in investing in the Notes, but the Issuers and the Guarantors inability to pay interest,
principal or other amounts on or in connection with the Notes may occur for other reasons and the
Issuer and the Guarantor do not represent that the statements below regarding the risks of holding the
Notes are exhaustive. Additional risks not presently known to the Issuer or the Guarantor or that the
Issuer or the Guarantor currently deem immaterial may also impair the Issuers or the Guarantors
ability to pay interest, principal or other amounts on or in connection with the Notes.
Words and expressions defined in Terms and Conditions of the Notes (the Conditions) shall have
the same meanings in this section.
Risks relating to the Issuer, the Bank and the Group
Neither the Government of Ras Al-Khaimah nor the federal government of the UAE (the Federal
Government) is under any obligation to continue to invest in or otherwise engage in business with the
Bank and either or both may alter their respective relationships with the Bank at any time and for any
reason.
As at the date of this Base Prospectus, the Government of Ras Al-Khaimah (the Government),
holds 49.3 per cent. of the Banks share capital with a further 3.4 per cent. owned by a company wholly
owned by the Government. By virtue of its shareholding the Government has the ability to influence the
Banks business significantly through its ability to control actions that require shareholder approval. If
circumstances were to arise where the interests of the Government conflict with the interests of the
Noteholders, the Bank could be disadvantaged by any such conflict.
The Bank was incorporated as a public shareholding company by an Emiri Decree dated 15 June 1976
in the UAE and commenced its operations in March 1978. As at the date of this Base Prospectus, the
Government owns 49.3 per cent. of the Bank with a further 3.4 per cent. owned by a company wholly
owned by the Government. In 2009, the Bank received funds from the Ministry of Finance of the
Federal Government in accordance with an agreement dated 31 December 2009 as part of a facility
set up by the Central Bank of the United Arab Emirates (UAE Central Bank) to provide liquidity
support to banks operating in the UAE and for stimulating and maintaining economic activity in the
UAE. During the year 2012, the subordinated debt amounting to AED 684.5 million was repaid in full by
the Bank.
Despite the Governments and the Federal Governments past investments in and deposits with the
Bank and funding support, neither the Government nor the Federal Government are under any
obligation to continue to invest in, make deposits with, do business with or otherwise support the Bank.
The Government and the Federal Government may, whether directly or through government-owned
entities, at any time and for any reason, dispose of its investments in, withdraw its deposits from, cease
to do business with or otherwise cease to support the Bank. The reduction or elimination of
government support could have a material adverse effect on the Banks business, results of
operations, financial condition and prospects.
The Notes will not be guaranteed by the Government
As discussed above, the Government is a majority shareholder in the Bank. Like any other
shareholder, the Government has no legal obligation to provide additional funding for any of the Banks
future operations. The Government is not providing a guarantee of any of the Banks legal obligations
in respect of Notes to be issued under the Programme, nor is the Government under any obligation to
purchase any of the Banks liabilities or guarantee any of the Banks obligations, and the Noteholders
therefore do not benefit from any legally enforceable claim against the Government.
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Revenue of the Bank
A high percentage of the Banks revenue is generated from its Retail Banking division (as at
31 December 2013, retail banking accounted for 90.6 per cent. of the Banks operating income) and
the Bank may therefore be at greater risk than certain other banks in the UAE, whose revenue base is
more diversified, in the event of a downturn in the UAE small business sector.
The Banks growth strategy depends on its ability to successfully manage its growth
The Banks strategy of continuing to expand its existing operations and products in its target markets is
dependent on a number of factors. These include its ability to:
maintain, expand or develop relationships with its small business customers, suppliers,
contractors, lenders and other third parties;
increase the scope of its operational and financial systems to handle the increased complexity;
identify suitable investments and/or development opportunities;
reach agreements with joint venture and strategic partners on terms satisfactory to it;
recruit, train and retain qualified staff to manage its growing business efficiently and without losing
operational focus; and
maintain necessary permits or approvals from governmental authorities and agencies.
These efforts will require significant capital and management resources, further development of the
Banks financial and internal controls and information technology systems, and additional training and
recruitment of management and other key personnel. At the same time, the Bank must maintain a
consistent level of customer service across its operations to avoid loss of business or damage to its
reputation. Any failure by the Bank to manage its growth effectively could have a material adverse
effect on its business, financial condition, results of operations and prospects.
The Bank may experience a higher level of customer and counterparty defaults arising from adverse
changes in credit and recoverability that are inherent in the Banks business
As a result of the global financial crisis and other adverse economic and political developments,
adverse changes in consumer confidence levels, consumer spending, liquidity levels, bankruptcy rates
and commercial and residential real estate prices, among other factors, have impacted the Banks
customers and counterparties, and, in certain cases, adversely affected their ability to repay their loans
or other obligations to the Bank (by way of example, the Bank experienced a significant deterioration in
its National Loan Portfolio (as defined below) during the year ended 31 December 2013 and the first
three months ended 31 March 2014). This, in turn, along with increased market volatility and
decreased pricing transparency, has adversely affected the Banks credit risk profile. As a result, the
Bank adopted a more conservative provisioning policy during the year ended 31 December 2013,
which included increasing its impaired loan coverage ratio. The Banks impaired loan coverage ratio
(calculated as the aggregate of impaired loans against provision held) for the year ended 31 December
2013 was 73.3 per cent. compared to 62.8 per cent. for the year ended 31 December 2012. The
impaired loan coverage ratio as at 31 March 2014 was 79.5 per cent. (See also Description of the
BankLoan Classification and Impairment Policy).
Although the Bank regularly reviews its credit exposures and has from time to time had to re-price
portions of its loan portfolio and restructured some of its loans under stress, events of default may
continue to occur. The occurrence of these events has affected, and could continue to materially
adversely affect, the Banks business, results of operations, financial condition and prospects.
If the Bank is unable to effectively control the level of, or successfully restructure, its nonperforming
loans with debtors in financial distress, or its allowances for loan impairment are insufficient to cover
loan losses, the Banks financial condition and results of operations could be adversely affected
As at 31 December 2013 and 31 March 2014, the Banks non-performing financings ratio was 2.4 per
cent. As at 31 December 2013, the Bank had AED 539.8 million of impaired loans and, as at
31 December 2013 carried an impairment provision of AED 395.6 million to cover potential loan losses.
In accordance with IFRS, the Bank is required to reflect the impairment calculated as an upfront charge
to the income statement. This will be written back to the income statement as and when interest or
principal (as appropriate) on the debt is recovered. However, the actual loan losses could be materially
different from the loan impairment provisions. The Banks management believes that the levels of
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impairment provisions for impaired loans and loans under stress as at 31 December 2013 are sufficient
to cover the Banks potential loan losses as at that date. As at 31 December 2013 and as at 31 March
2014, these provisions covered 73.3 per cent. and 79.5 per cent. of the Banks impaired assets,
respectively.
Collateral held as security against impaired loans primarily relates to residential property, auto loans,
cash and investment securities. Where the estimated fair value of collateral held exceeds the
outstanding loan, any excess is paid back to the customers and is not available for offset against other
loans.
If the Bank fails to appropriately restructure or control the levels of, and adequately provide for, its
impaired loans and loans under stress, the Bank may need to make further impairment charges and its
business, results of operations, financial condition and prospects could be materially adversely
affected.
Credit bureaus in the UAE in general are under-developed and any incomplete, unreliable or
inaccurate information about the Banks debtors and account holders financial standing, credit history
and ability to repay could impair the Banks ability to assess credit quality
Substantially all of the Banks debtors are located in the UAE. Typically, there is little public information
or financial data available regarding the debtors credit and payment histories in this region, primarily
due to borrowers limited credit histories and the fact that credit bureaus in the UAE are under-
developed. In addition, such credit bureaus typically do not provide the quality and quantity of
information sought by the Bank. Furthermore, statistical and other data on the Banks debtors may also
be less complete than those available in jurisdictions with more mature financial markets. It is
anticipated, however, that the creation of the new federal level credit bureau, Al Etihad Credit Bureau,
which is expected to be operational in the second half of 2014, will improve the flow and quality of
credit information available to UAE banks, including the Bank. In the absence of meaningful statistical
data on its existing and potential debtors, there can be no assurance as to the Banks ability to
accurately assess the credit quality of its loan portfolios.
Accordingly, the Banks inability to accurately assess the financial condition and creditworthiness of its
debtors may result in an increase in the rate of default for the Banks loan portfolio, which could have a
material adverse effect on its business, results of operations, financial condition and prospects.
Some of the Banks debtors are unable or unwilling to provide the quality and quantity of financial data
sought by the Bank
Although the Bank requires regular disclosure of its debtors financial information, some debtors,
especially high net worth individuals (HNWIs) (including the controlled/affiliated entities of these
individuals) and small to medium-sized enterprises (SMEs), do not, or are unable to, provide the
quality and quantity of information sought by the Bank. Furthermore, such financial data may not
always present a complete and comparable picture of each such debtors financial condition. For
example, the financial statements of the Banks debtors (including HNWIs) are not (unless publicly
listed) required to be presented in accordance with IFRS or audited in accordance with International
Standards on Auditing.
Unavailability of adequate quantity or quality of financial data in respect of some of its debtors may
result in the Banks failure to accurately assess the financial condition and creditworthiness of its
debtors, leading to an increase in the rate of default for the Banks loan portfolio. This could have a
material adverse effect on the Banks business, results of operations, financial condition and prospects.
Security interests or loan guarantees provided in favour of the Bank may not be sufficient to cover any
losses and may not be legally enforceable
The practice of pledging assets (such as share portfolios in margin lending and real estate assets) to
obtain a bank loan is subject to certain limitations and administrative restrictions under UAE law. In
particular, such security may not be enforced without a court order. As a result, security over certain
pledged assets may not be enforced in UAE courts. Accordingly, the Bank may have difficulty
foreclosing on collateral (including any real estate collateral) or enforcing guarantees or other third
party credit support arrangements when debtors default on their loans.
In addition, even if such security interests are enforceable in UAE courts, the time and costs
associated with enforcing security interests in the UAE may make it uneconomic for the Bank to pursue
such proceedings, adversely affecting the Banks ability to recover its loan losses. As at 31 December
3
2013, the Bank had a loan portfolio totalling AED 22.4 billion most of which was unsecured with only,
29 per cent. secured by residential property and commercial real estate, vehicles and investment
securities.
The Bank typically requires additional collateral in the form of cash, investment securities and/or other
assets in situations where the Bank may not be able to exercise rights over pledged shares or where it
enters into guarantees or other third party credit support arrangements for loans made to individuals
and corporations. Any decline in the value or liquidity of such collateral may prevent the Bank from
foreclosing on such collateral for its full value or at all in the event that a borrower becomes insolvent
and enters bankruptcy, and could thereby adversely affect the Banks ability to recover any losses.
Further, Presidential Resolution No. 3/4/7135 Concerning Cheques dated 23 October 2012 has
granted immunity to UAE nationals in respect of Article 401 of Federal Law No. 3 of 1987 (the Penal
Code). As a result, UAE nationals are not subject to criminal prosecution under the Penal Code for
issuing cheques which are not honoured. There remains a possibility that similar provisions may be
enacted in respect of non-nationals, in which case the Bank would be likely to face difficulties in
enforcing loan repayments for loans supported by way of post-dated cheques.
The occurrence of any of the foregoing could have a material adverse effect on the Banks business,
results of operations, financial condition and prospects.
Changes in interest rate levels may affect the Banks net interest margins and borrowing costs, and the
value of assets sensitive to interest rates and spread changes may be adversely affected
Although the majority of the Banks funding is obtained from its deposits, any shortage of liquidity in
markets that are sources of funding for the Bank could contribute to an increase in the Banks marginal
borrowing costs. Similarly, any increase in interbank reference rates could also affect the value of
certain assets that are subject to changes in applicable interest rates. The Banks interest rate
sensitivity position as at 31 December 2013 was based on maturity dates and contractual re-pricing
arrangements. If interbank reference rates rise, the interest payable on the Banks floating rate
borrowings increases. The Banks marginal cost of funding may increase as a result of a variety of
factors, including further deterioration of conditions in the financial markets or further loss of confidence
by and between financial institutions. If the Bank fails to pass on such increase in funding cost to its
customers in a timely manner or at all due to market, competitive or other conditions, (which may be
the case in respect of modest rises in such funding costs) it could have a material adverse effect on its
business, results of operations, financial condition and prospects.
The increasingly competitive environment in the UAE banking industry may adversely affect the Banks
business and results of operations
The Bank faces high levels of competition for all products and services, including products and
services offered to SMEs. The Bank competes primarily with a large number of other domestic banks
in the UAE, some of which are also owned, directly or indirectly, by the governments of the relevant
Emirates, government-related entities or members of the ruling families of the relevant Emirates. As at
31 December 2013, there were a total of 51 banks registered in the UAE. The Banks main domestic
competitors in terms of size of banking franchise and product and customer segments are Abu Dhabi
Islamic Bank, Commercial Bank of Dubai, Emirates NBD, First Gulf Bank, Dubai Islamic Bank and
Mashreqbank. There can be no assurance that the Bank will be able to maintain its current market
share in the future.
Further, although the UAE could be viewed as an over-banked market, even by regional standards,
there has traditionally been little impetus for consolidation (see The United Arab Emirates Banking
Sector and RegulationsCharacteristics of the UAE Banking SystemLack of Consolidation).
In addition, the UAEs membership of the World Trade Organization (WTO) will require greater
economic liberalisation, which may lead to increased competition for the Bank in the future (see The
United Arab Emirates Banking Sector and RegulationsSummary).
If the Bank is unable to compete successfully, it could adversely impact the Banks business, results of
operations, financial condition and prospects.
If the Bank is unable to retain key members of its senior management and/or hire new qualified
personnel in a timely manner, this could have an adverse effect on the business of the Bank
The Banks ability to maintain and grow its business will depend, in part, on its ability to continue to
recruit and retain qualified and experienced banking and management personnel. The Bank is likely to
4
face challenges in recruiting qualified personnel to manage its business. In common with other banks
in the UAE, the Bank experiences a shortage of qualified employees residing in the UAE, which
requires it to recruit from outside the UAE. In addition, even after hiring its employees, the Bank has
faced challenges in retaining such employees due to the continued recruitment efforts of its
competitors. Due to the Banks strong brand image, the Banks competitors have been aggressively
targeting the Banks employees in recent years by offering more attractive compensation packages.
For the years ended 31 December 2013, 2012, and 2011, the Bank experienced employee attrition
rates of approximately 26 per cent., 23.5 per cent. and 16.5 per cent., respectively. Additionally, if the
Bank continues to grow, it will be required to continue to increase the number of its employees. The
Bank is guided in its human resources decisions by the Federal Governments recommended policy
that companies operating in the UAE recruit UAE nationals to increase at least 4 per cent. of their total
percentage of national employees each year. The Federal Governments policy supporting the
recruitment of UAE nationals does not set any upper limit at which the policy would no longer be
applicable. As at 31 December 2013, UAE nationals represented 41.6 per cent. of the Banks total
workforce. If the Bank is not able to meet or exceed the Federal Governments recommended policy for
recruiting UAE nationals, it may be subject to legal penalties, including with respect to its current
licenses, and it may be prevented from obtaining additional licenses necessary in order to allow it to
expand its business. Due to UAE federal labour laws, the Bank may face difficulties that could delay or
prevent dismissal of a UAE national employee if it finds such an employees performance to be
unsatisfactory.
While the Bank believes that it has effective staff recruitment, training and incentive programmes in
place, its failure to recruit, train and/or retain necessary personnel, its inability to dismiss certain
employees or the shortage of qualified UAE nationals or other nationals prepared to relocate to the
UAE, could have a material adverse effect on its business, results of operations, financial condition and
prospects.
The Bank is exposed to risk of loss as a result of employee misrepresentation, misconduct and
improper practice
The Banks employees could engage in misrepresentation, misconduct or improper practice that could
expose the Bank to direct and indirect financial loss and damage to its reputation. Such practices may
include embezzling clients funds, engaging in corrupt or illegal practices to originate further business,
intentionally or inadvertently releasing confidential information about clients or failing to follow internal
procedures. It is not always possible to detect or deter employee misconduct, and the precautions the
Bank takes to detect and prevent misconduct may not be effective in all cases. There can be no
assurance that measures undertaken to combat employee misconduct will be successful. Such actions
by employees could expose the Bank to financial losses resulting from the need to reimburse clients,
co-investors or other business partners who suffered loss or as a result of fines or other regulatory
sanctions, and could damage the Banks reputation, which would in turn materially adversely affect the
Banks business, results of operations, financial condition and prospects.
The Banks risk management and internal controls may leave it exposed to unidentified or
unanticipated risks, which could result in material losses
In the course of its business activities, the Bank is exposed to a variety of risks, the most significant of
which are credit risk, market risk, liquidity risk and operational risk (see Description of the BankRisk
Management). Investors should note that any failure to adequately control these risks could result in
material adverse effects on the Banks business, results of operations, financial condition and
prospects, as well as its general reputation in the market.
The Banks risk management techniques may not be fully effective or consistently implemented in
mitigating its exposure in all market environments or against all types of risk, including risks that are
unidentified or unanticipated. Some of the Banks methods of managing risk are based upon its use of
historical market behaviour. These methods may not always predict future risk exposures, which could
be significantly greater than such historical measures indicate. Other risk management practices,
including know your customer (KYC) practices, depend upon evaluation of information regarding
the markets in which the Bank operates, its clients or other matters that are publicly available or
information otherwise accessible to the Bank. As such practices are less developed in the countries of
the Gulf Cooperation Council (GCC) than they are in other markets and may not have been
consistently and thoroughly implemented in the past, this information may not be accurate, complete,
up-to-date or properly evaluated in all cases.
5
There can be no assurance that the Banks risk management and internal control policies and
procedures will adequately control, or protect the Bank against, all credit, liquidity, market and other
risks. In addition, certain risks could be greater than the Banks empirical data would otherwise
indicate. The Bank also cannot give assurance that all of its staff have adhered or will adhere to its risk
policies and procedures.
The Bank is susceptible to, amongst other things, failure of internal processes or systems,
unauthorised transactions by employees and operational errors, including clerical or record keeping
errors or errors resulting from faulty computer or telecommunications systems, and fraud by employees
or outsiders. See The Banks business may be adversely affected if there is any disturbance to its
operational systems or a loss of business continuity. The Banks risk management and internal control
capabilities are also limited by the information tools and technologies available to it. Any material
deficiency in the Banks risk management or other internal control policies or procedures may expose it
to significant credit, liquidity, market or operational risk, which may in turn have a material adverse
effect on the Banks business, results of operations, financial condition and prospects.
Notwithstanding the above, the Bank believes that its financial systems are sufficient to ensure
compliance with the requirements of the Central Bank as a company with securities listed on the Main
Securities Market.
The Banks business may be adversely affected if there is any disturbance to its operational systems or
a loss of business continuity
The Bank operates in businesses that are highly dependent on information systems and technologies
and relies heavily on its financial, accounting and other data processing systems. In addition, the Bank
is increasingly offering its products and services to customers through remote access banking,
including online banking and ATMs. If any of these systems do not operate properly or are disabled, or
become the target of fraudulent activity, the Bank could suffer financial loss, a disruption of its
business, liability to clients, regulatory intervention and reputational damage. By way of example, in
December 2012, the Bank fell victim to a sophisticated crime ring which targeted a third party payment
processor who provided processing systems for one of the Banks debit cards. This resulted in a loss
of U.S.$4.7 million for the Bank, which has, however, been subsequently recovered.
In addition, the Banks current information systems and technologies may not continue to be able to
accommodate the Banks growth unless the Bank continues to invest in upgrading its operational
systems. Such a failure to accommodate growth, or an increase in costs related to such information
systems, would have a material adverse effect on the Banks business. The cost of improving or
upgrading such systems and technologies may be substantial and the cost of maintaining such
systems is likely to increase from its current level. The Banks business operations and business
processes are vulnerable to damage or interruption from fires, floods, extreme weather, power loss,
bomb threats, explosions or other forms of terrorist activity and other natural and man-made disasters
or other extreme events. These systems may also be subject to criminal damage, vandalism, theft and
similar wrongdoing. If there is a disaster or other disruption and the Banks disaster recovery plans are
found to be inadequate for any reason (including, for instance, due to the Banks mainly single country
operation), there could be an adverse impact on the Banks business, results of operations, financial
condition and prospects.
Further, the Bank relies on third-party service providers for certain aspects of its business including but
not limited to Infosys, Oracle, Reuters, Bloomberg, SWIFT and Microsoft. Any interruption or
deterioration in the performance of these third parties or failures of their information systems and
technology could impair the quality of the Banks operations and could impact its reputation. If any of
the foregoing were to occur, it could materially adversely affect the Banks businesses, results of
operations, financial condition and prospects.
Notwithstanding anything in this risk factor, this risk factor should not be taken as implying that either
the Issuer or the Bank will be unable to comply with its obligations as a company with securities
admitted to the Official List.
The Issuer has a limited operating history and no material assets
At the date of this Base Prospectus, the Issuer is an exempted company with limited liability,
incorporated under the laws of the Cayman Islands on 20 May 2014 and has no operating history. The
Issuer will not engage in any business activity other than the issuance of Notes under this Programme
and other borrowing programmes established from time to time by the Bank, the issuance of shares in
6
its capital and other activities incidental or related to the foregoing. The Issuer is not expected to have
any income except payments received from the Bank, which will be the only material sources of funds
available to meet the claims of the Noteholders. As a result, the Issuer is subject to all of the risks to
which the Bank is subject, to the extent that such risk could limit the Banks ability to satisfy in full and
on a timely basis its obligations to the Issuer under the Programme.
As the Issuer is a Cayman Islands company, it may not be possible for Noteholders to effect service of
process outside of the Cayman Islands.
Regulatory Risks
The Bank is a highly regulated entity and changes to applicable laws or regulations, the interpretation
or enforcement of such laws or regulations or the failure to comply with such laws or regulations could
have an adverse impact on the Banks business
The Bank is subject to a number of prudential and regulatory controls designed to maintain the safety and
soundness of banks, ensure their compliance with economic, social and other objectives and limit their
exposure to risk. See The United Arab Emirates Banking Sector and Regulation. These regulations
include UAE federal laws and regulations (particularly those of the Federal Government and the UAE
Central Bank). In particular (but without limitation), the Bank is subject to the following restrictions:
certain credit limits in respect of real estate and construction financing, major shareholders or to a
single customer (based on the Banks customer deposits and/or capital and reserves as
prescribed by the UAE Central Bank);
concentration limits on total credit and other risk exposures to retail customers, banks,
investments and country exposure;
investment limit in respect of shares or bonds issued by commercial companies of 25 per cent. of
total equity;
minimum capital adequacy ratio of 12 per cent.;
minimum Tier I ratio of 8 per cent.;
the Advances to Stable Resources ratio (ASRR) as defined by the UAE Central Bank cannot
exceed 100 per cent.;
increase employment by at least 4 per cent. of UAE nationals each year within the Bank, in
accordance with Ministerial Decree No. 10 of 1998 on Increasing National Employment in the
Banking Sector in the UAE (see Description of the BankStrategy); and
mandatory cash reserve of 14 per cent. of all current, call and savings deposits and 1 per cent. of
all time deposits, respectively, based on balances calculated on the 15th of each month and
notified in the second month following circulation pursuant to the UAE Central Bank Circular of
December 2000.
Such regulations may limit the Banks ability to increase its loan portfolio or raise capital or may
increase the Banks cost of doing business. Any changes in laws and regulations and/or the manner in
which they are interpreted or enforced may have a material adverse effect on the Banks business,
results of operations, financial condition and prospects.
In particular, by a circular dated 23 February 2011 the (Retail Circular) on retail banking and notice
no. 31/2013 dated 28 October 2013 (which was published in the UAE official gazette (the Official
Gazette) on 28 November 2013 and entered into force on 28 December 2013) (the Mortgage
Regulations), the UAE Central Bank introduced regulations regarding bank loans and other services
offered to individual customers. These regulations, among other things, limit the fees which banks in
the UAE can charge to retail customers and impose maximum loan/income and loan to value ratios for
retail products such as residential mortgage loans.
Furthermore, non-compliance with regulatory guidelines could exposure the Bank to potential liabilities
and fines. As at the date of this Base Prospectus, the Liquidity Notice has not been implemented by
the UAE Central Bank, but might be introduced with or without changes. See The
United Arab Emirates Banking Sector and RegulationsRecent Trends in BankingLarge
exposures.
If the Bank fails to comply with applicable anti-money laundering, anti-terrorism financing, Office of
Foreign Assets Control (OFAC) sanctions and other related regulations, it could face fines and
damage to its reputation
7
The Bank is required to comply with applicable anti-money laundering (AML), anti-terrorism
financing laws, OFAC sanctions and other regulations. These laws and regulations require the Bank,
among other things, to adopt and enforce KYC policies and procedures and to report suspicious and
large transactions to the applicable regulatory authorities. The Bank has adopted KYC/AML policies
and procedures and reviews them regularly in light of any relevant regulatory and market
developments. To the extent the Bank may fail to fully comply with applicable laws and regulations, the
relevant government agencies to which it reports have the power and authority to impose fines and
other penalties on the Bank. In addition, the Banks business and reputation could suffer if customers
use the Bank for money laundering or illegal purposes.
Risks relating to the UAE and the Middle East
Risks relating to the Emirate of Ras Al-Khaimah and the United Arab Emirates
Although the Emirate of Ras Al-Khaimah (Ras Al-Khaimah or the Emirate) (and the UAE) enjoys
domestic political stability and generally healthy international relations, there is a risk that regional
geopolitical instability and/or the adverse financial and economic conditions could impact the country.
Since 2011 there has been significant political and social unrest in a number of countries in the Middle
East and North Africa (MENA) region, ranging from public demonstrations, sometimes violent, in
countries such as Algeria, Bahrain, Egypt, Tunisia and Turkey, to armed conflict and even civil war, in
countries such as Libya and Syria. The situation has caused significant disruption to the economies of
affected countries and has had a destabilising effect on oil and gas prices. Continued instability
affecting the countries in the MENA region could adversely impact the UAE, although to date there has
been no impact on the UAE or Ras Al-Khaimah.
Other potential sources of instability in the region include a worsening of the situation in Iraq, a further
impairment in the current poor relations between the United States of America and either or both of
Syria and the Islamic Republic of Iran or an escalation in the Israeli-Palestinian conflict. Such a
deterioration in relations, and possible conflict between the United States of America, certain other
governments and the Islamic Republic of Iran and/or Syria, in particular, should it materialise, could
adversely impact Ras Al-Khaimah, the UAE and broader regional security, potentially including the
outbreak of a regional conflict. Further, there is a risk that regional militant groups could begin to target
foreign nationals or businesses, or government ministers, in Ras Al-Khaimah and the UAE in particular.
In addition, the credit crisis that occurred in the global financial markets, which was particularly acute in
2008 and 2009, and the resultant deterioration in the global economic outlook led to a general
reduction in liquidity and available financing and generally increased financing costs during that period,
although the UAEs economy has begun to improve in recent years. According to data published by the
Economic Intelligence United Limited Country Report 2013, the UAEs economic recovery continued in
2012 and its external economic position strengthened, with real GDP growth at 4.4 per cent.
While macroeconomic indicators have since significantly improved, there can be no assurance that the
economic performance of Ras Al-Khaimah or the UAE can or will be sustained in the future. To the
extent that economic growth or performance in the UAE slows or begins to decline, this could have an
adverse effect on Ras Al-Khaimah.
Investors may experience difficulties in enforcing arbitration awards and foreign judgments in the UAE
The payments under the Notes are dependent upon the Issuer or the Guarantor making payments to
investors in the manner contemplated under the Notes. If the Issuer or the Guarantor (if applicable)
fails to do so, it may be necessary for an investor to bring an action against the Issuer or the Guarantor
(if applicable) to enforce its obligations and/or to claim damages, as appropriate, which may be costly
and time consuming.
Under current UAE law, the UAE courts are unlikely to enforce an English court judgment without re-
examining the merits of the claim and may not observe the choice by the parties of English law as the
governing law of the transaction. In the UAE, foreign law is required to be established as a question of
fact and the interpretation of English law, by a court in the UAE, may not accord with the perception of
an English court.
In principle, courts in the UAE recognise the choice of foreign law if they are satisfied that an
appropriate connection exists between the relevant transaction agreement and the foreign law which
has been chosen. They will not, however, honour any provision of foreign law which is contrary to
public policy, order or morals in the UAE, or to any mandatory law of, or applicable in, the UAE.
8
The UAE is a civil law jurisdiction and judicial precedents in the UAE have no binding effect on
subsequent decisions. In addition, court decisions in the UAE are generally not recorded. These
factors create greater judicial uncertainty.
The Notes, the Guarantee, the Agency Agreement and the Deed of Covenant are governed by English
law and the parties to such documents have agreed to refer any dispute in relation to such documents
to arbitration under the LCIA Arbitration Rules (as defined below), with an arbitral tribunal with its seat
in London (or, subject to the exercise of an option to litigate given to certain parties (other than the
Issuer and the Guarantor) the courts of England are stated to have jurisdiction to settle any disputes).
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the
New York Convention) entered into force in the UAE on 19 November 2006. In the absence of any
other multilateral or bilateral enforcement convention, an arbitration award rendered in London should
be enforceable in the UAE in accordance with the terms of the New York Convention. Under the New
York Convention, the UAE has an obligation to recognise and enforce foreign arbitration awards,
unless the party opposing enforcement can prove one of the grounds under Article V of the New York
Convention to refuse enforcement, or the UAE courts find that the subject matter of the dispute is not
capable of settlement by arbitration or enforcement would be contrary to the public policy of the UAE.
There have been limited instances where the UAE courts, most notably the Fujairah Court of First
Instance and the Dubai Court of Cassation, have ratified or ordered the recognition and enforcement of
foreign arbitration awards under the New York Convention.
How the New York Convention provisions would be interpreted and applied by the UAE courts in
practice and whether the UAE courts will enforce a foreign arbitration award in accordance with the
New York Convention (or any other multilateral or bilateral enforcement convention), remains largely
untested. The uncertainty regarding the interpretation and application of the New York Convention
provisions by the courts is further reinforced by the lack of a system of binding judicial precedent in the
UAE. In particular, there remains a risk that notwithstanding Article 238 of Federal Law No. 11 of 1992
(as amended by Federal Law No. 30 of 2005) (the Law of Civil Procedure) or the terms of an
applicable multilateral or bilateral enforcement convention, the UAE courts may in practice still consider
and apply the grounds set out in the Law of Civil Procedure related to the enforcement of domestic
arbitral awards or foreign arbitral awards to the enforcement of a foreign arbitral award in any event. If
this is the case, it is likely that a foreign arbitral award will be set aside by the UAE courts.
Any alteration to, or abolition of, the foreign exchange peg of the UAE Dirham at a fixed exchange
rate to the U.S. dollar will expose the Bank to U.S. dollar foreign exchange movements against the
UAE Dirham
The Bank maintains its accounts, and reports its results, in UAE Dirham. As at the date of this Base
Prospectus, the UAE Dirham remains pegged to the U.S. dollar. However, there can be no assurance
that the UAE Dirham will not be de-pegged in the future or that the existing peg will not be adjusted in a
manner that adversely affects the Banks result of operations and financial condition. Any such de-
pegging, particularly if the UAE Dirham weakens against the U.S. dollar, could have an adverse effect
on the Banks business, results of operations, financial condition and prospects, and thereby affect the
Issuers or the Guarantors ability to perform its obligations in respect of any Notes.
The UAE may introduce corporation tax
The Bank is not currently subject to corporation tax on its earnings within the UAE, although there is no
guarantee that this will continue to be the case. Investors should be aware that if the Bank becomes
subject to corporation tax, it may have a material adverse effect on the Banks business, results of
operations and financial condition, which in turn could affect the Banks ability to perform its obligations
under the Guarantee.
A change of law may adversely affect the Notes
The Conditions of the Notes are based on English law in effect as at the date of this Base Prospectus.
No assurance can be given as to the impact of any possible judicial decision or change to English law
or administrative practice after the date of this Base Prospectus.
9
Risks relating to the Structure of a Particular Issue of Notes
A wide range of Notes may be issued under the Programme. A number of these Notes may have
features that contain particular risks for potential investors. Set out below is a description of some of
such features:
If the Issuer has the right to redeem a Series of Notes at its option, then this may limit the market value
of such Notes and an investor might not be able to reinvest the redemption proceeds in a manner that
achieves a similar effective return
An optional redemption feature of Notes is likely to limit their market value. During any period when the
Issuer may elect to redeem a Series of Notes, the market value of those Notes generally will not rise
substantially above the price at which they can be redeemed. This may similarly be true prior to any
redemption period.
The Issuer may be expected to redeem a Series of Notes when its cost of borrowing is lower than the
interest rate on such Notes. At those times, an investor might not be able to reinvest the redemption
proceeds at an effective interest rate equivalent to the interest rate on the Notes being redeemed and
might only be able to do so at a significantly lower rate (or through taking on a greater credit risk).
Reinvestment risk should be an important element of an investors consideration in investing in Notes
with a redemption feature.
If the Issuer has the right to convert the interest rate on a Series of Notes from a fixed rate to a floating
rate, or vice versa, then this may affect the secondary market and the market value of such Notes
Fixed/Floating Rate Notes are Notes that may bear interest at a rate that converts from a fixed rate to a
floating rate or from a floating rate to a fixed rate. Where the Issuer has the right to effect such a
conversion with respect to a Series of Notes, this may affect the secondary market and the market
value of such Notes since the Issuer would be expected to convert the rate when it is likely to produce
a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate in such
circumstances, then the spread on the Fixed/Floating Rate Notes might be less favourable than then
prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the
new floating rate at any time might be lower than the rates on other Notes. If the Issuer converts from a
floating rate to a fixed rate in such circumstances, then the fixed rate might be lower than then
prevailing market rates.
Notes that are issued at a substantial discount or premium may experience price volatility in response
to changes in market interest rates
The market values of securities issued at a substantial discount (such as Zero Coupon Notes) or
premium to their principal amount tend to fluctuate more in relation to general changes in interest rates
than do prices for more conventional interest-bearing securities. Generally, the longer the remaining
term of such securities, the greater the price volatility as compared to more conventional interest-
bearing securities with comparable maturities.
Risks relating to the Notes Generally
The Notes may be subject to early redemption for tax reasons
If the Issuer becomes obliged to pay any additional amounts in respect of the Notes or the Guarantor is
unable for reasons outside its control to procure payment by the Issuer and in making payment itself
would be required to pay such additional amounts, in each case as a result of any change in, or
amendment to, the laws or regulations of the Cayman Islands (in the case of the Issuer) or the United
Arab Emirates (in the case of the Guarantor) or any change in the application or official interpretation of
such laws or regulations, which change or amendment becomes effective on or after the date on which
agreement is reached to issue the first Tranche of the Notes, the Issuer may redeem all but not some
only of the outstanding Notes of such Tranche in accordance with Condition 8 (Taxation).
In such circumstances, an investor may not be able to reinvest the redemption proceeds in a
comparable security with a similar rate of return, which may have an adverse effect on the position of
such investor. During any period when the Issuer may elect to redeem the Notes, the market value of
the Notes generally will not rise substantially above the Early Redemption Amount. Potential investors
should consider re-investment risk in light of other investments available at that time.
Because the Global Notes and Global Certificates are held by or on behalf of Euroclear and/or
Clearstream, Luxembourg and/or any other recognised clearing system, investors will have to rely on
their procedures for transfer, payment and communication with the Issuer
10
Notes issued under the Programme may be represented by one or more Global Notes or Global
Certificates. Such Global Notes and Global Certificates will be deposited with a common depositary (a
Common Depositary) for Euroclear Bank S.A./N.V. (Euroclear) and Clearstream Banking,
socit anonyme (Clearstream, Luxembourg) and/or any other recognised clearing system. Except
in the circumstances described in the relevant Global Note, Global Certificate and/or any other
recognised clearing system, investors will not be entitled to receive Definitive Notes (as defined below).
Euroclear and/or Clearstream, Luxembourg and/or any other recognised clearing system will maintain
records of the beneficial interests in the Global Notes and Global Certificates. While the Notes are
represented by one or more Global Notes or Global Certificates, investors will be able to trade their
beneficial interests only through Euroclear and/or Clearstream, Luxembourg and/or any other
recognised clearing system.
The Issuer will discharge its payment obligations under the Notes by making payments to the Common
Depositary for Euroclear and/or Clearstream, Luxembourg and/or any other recognised clearing
system for distribution to their account holders. A holder of a beneficial interest in a Global Note or
Global Certificate must rely on the procedures of Euroclear and/or Clearstream, Luxembourg and/or
any other recognised clearing system to receive payments under the relevant Notes. The Issuer has no
responsibility or liability for the records relating to, or payments made in respect of, beneficial interests
in the Global Notes or Global Certificates.
Holders of beneficial interests in the Global Notes and Global Certificates will not have a direct right to
vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extent
that they are enabled by Euroclear and/or Clearstream, Luxembourg and/or any other recognised
clearing system to appoint appropriate proxies. Similarly, holders of beneficial interests in the Global
Notes and Global Certificates will not have a direct right under the Global Notes and Global Certificates
to take enforcement action against the Issuer in the event of a default under the relevant Notes but will
have to rely upon their rights under the Deed of Covenant.
The Conditions contain provisions that may permit their modification without the consent of all
Noteholders in the applicable series
The Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters
affecting their interests generally. These provisions permit defined majorities to bind all Noteholders
including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted
in a manner contrary to the majority.
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income (the Directive), each
Member State is required to provide to the tax authorities of another Member State details of payments
of interest or other similar income paid or secured by a person established in a Member State to or for
the benefit of an individual resident or certain limited types of entity established in another Member
State; however, for a transitional period, Austria and Luxembourg may instead apply a withholding
system in relation to such payments, deducting tax at a rate of 35 per cent. The transitional period is to
terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the
exchange of information relating to such payments. Luxembourg has announced that it will no longer
apply the withholding tax system as from 1 January 2015 and will provide details of payments of
interest (or similar income) as from this date.
A number of non-EU countries and certain dependent or associated territories of certain Member
States including Switzerland, have adopted similar measures (either provision of information or
transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected
by such a person for, an individual resident or certain limited types of entity established in a Member
State. In addition, the Member States have entered into provision of information or transitional
withholding arrangements with certain of those dependent or associated territories in relation to
payments made by a person in a Member State to, or collected by such a person for, an individual
resident or certain limited types of entity established in one of those territories. The European Council
formally adopted a Council Directive amending the Directive on 24 March 2014 (the Amending
Directive). The Amending Directive broadens the scope of the requirements described above.
Member States have until 1 January 2016 to adopt the national legislation (which national legislation
must apply from 1 January 2017) necessary to comply with the Amending Directive. The changes
made under the Amending Directive include extending the scope of the Directive to payments made to,
or collected for, certain other entities and legal arrangements. They also broaden the definition of
interest payment to cover income that is equivalent to interest.
11
If a payment were to be made or collected through a Member State (or, in certain cases, through a
relevant non-EU country or territory) which has opted for a withholding system and an amount of, or an
amount in respect of, tax were to be withheld from that payment, none of the Issuer, the Guarantor nor
any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any
Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment
made by a Paying Agent, the Issuer will be required to maintain a Paying Agent in a Member State that
will not be obliged to withhold or deduct tax pursuant to the Directive.
U.S. Foreign Account Tax Compliance Withholding
In certain circumstances payments made on or with respect to the Notes after 31 December 2016 may
be subject to U.S. withholding tax under Sections 1471 through 1474 of the U.S. Internal Revenue
Code (commonly referred to as FATCA). As a general matter, the FATCA rules are designed to
require U.S. persons direct and indirect ownership of non-U.S. accounts and non- U.S. entities to be
reported to the U.S. Internal Revenue Service (the IRS). The 30 per cent. withholding tax regime
applies if there is a failure to provide required information regarding U.S. ownership or otherwise
establish an exemption from the withholding. This withholding does not apply to payments on Notes
that are issued prior to 1 July 2014 (or, if later, the date that is six months after the date on which the
final regulations that define foreign passthru payments are published) unless the Notes are
materially modified after that date or are characterised as equity for U.S. federal income tax
purposes.
Whilst the Notes are in global form and held within Euroclear and Clearstream, Luxembourg (together,
the ICSDs), in all but the most remote circumstances, it is not expected that FATCA will affect the
amount of any payment received by the ICSDs (see TaxationU.S. Foreign Account Tax Compliance
Withholding). However, FATCA may affect payments made to custodians or intermediaries in the
subsequent payment chain leading to the ultimate investor if any such custodian or intermediary
generally is unable to receive payments free of FATCA withholding. It also may affect payment to any
ultimate investor that is a financial institution that is not entitled to receive payments free of withholding
under FATCA, or an ultimate investor that fails to provide its broker (or other custodian or intermediary
from which it receives payment) with any information, forms, other documentation or consents that may
be necessary for the payments to be made free of FATCA withholding. Investors should choose the
custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or
agreements related to FATCA), and provide each custodian or intermediary with any information,
forms, other documentation or consents that may be necessary for such custodian or intermediary to
make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a
more detailed explanation of FATCA and how FATCA may affect them. The Issuers obligations under
the Notes (and the Guarantors obligations under the Guarantee) are discharged once it has paid the
Common Depositary for the ICSDs (as holder of the Notes) and therefore, neither the Issuer nor the
Guarantor have any responsibility for any amount thereafter transmitted through the hands of the
ICSDs and custodians or intermediaries.
The Cayman Islands entered into a Model 1 intergovernmental agreement (the IGA) with the United
States on 29 November 2013 (which came into force on 14 April 2014). The terms of the IGA are
broadly similar to those agreed with the United Kingdom and the Republic of Ireland. Under the terms
of the IGA the Issuer will not be required to enter an agreement with the IRS, but may instead be
required to register with the IRS to obtain a Global Intermediary Identification Number (GIIN) and
then comply with Cayman Islands legislation (although the IGA has come into force, local legislation
and regulations will be introduced to provide guidance and detail on the application of the IGA). The
terms of such legislation and regulations are at this stage still uncertain and it is not yet clear whether
the Issuer will be a certified deemed compliant entity with no reporting required or a registered deemed
compliant entity which would require the Issuer to report to the Cayman Islands Tax Information
Authority, which will exchange such information with the IRS under the terms of the IGA. To the extent
the Issuer cannot be treated as a certified deemed compliant entity, the Issuer would be a Reporting
Cayman Islands Financial Institution (as defined in the IGA). Under the terms of the IGA, withholding
will not be imposed on payments made to the Issuer, or on payments made by the Issuer to the
Noteholders (other than perhaps certain passthru withholding), unless the IRS has specifically listed
the Issuer as a non-participating financial institution, or the Issuer has otherwise assumed
responsibility for withholding under United States tax law.
The value of the Notes could be adversely affected by a change in English law or administrative
practice
12
The Conditions of the Notes are based on English law in effect as at the date of this Base Prospectus.
No assurance can be given as to the impact of any possible judicial decision or change to English law
or administrative practice after the date of this Base Prospectus.
The Guarantors waiver of immunity may not be effective under UAE law
The Guarantor has waived its rights in relation to sovereign immunity; however, there can be no
assurance as to whether such waivers of immunity from execution or attachment or other legal process
by it under the Guarantee, the Agency Agreement, the Dealer Agreement and the Deed of Covenant
are valid and binding under the laws of the UAE and applicable in Abu Dhabi.
Bearer Notes where denominations involve integral multiples: Definitive Notes
In relation to any issue of Bearer Notes which have denominations consisting of a minimum Specified
Denomination plus one or more integral multiples of a smaller amount there above, it is possible that
such Notes may be traded in amounts that are not integral multiples of such minimum Specified
Denomination. In such a case a holder who, as a result of trading such amounts, holds an amount
which is less than the minimum Specified Denomination in his account with the relevant clearing
system at the relevant time may not receive a Definitive Note in respect of such holding (should
Definitive Notes be printed) and would need to purchase a principal amount of Notes such that its
holding amounts to a Specified Denomination.
If Definitive Notes are issued, holders should be aware that Definitive Notes which have a
denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid
and difficult to trade.
Risks relating to the Market Generally
An active secondary market in respect of the Notes may never be established or may be illiquid, which
would adversely affect the value at which an investor could sell Notes
Notes may have no established trading market when issued and one may never develop. If a market
does develop, it may not be very liquid. Therefore, investors might not be able to sell investments in the
Notes easily or at prices that will provide them with a yield comparable to similar investments that have
a developed secondary market. This is particularly the case for Notes that are especially sensitive to
interest rate, currency or market risks, are designed for specific investment objectives or strategies or
have been structured to meet the investment requirements of limited categories of investors. These
types of Notes generally would have a more limited secondary market and more price volatility than
conventional debt securities. Illiquidity may have a severely adverse effect on the market value of Notes.
If an investor holds Notes that are not denominated in the investors home currency, he will be exposed
to movements in exchange rates adversely affecting the value of his holding; in addition, the imposition
of exchange controls in relation to the Specified Currency of any Notes could result in an investor not
receiving payments on those Notes
The Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain
risks relating to currency conversions if an investors financial activities are denominated principally in a
currency or currency unit (the Investors Currency) other than the Specified Currency. These
include the risk that exchange rates may significantly change (including changes due to devaluation of
the Specified Currency or revaluation of the Investors Currency) and the risk that authorities with
jurisdiction over the Investors Currency may impose or modify exchange controls. An appreciation in
the value of the Investors Currency relative to the Specified Currency would decrease (1) the
Investors Currency-equivalent yield on the Notes, (2) the Investors Currency-equivalent value of the
principal payable on the Notes and (3) the Investors Currency-equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls
that could adversely affect an applicable exchange rate. As a result, investors may receive less interest
or principal than expected, or no interest or principal.
The value of Fixed Rate Notes may be adversely affected by movements in market interest rates
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates may
adversely affect the value of the Fixed Rate Notes.
Credit ratings assigned to the Issuer or any Notes may not reflect all risks associated with an
investment in those Notes
13
The Programme has been assigned a long term rating of BBB+ by Fitch and a long term rating of Baa1
by Moodys. Each of Fitch and Moodys is established in the European Union and is registered under
the CRA Regulation.
One or more independent credit rating agencies may also assign credit ratings to the Notes. The
ratings may not reflect the potential impact of all risks related to structure, market, additional factors
discussed above, and other factors that may affect the value of the Notes. A credit rating is not a
recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency
at any time.
In general, European regulated investors are restricted under the CRA Regulation from using credit
ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in
the EU and registered under the CRA Regulation (and such registration has not been withdrawn or
suspended). Such general restriction will also apply in the case of credit ratings issued by non-EU
credit rating agencies, unless the relevant credit ratings are endorsed by an EU registered credit rating
agency or the relevant non-EU rating agency is certified in accordance with the CRA Regulation (and
such endorsement action or certification, as the case may be, has not been withdrawn or suspended).
The list of registered and certified rating agencies published by ESMA on its website in accordance
with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included
in such list, as there may be delays between certain supervisory measures being taken against a
relevant rating agency and the publication of the updated ESMA list. Certain information with respect to
the credit rating agencies and ratings is set out on the cover of this Base Prospectus.
14
OVERVIEW OF THE PROGRAMME
The following Overview of the Programme does not purport to be complete and is qualified in its
entirety by the remainder of this Base Prospectus. The Overview of the Programme only relates to the
types of Notes that are currently described in full in this Base Prospectus in accordance with
Commission Regulation 809/2004. Other types of Notes can be issued by the Issuer under the
Programme, and where any such Notes are: (a) admitted to trading on the Main Securities Market or
another regulated market for the purposes of Directive 2004/39/EC, or (b) otherwise offered to the
public in the European Economic Area in circumstances that require the publication of a prospectus
under the Prospectus Directive, a supplement to this Base Prospectus or a drawdown prospectus will
be prepared and published by the Issuer. Words and expressions defined in the Conditions shall have
the same meanings in this Overview of the Programme.
Issuer: RAKFUNDING CAYMAN LTD
Guarantor: The National Bank of Ras Al-Khaimah (P.S.C.)
Description: Guaranteed Euro Medium Term Note Programme
Size: Up to U.S.$1,000,000,000 (or the equivalent in other currencies at
the date of issue) aggregate nominal amount of Notes outstanding
at any one time. The Issuer and the Guarantor may increase the
amount of the Programme in accordance with the terms of the
Dealer Agreement.
Arrangers: National Bank of Abu Dhabi PJSC
Standard Chartered Bank
Dealers: National Bank of Abu Dhabi PJSC
Standard Chartered Bank
The Issuer may from time to time terminate the appointment of any
dealer under the Programme or appoint additional dealers either in
respect of one or more Tranches or in respect of the whole
Programme. References in this Base Prospectus to Dealers are
to the persons listed above as Dealers, to such additional persons
that are appointed as dealers in respect of the whole Programme
(and whose appointment has not been terminated) and all persons
appointed as a dealer in respect of one or more Tranches.
Fiscal Agent, Paying Agent,
Transfer Agent and Calculation
Agent:
The Bank of New York Mellon, London Branch
Registrar, Transfer Agent and
Paying Agent:
The Bank of New York Mellon (Luxembourg) S.A.
Method of Issue: The Notes will be issued on a syndicated or non-syndicated basis.
The Notes will be issued in Series having one or more issue dates
and on terms otherwise identical (or identical other than in respect
of the first payment of interest), the Notes of each Series being
intended to be interchangeable with all other Notes of that Series.
Each Series may be issued in Tranches on the same or different
issue dates. The specific terms of each Tranche (which will be
completed, where necessary, with the relevant terms and
conditions and, save in respect of the issue date, issue price, first
payment of interest and nominal amount of the Tranche, will be
identical to the terms of other Tranches of the same Series) will be
completed in the Final Terms.
Issue Price: Notes may be issued at their nominal amount or at a discount or
premium to their nominal amount.
15
Form of Notes: Each Series of Notes will be issued in bearer form or registered
form. Bearer Notes will be represented on issue by a Temporary
Global Note if (i) Definitive Notes are to be made available to
Noteholders following the expiry of 40 days after their issue date or
(ii) such Notes have an initial maturity of more than one year and
are being issued in compliance with the D Rules (as defined
below), otherwise such Tranche will be represented by a
Permanent Global Note. Registered Notes will be represented by
Certificates, one Certificate being issued in respect of each
Noteholders entire holding of Registered Notes of one Series.
Certificates representing Registered Notes that are registered in
the name of a nominee for one or more clearing systems are
referred to as Global Certificates.
Clearing Systems: Clearstream, Luxembourg, Euroclear and, in relation to any
Tranche, such other clearing system as may be agreed between
the Issuer, the Fiscal Agent and the relevant Dealer(s).
Initial Delivery of Notes: On or before the issue date for each Tranche, the Global Note
representing Bearer Notes or the Global Certificate representing
Registered Notes may be deposited with a Common Depositary
for Euroclear and Clearstream, Luxembourg. Global Notes or
Global Certificates may also be deposited with any other clearing
system or way be delivered outside any clearing system provided
that the method of such delivery has been agreed in advance by
the Issuer, the Fiscal Agent and the relevant Dealer(s). Registered
Notes that are to be credited to one or more clearing systems on
issue will be registered in the name of nominees or a common
nominee for such clearing systems.
Currencies: Subject to compliance with all relevant laws, regulations and
directives, Notes may be issued in any currency agreed between
the Issuer, the Guarantor and the relevant Dealer(s).
Maturities: Subject to compliance with all relevant laws, regulations and
directives, any maturity between one month and 30 years.
Specified Denomination: Definitive Notes will be in such denominations as may be specified
in the relevant Final Terms save that (i) in the case of any Notes
which are to be admitted to trading on a regulated market within the
European Economic Area or offered to the public in an European
Economic Area State in circumstances which require the publication
of a prospectus under the Prospectus Directive, the minimum
specified denomination shall be 100,000 (or its equivalent in any
other currency as at the date of issue of the Notes); and (ii) unless
otherwise permitted by then current laws and regulations, Notes
(including Notes denominated in sterling) which have a maturity of
less than one year and in respect of which the issue proceeds are to
be accepted by the Issuer in the United Kingdom or whose issue
otherwise constitutes a contravention of Section 19 of the FSMA (as
defined below) will have a minimum denomination of 100,000 (or
its equivalent in other currencies).
Fixed Rate Notes: Fixed interest will be payable in arrear on the date or dates in each
year specified in the relevant Final Terms.
Floating Rate Notes: Floating Rate Notes will bear interest determined separately for
each Series as follows:
(a) on the same basis as the floating rate under a notional interest
rate swap transaction in the relevant Specified Currency
governed by an agreement incorporating the 2006 ISDA
Definitions, as published by the International Swaps and
Derivatives Association, Inc. or
16
(b) by reference to LIBOR, EURIBOR, or EIBOR (or such other
benchmark as may be specified in the relevant Final Terms)
as adjusted for any applicable margin.
Interest periods will be specified in the relevant Final Terms.
Zero Coupon Notes: Zero Coupon Notes may be issued at their nominal amount or at a
discount to it and will not bear interest.
Interest Periods and Interest
Rates:
The length of the interest periods for the Notes and the applicable
interest rate or its method of calculation may differ from time to
time or be constant for any Series. Notes may have a maximum
interest rate, a minimum interest rate, or both. The use of interest
accrual periods permits the Notes to bear interest at different rates
in the same interest period. All such information will be set out in
the relevant Final Terms.
Redemption: The relevant Final Terms will specify the redemption amounts
payable to holders. Unless permitted by then current laws and
regulations, Notes (including Notes denominated in sterling) which
have a maturity of less than one year and in respect of which the
issue proceeds are to be accepted by the Issuer in the United
Kingdom or whose issue otherwise constitutes a contravention of
Section 19 of the FSMA must have a minimum redemption amount
of 100,000 (or its equivalent in other currencies).
Optional Redemption: The Final Terms issued in respect of each issue of Notes will state
whether such Notes may be redeemed prior to their stated
maturity at the option of the Issuer (either in whole or in part) and/
or the holders, and if so the terms applicable to such redemption.
Redemption following a Change
of Control:
Noteholders will have the option to redeem their Notes following a
Change of Control Event as described in Condition 6(f)
(Redemption at the Option of Noteholders following a Change of
Control).
Status of Notes and the
Guarantee:
The Notes and the Coupons relating to them constitute (subject to
Condition 4 (Negative Pledge)) unsecured obligations of the Issuer
and shall at all times rank pari passu and without any preference
among themselves. The payment obligations of the Issuer under the
Notes and the Coupons relating to them and of the Guarantor under
the Guarantee shall, save for such exceptions as may be provided
by applicable legislation and subject to Condition 4 (Negative
Pledge), at all times rank at least equally with all other unsecured
and unsubordinated indebtedness and monetary obligations of the
Issuer and the Guarantor respectively, present and future.
Negative Pledge: The Notes will have the benefit of negative pledge as described in
Condition 4 (Negative Pledge).
Cross Default: The Notes will contain a cross-default provision as described in
Condition 10 (Events of Default).
Ratings: The Programme has been assigned a long term rating of BBB+ by
Fitch and a long term rating of Baa1 by Moodys.
Tranches of Notes will be rated or unrated. Where a Tranche of
Notes is to be rated, such rating will be specified in the relevant
Final Terms.
A rating is not a recommendation to buy, sell or hold securities and
may be subject to suspension, reduction or withdrawal at any time
by the assigning rating agency.
Early Redemption: Except as provided in Optional Redemption and Redemption
following a Change of Control above, Notes will be redeemable at
the option of the Issuer prior to maturity only for tax reasons. See
Condition 6 (Redemption, Purchase and Options).
17
Withholding Tax: All payments of principal and interest in respect of the Notes will be
made free and clear of withholding taxes of the Cayman Islands or
the United Arab Emirates, as the case may be, unless the
withholding is required by law. In such event, the Issuer or the
Guarantor shall, subject to customary exceptions, pay such
additional amounts as shall result in receipt by the Noteholder of
such amounts as would have been received by it had no such
withholding been required, all as described in Condition 8 (Taxation).
Governing Law: The Notes, the Coupons and the Talons and any non-contractual
obligations arising out of or in connection with them shall be
governed by, and construed in accordance with, English law.
Listing and Admission to Trading: Application has been made to the Irish Stock Exchange for Notes
issued under the Programme during the period of 12 months from
the date of this Base Prospectus to be admitted to its Official List
and trading on the Main Securities Market.
Selling Restrictions: There are restrictions on the offer, sale and transfer of the Notes in
the United States, the European Economic Area (including the
United Kingdom), the Cayman Islands, Hong Kong, Japan,
Malaysia, Singapore, the United Arab Emirates (excluding the
Dubai International Finance Centre), the Dubai International
Finance Centre, the Kingdom of Bahrain, the State of Kuwait and
the Kingdom of Saudi Arabia. See Subscription and Sale.
The Guarantor is Category 2 for the purposes of Regulation S
under the Securities Act.
The Notes will be issued in compliance with U.S. Treas. Reg.
1.163-5(c)(2)(i)(D) (the D Rules) unless (i) the relevant Final
Terms states that Notes are issued in compliance with U.S. Treas.
Reg. 1.163-5(c)(2)(i)(C) (the C Rules) or (ii) the Notes are
issued other than in compliance with the D Rules or the C Rules
but in circumstances in which the Notes will not constitute
registration required obligations under the United States Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA), which
circumstances will be referred to in the relevant Final Terms as a
transaction to which TEFRA is not applicable.
18
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions that, subject to completion in accordance with the
provisions of Part A of the relevant Final Terms, shall be applicable to the Notes in definitive form (if any)
issued in exchange for the Global Note(s) representing each Series. Either (i) the full text of these terms
and conditions together with the relevant provisions of Part A of the Final Terms or (ii) these terms and
conditions as so completed, amended, supplemented or varied (and subject to simplification by the
deletion of non-applicable provisions), shall be endorsed on such Bearer Notes or on the Certificates
relating to such Registered Notes. All capitalised terms that are not defined in these Conditions will have
the meanings given to them in Part A of the relevant Final Terms. Those definitions will be endorsed on
the definitive Notes or Certificates, as the case may be. References in the Conditions to Notes are to
the Notes of one Series only, not to all Notes that may be issued under the Programme.
The Notes are issued pursuant to an Agency Agreement (as amended or supplemented as at the Issue
Date, the Agency Agreement) dated 12 June 2014 between the Issuer, the Guarantor, The Bank of
New York Mellon, London Branch as fiscal agent and the other agents named in it and with the benefit
of a Deed of Covenant (as amended or supplemented as at the Issue Date, the Deed of Covenant)
dated 12 June 2014 executed by the Issuer and the Guarantor in relation to the Notes and a Deed of
Guarantee (as amended or supplemented as at the Issue Date, the Deed of Guarantee) dated
12 June 2014 executed by the Guarantor in relation to the Notes. The fiscal agent, the paying agents,
the registrar, the transfer agents and the calculation agent(s) for the time being (if any) are referred to
below respectively as the Fiscal Agent, the Paying Agents (which expression shall include the
Fiscal Agent), the Registrar, the Transfer Agents and the Calculation Agent(s). The
Noteholders (as defined below) and the holders of the interest coupons (the Coupons) relating to
interest bearing Notes in bearer form and, where applicable in the case of such Notes, talons for
further Coupons (the Talons) (the Couponholders) are deemed to have notice of all of the
provisions of the Agency Agreement applicable to them.
As used in these terms and conditions (the Conditions), Tranche means Notes which are
identical in all respects.
Copies of the Agency Agreement, the Deed of Covenant and the Deed of Guarantee are available for
inspection at the specified offices of each of the Paying Agents, the Registrar and the Transfer Agents.
1. FORM, DENOMINATION AND TITLE
(a) The Notes are issued in bearer form (Bearer Notes) or in registered form (Registered
Notes) in each case in the Specified Denomination(s) shown hereon.
(b) This Note is a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, or a combination of
any of the foregoing, depending upon the Interest and Redemption/Payment Basis shown hereon.
(c) Bearer Notes are serially numbered and are issued with Coupons (and, where appropriate, a
Talon) attached, save in the case of Zero Coupon Notes in which case references to interest
(other than in relation to interest due after the Maturity Date), Coupons and Talons in these
Conditions are not applicable.
(d) Registered Notes are represented by registered certificates (Certificates) and, save as
provided in Condition 2(c) (Exercise of Options or Partial Redemption in Respect of Registered
Notes), each Certificate shall represent the entire holding of Registered Notes by the same holder.
(e) Title to the Bearer Notes and the Coupons and Talons shall pass by delivery. Title to the
Registered Notes shall pass by registration in the register that the Issuer shall procure to be kept
by the Registrar in accordance with the provisions of the Agency Agreement (the Register).
Except as ordered by a court of competent jurisdiction or as required by law, the holder (as
defined below) of any Note, Coupon or Talon shall be deemed to be and may be treated as its
absolute owner for all purposes, whether or not it is overdue and regardless of any notice of
ownership, trust or an interest in it, any writing on it (or on the Certificate representing it) or its theft
or loss (or that of the related Certificate) and no person shall be liable for so treating the holder.
(f) In these Conditions, Noteholder means the bearer of any Bearer Note or the person in whose
name a Registered Note is registered (as the case may be), holder (in relation to a Note,
Coupon or Talon) means the bearer of any Bearer Note, Coupon or Talon or the person in
whose name a Registered Note is registered (as the case may be) and capitalised terms have
the meanings given to them hereon, the absence of any such meaning indicating that such term
is not applicable to the Notes.
19
2. NO EXCHANGE OF NOTES AND TRANSFERS OF REGISTERED NOTES
(a) No Exchange of Notes
Registered Notes may not be exchanged for Bearer Notes. Bearer Notes of one Specified
Denomination may not be exchanged for Bearer Notes of another Specified Denomination.
Bearer Notes may not be exchanged for Registered Notes.
(b) Transfer of Registered Notes
One or more Registered Notes may be transferred upon the surrender (at the specified office of
the Registrar or any Transfer Agent) of the Certificate representing such Registered Notes to be
transferred, together with the form of transfer endorsed on such Certificate, (or another form of
transfer substantially in the same form and containing the same representations and
certifications (if any), unless otherwise agreed by the Issuer), duly completed and executed and
any other evidence as the Registrar or Transfer Agent may reasonably require. In the case of a
transfer of part only of a holding of Registered Notes represented by one Certificate, a new
Certificate shall be issued to the transferee in respect of the part transferred and a further new
Certificate in respect of the balance of the holding not transferred shall be issued to the
transferor. All transfers of Notes and entries on the Register will be made subject to the detailed
regulations concerning transfers of Notes scheduled to the Agency Agreement. The regulations
may be changed by the Issuer, with the prior written approval of the Registrar and the
Noteholders. A copy of the current regulations will be made available by the Registrar to any
Noteholder upon request.
(c) Exercise of Options or Partial Redemption in Respect of Registered Notes
In the case of an exercise of an Issuers or Noteholders option in respect of, or a partial
redemption of, a holding of Registered Notes represented by a single Certificate, a new
Certificate shall be issued to the holder to reflect the exercise of such option or in respect of the
balance of the holding not redeemed. In the case of a partial exercise of an option resulting in
Registered Notes of the same holding having different terms, separate Certificates shall be
issued in respect of those Notes of that holding that have the same terms. New Certificates shall
only be issued against surrender of the existing Certificates to the Registrar or any Transfer
Agent. In the case of a transfer of Registered Notes to a person who is already a holder of
Registered Notes, a new Certificate representing the enlarged holding shall only be issued
against surrender of the Certificate representing the existing holding.
(d) Delivery of New Certificates
Each new Certificate to be issued pursuant to Conditions 2(b) (Transfer of Registered Notes) or
(c) (Exercise of Options or Partial Redemption in Respect of Registered Notes) shall be
available for delivery within three business days of receipt of the form of transfer or Exercise
Notice (as defined below) or Change of Control Put Exercise Notice (as defined below) and
surrender of the Certificate for exchange. Delivery of the new Certificate(s) shall be made at the
specified office of the Transfer Agent or of the Registrar (as the case may be) to whom delivery
or surrender of such form of transfer, Exercise Notice, Change of Control Put Exercise Notice or
Certificate shall have been made or, at the option of the holder making such delivery or
surrender as aforesaid and as specified in the form of transfer, Exercise Notice, Change of
Control Put Exercise Notice or otherwise in writing, be mailed by uninsured post at the risk of
the holder entitled to the new Certificate to such address as may be so specified, unless such
holder requests otherwise and pays in advance to the relevant Agent (as defined in the Agency
Agreement) the costs of such other method of delivery and/or such insurance as it may specify.
In this Condition 2(d) (Delivery of New Certificates), business day means a day, other than a
Saturday or Sunday, on which banks are open for business in the place of the specified office of
the relevant Transfer Agent or the Registrar (as the case may be).
(e) Transfer Free of Charge
Transfers of Notes and Certificates on registration, transfer, partial redemption or exercise of an
option shall be effected without charge by or on behalf of the Issuer, the Registrar or the
Transfer Agents, but upon payment of any tax or other governmental charges that may be
imposed in relation to it (or the giving of such indemnity as the Registrar or the relevant Transfer
Agent may require).
20
(f) Closed Periods
No Noteholder may require the transfer of a Registered Note to be registered:
(i) during the period of 15 days ending on the due date for redemption of that Note;
(ii) during the period of 15 days before any date on which Notes may be called for
redemption by the Issuer at its option pursuant to Condition 6(d) (Redemption at the
Option of the Issuer);
(iii) after any such Note has been called for redemption; or
(iv) during the period of seven days ending on (and including) any Record Date (as defined
below).
3. GUARANTEE AND STATUS
(a) Guarantee
The Guarantor has unconditionally and irrevocably guaranteed the due payment of all sums
expressed to be payable by the Issuer under the Notes and the Coupons. Its obligations in that
respect (the Guarantee) are contained in the Deed of Guarantee.
(b) Status of Notes and Guarantee
The Notes and the Coupons relating to them constitute (subject to Condition 4 (Negative Pledge))
unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference
among themselves. The payment obligations of the Issuer under the Notes and the Coupons relating
to them and of the Guarantor under the Guarantee shall, save for such exceptions as may be
provided by applicable legislation and subject to Condition 4 (Negative Pledge), at all times rank at
least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of
the Issuer and the Guarantor respectively, present and future.
4. NEGATIVE PLEDGE
(a) So long as any Note or Coupon remains outstanding (as defined in the Agency Agreement)
neither the Issuer nor the Guarantor will, and will ensure that no Subsidiary will create, or have
outstanding any Security Interest, upon the whole or any part of its present or future
undertaking, assets or revenues (including any uncalled capital) to secure any Relevant
Indebtedness or to secure any guarantee or indemnity in respect of any Relevant Indebtedness,
other than a Permitted Security Interest, without (a) at the same time or prior thereto securing
the Notes and the Coupons equally and rateably therewith or (b) providing such other security
for the Notes and the Coupons as shall be approved by an Extraordinary Resolution (as defined
in the Agency Agreement) of the Noteholders.
(b) Nothing in this Condition 4 (Negative Pledge) shall prevent the Issuer, the Guarantor or any
Subsidiary from creating or permitting to subsist a Security Interest upon a defined or definable
pool of its assets including, but not limited to, receivables (not representing all of the assets of
the Issuer, the Guarantor or any Subsidiary, as the case may be) (the Secured Assets)
which is or was created pursuant to any securitisation or like arrangement in accordance with
established market practice (whether or not involving itself as the issuer of any issue of asset
backed securities) and whereby all payment obligations in respect of the Indebtedness of any
Person or under any guarantee of or indemnity in respect of the Indebtedness of any other
Person, as the case may be, secured on, or on an interest in, the Secured Assets are to be
discharged solely from the Secured Assets (or solely from (i) the Secured Assets and (ii) assets
of a Person other than the Issuer, the Guarantor or any Subsidiary).
(c) In these Conditions:
Indebtedness means any indebtedness of any Person for money borrowed or raised
including (without limitation) any indebtedness for or in respect of:
(i) amounts raised by acceptance under any acceptance credit facility;
(ii) amounts raised under any note purchase facility;
(iii) the amount of any liability in respect of leases or hire purchase contracts which would, in
accordance with applicable law and generally accepted accounting principles, be treated
as finance or capital leases;
21
(iv) the amount of any liability in respect of any purchase price for assets or services the
payment of which is deferred for a period in excess of 60 days; and
(v) amounts raised under any other transaction (including, without limitation, any forward
sale or purchase agreement) having the commercial effect of a borrowing;
Permitted Security Interest means
(i) any Security Interest created or outstanding with the approval of an Extraordinary
Resolution;
(ii) any Security Interest arising by operation of law, provided that such Security Interest is
discharged within 30 days of arising;
(iii) any Security Interest arising in the ordinary course of banking transactions (such as sale
and repurchase transactions and share, loan and bond lending transactions) provided
that the Security Interest is limited to the assets which are the subject of the relevant
transaction;
(iv) any Security Interest securing Relevant Indebtedness of a person existing at the time that
such person is merged into, or consolidated with the Issuer, the Guarantor or the relevant
Subsidiary, as the case may be, provided that such Security Interest was not created in
contemplation of such merger or consolidation and does not extend to any other assets or
property of the Issuer, the Guarantor or the relevant Subsidiary, as the case may be; and
(v) any other Security Interest provided that the aggregate outstanding amount secured by
that Security Interest and any other Security Interest permitted to be created and in effect
under Condition 4 (Negative Pledge) does not, at any time, exceed 10 per cent. of the
aggregate share capital and reserves of the Guarantor, as shown in its most recent
audited consolidated (if then prepared by Guarantor) or non-consolidated (if consolidated
financial statements are not then prepared by the Guarantor) financial statements
prepared in accordance with International Financial Reporting Standards;
Person means any individual, company, corporation, firm, partnership, joint venture,
association, organisation, state or agency of a state or other entity, whether or not having
separate legal personality;
Relevant Indebtedness means any Indebtedness which is in the form of or represented by
any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is,
or is capable of being, listed, quoted or traded on any stock exchange or in any securities
market (including, without limitation, any over-the-counter market);
Security Interest means any mortgage, charge, pledge, lien or other security interest
including, without limitation, anything analogous to any of the foregoing under the laws of any
jurisdiction; and
Subsidiary means any entity whose (i) financial statements at any time are required by law or
in accordance with generally accepted accounting principles to be consolidated with the
Guarantor, or (ii) whose affairs and policies the Guarantor controls or has the power to control,
whether by ownership of share capital, contract, the power to appoint or remove members of the
governing body of such entity or otherwise.
5. INTEREST AND OTHER CALCULATIONS
(a) Interest on Fixed Rate Notes
Each Fixed Rate Note bears interest on its outstanding nominal amount from and including the
Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the
Rate of Interest, such interest being payable in arrear on each Interest Payment Date. The
amount of interest payable shall be determined in accordance with Condition 5(f) (Calculations).
(b) Interest on Floating Rate Notes:
(i) Interest Payment Dates
Each Floating Rate Note bears interest on its outstanding nominal amount from and
including the Interest Commencement Date at the rate per annum (expressed as a
percentage) equal to the Rate of Interest, such interest being payable in arrear on each
22
Interest Payment Date. The amount of interest payable shall be determined in
accordance with Condition 5(f) (Calculations). Such Interest Payment Date(s) is/are
either shown hereon as Specified Interest Payment Dates or, if no Specified Interest
Payment Date(s) is/are shown hereon, Interest Payment Date shall mean each date
which falls the number of months or other period shown hereon as the Interest Period
after the preceding Interest Payment Date or, in the case of the first Interest Payment
Date, after the Interest Commencement Date.
(ii) Business Day Convention
If any date referred to in these Conditions that is specified to be subject to adjustment in
accordance with a Business Day Convention would otherwise fall on a day that is not a
Business Day, then, if the Business Day Convention specified is:
(A) the Floating Rate Business Day Convention, such date shall be postponed to the
next day that is a Business Day unless it would thereby fall into the next calendar
month, in which event:
(1) such date shall be brought forward to the immediately preceding Business
Day; and
(2) each subsequent such date shall be the last Business Day of the month in
which such date would have fallen had it not been subject to adjustment;
(B) the Following Business Day Convention, such date shall be postponed to the next
day that is a Business Day;
(C) the Modified Following Business Day Convention, such date shall be postponed to
the next day that is a Business Day unless it would thereby fall into the next
calendar month, in which event such date shall be brought forward to the
immediately preceding Business Day; or
(D) the Preceding Business Day Convention, such date shall be brought forward to the
immediately preceding Business Day.
(iii) Rate of Interest for Floating Rate Notes
The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period
shall be determined in the manner specified hereon and the provisions below relating to
either ISDA Determination or Screen Rate Determination shall apply, depending upon
which is specified hereon.
(A) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified hereon as the manner in which the Rate of
Interest is to be determined, the Rate of Interest for each Interest Accrual Period
shall be determined by the Calculation Agent as a rate equal to the relevant ISDA
Rate. For the purposes of this sub-paragraph (A), ISDA Rate for an Interest
Accrual Period means a rate equal to the Floating Rate that would be determined
by the Calculation Agent under a Swap Transaction under the terms of an
agreement incorporating the ISDA Definitions and under which:
(1) the Floating Rate Option is as specified hereon;
(2) the Designated Maturity is a period specified hereon; and
(3) the relevant Reset Date is the first day of that Interest Accrual Period unless
otherwise specified hereon.
For the purposes of this sub-paragraph (A), Floating Rate, Calculation Agent,
Floating Rate Option, Designated Maturity, Reset Date and Swap
Transaction have the meanings given to those terms in the ISDA Definitions.
(B) Screen Rate Determination for Floating Rate Notes
(1) Where Screen Rate Determination is specified hereon as the manner in
which the Rate of Interest is to be determined, the Rate of Interest for each
Interest Accrual Period will, subject as provided below, be either:
(i) the offered quotation; or
23
(ii) the arithmetic mean of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate which
appears or appear, as the case may be, on the Relevant Screen Page as at
either 11am (London time in the case of LIBOR, Brussels time in the case
of EURIBOR or Abu Dhabi time in the case of EIBOR) on the Interest
Determination Date in question as determined by the Calculation Agent. If
five or more of such offered quotations are available on the Relevant
Screen Page, the highest (or, if there is more than one such highest
quotation, one only of such quotations) and the lowest (or, if there is more
than one such lowest quotation, one only of such quotations) shall be
disregarded by the Calculation Agent for the purpose of determining the
arithmetic mean of such offered quotations.
(2) if the Relevant Screen Page is not available or, if sub-paragraph (B)(1)
applies and no such offered quotation appears on the Relevant Screen
Page, or, if sub-paragraph (B)(2) applies and fewer than three such
offered quotations appear on the Relevant Screen Page, in each case as
at the time specified above, subject as provided below, the Calculation
Agent shall request, if the Reference Rate is LIBOR, the principal London
office of each of the Reference Banks , if the Reference Rate is
EURIBOR, the principal Euro-zone office of each of the Reference Banks,
or, if the Reference Rate is EIBOR, the principal Abu Dhabi or Dubai
office of each of the Reference Banks, to provide the Calculation Agent
with its offered quotation (expressed as a percentage rate per annum) for
the Reference Rate if the Reference Rate is LIBOR, at approximately
11am (London time), if the Reference Rate is EURIBOR, at approximately
11am (Brussels time), or if the Reference Rate is EIBOR, at
approximately 11am (Abu Dhabi time), on the Interest Determination Date
in question. If two or more of the Reference Banks provide the Calculation
Agent with such offered quotations, the Rate of Interest for such Interest
Accrual Period shall be the arithmetic mean of such offered quotations as
determined by the Calculation Agent; and
(3) if paragraph (2) above applies and the Calculation Agent determines that
fewer than two Reference Banks are providing offered quotations, subject
as provided below, the Rate of Interest shall be the arithmetic mean of the
rates per annum (expressed as a percentage) as communicated to (and at
the request of) the Calculation Agent by the Reference Banks or any two or
more of them, at which such banks were offered, if the Reference Rate is
LIBOR, at approximately 11am (London time), if the Reference Rate is
EURIBOR, at approximately 11am (Brussels time), or if the Reference Rate
is EIBOR, at approximately 11am (Abu Dhabi time) on the relevant Interest
Determination Date, deposits in the Specified Currency for a period equal to
that which would have been used for the Reference Rate by leading banks
in, if the Reference Rate is LIBOR, the London inter-bank market, if the
Reference Rate is EURIBOR, the Euro-zone inter-bank market, or, if the
Reference Rate is EIBOR, the United Arab Emirates inter-bank market as
the case may be, or, if fewer than two of the Reference Banks provide the
Calculation Agent with such offered rates, the offered rate for deposits in
the Specified Currency for a period equal to that which would have been
used for the Reference Rate, or the arithmetic mean of the offered rates for
deposits in the Specified Currency for a period equal to that which would
have been used for the Reference Rate, at which, if the Reference Rate is
LIBOR, at approximately 11am (London time), if the Reference Rate is
EURIBOR, at approximately 11am (Brussels time), or if the Reference Rate
is EIBOR, at approximately 11am (Abu Dhabi time), on the relevant Interest
Determination Date, any one or more banks (which bank or banks is or are
in the opinion of the Issuer suitable for such purpose) informs the
Calculation Agent it is quoting to leading banks in, if the Reference Rate is
LIBOR, the London inter-bank market, if the Reference Rate is EURIBOR,
24
the Euro-zone inter-bank market, or, if the Reference Rate is EIBOR, the
United Arab Emirates inter-bank market, as the case may be, provided that,
if the Rate of Interest cannot be determined in accordance with the
foregoing provisions of this paragraph, the Rate of Interest shall be
determined as at the last preceding Interest Determination Date (though
substituting, where a different Margin or Maximum or Minimum Rate of
Interest is to be applied to the relevant Interest Accrual Period from that
which applied to the last preceding Interest Accrual Period, the Margin or
Maximum or Minimum Rate of Interest relating to the relevant Interest
Accrual Period, in place of the Margin or Maximum or Minimum Rate of
Interest relating to that last preceding Interest Accrual Period).
(iv) Linear Interpolation
Where Linear Interpolation is specified hereon in respect of an Interest Period, the Rate
of Interest for such Interest Period shall be calculated by the Calculation Agent by straight
line linear interpolation by reference to two rates based on the relevant Reference Rate
(where Screen Rate Determination is specified hereon) or the relevant Floating Rate
Option (where ISDA Determination is specified hereon), one of which shall be determined
as if the Designated Maturity were the period of time for which rates are available next
shorter than the length of the relevant Interest Period and the other of which shall be
determined as if the Designated Maturity were the period of time for which rates are
available next longer than the length of the relevant Interest Period provided however that
if there is no rate available for a period of time next shorter or, as the case may be, next
longer, then the Calculation Agent shall determine such rate at such time and by
reference to such sources as it determines appropriate. Where Designated Maturity
means, in relation to Screen Rate Determination, the period of time designated in the
Reference Rate.
(c) Zero Coupon Notes
Where a Note the Interest Basis of which is specified to be Zero Coupon is repayable
prior to the Maturity Date and is not paid when due, the amount due and payable prior to
the Maturity Date shall be the Early Redemption Amount of such Note. As from the
Maturity Date, the Rate of Interest for any overdue principal of such a Note shall be a rate
per annum (expressed as a percentage) equal to the Amortisation Yield (as described in
Condition 6(b)(i)) (Zero Coupon Notes).
(d) Accrual of Interest
Interest shall cease to accrue on each Note on the due date for redemption unless, upon
due presentation, payment is improperly withheld or refused, in which event interest shall
continue to accrue (both before and after judgment) at the Rate of Interest in the manner
provided in this Condition 5 (Interest and Other Calculations) to the Relevant Date (as
defined in Condition 8 (Taxation)).
(e) Margin, Maximum/Minimum Rates of Interest, and Redemption Amounts and
Rounding
(i) If any Margin is specified hereon (either:
(A) generally; or
(B) in relation to one or more Interest Accrual Periods),
an adjustment shall be made to all Rates of Interest, in the case of (x), or the
Rates of Interest for the specified Interest Accrual Periods, in the case of (y),
calculated in accordance with clause (b) above by adding (if a positive number) or
subtracting the absolute value (if a negative number) of such Margin subject
always to the next paragraph;
(ii) If any Maximum or Minimum Rate of interest or Redemption Amount is specified
hereon, then any Rate of Interest or Redemption Amount shall be subject to such
maximum or minimum, as the case may be;
25
(iii) For the purposes of any calculations required pursuant to these Conditions (unless
otherwise specified):
(A) all percentages resulting from such calculations shall be rounded, if
necessary, to the nearest one hundred- thousandth of a percentage point
(with 0.000005 of a percentage point being rounded up);
(B) all figures shall be rounded to seven significant figures (provided that if the
eighth significant figure is a five or greater, the seventh significant shall be
rounded up); and
(C) all currency amounts that fall due and payable shall be rounded to the
nearest unit of such currency (with half a unit being rounded up),
save in the case of yen, which shall be rounded down to the nearest yen. For
these purposes unit means the lowest amount of such currency that is available
as legal tender in the country of such currency.
(f) Calculations
The amount of interest payable per Calculation Amount in respect of any Note for any Interest
Accrual Period shall be equal to the product of the Rate of Interest, the Calculation Amount
specified hereon, and the Day Count Fraction for such Interest Accrual Period, unless an
Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period,
in which case the amount of interest payable per Calculation Amount in respect of such Note
for such Interest Accrual Period shall equal such Interest Amount (or be calculated in
accordance with such formula). Where any Interest Period comprises two or more Interest
Accrual Periods, the amount of interest payable per Calculation Amount in respect of such
Interest Period shall be the sum of the Interest Amounts payable in respect of each of those
Interest Accrual Periods. In respect of any other period for which interest is required to be
calculated, the provisions above shall apply save that the Day Count Fraction shall be for the
period for which interest is required to be calculated.
(g) Determination and Publication of Rates of Interest, Interest Amounts, Final Redemption
Amounts, Early Redemption Amounts and Optional Redemption Amounts
(i) The Calculation Agent shall, as soon as practicable on such date as the
Calculation Agent may be required to calculate any rate or amount, obtain any
quotation or make any determination or calculation, determine such rate and
calculate the Interest Amounts for the relevant Interest Accrual Period, calculate
the Final Redemption Amount, Early Redemption Amount or Optional Redemption
Amount, obtain such quotation or make such determination or calculation, as the
case may be, and cause the Rate of Interest and the Interest Amounts for each
Interest Accrual Period and the relevant Interest Payment Date and, if required to
be calculated, the Final Redemption Amount, Early Redemption Amount or
Optional Redemption Amount to be notified to the Fiscal Agent, the Issuer, each of
the Paying Agents, the Noteholders, any other Calculation Agent appointed in
respect of the Notes that is to make a further calculation upon receipt of such
information and, if the Notes are listed on a stock exchange and the rules of such
exchange or other relevant authority so require, such exchange or other relevant
authority as soon as possible after their determination but in no event later than:
(A) the commencement of the relevant Interest Period, if determined prior to
such time, in the case of notification to such exchange of a Rate of Interest
and Interest Amount; or
(B) in all other cases, the fourth Business Day after such determination.
(ii) Where any Interest Payment Date or Interest Period Date is subject to adjustment
pursuant to Condition 5(b)(ii) (Business Day Convention), the Interest Amounts
and the Interest Payment Date so published may subsequently be amended (or
appropriate alternative arrangements made by way of adjustment) without notice
in the event of an extension or shortening of the Interest Period. If the Notes
become due and payable under Condition 10 (Events of Default), the accrued
interest and the Rate of Interest payable in respect of the Notes shall nevertheless
continue to be calculated as previously in accordance with this Condition but no
26
publication of the Rate of Interest or the Interest Amount so calculated need be
made. The determination of any rate or amount, the obtaining of each quotation
and the making of each determination or calculation by the Calculation Agent(s)
shall (in the absence of manifest error) be final and binding upon all parties.
(h) Definitions
In these Conditions, unless the context otherwise requires, the following defined terms
shall have the meanings set out below:
Business Day means:
(i) in the case of a currency other than euro, a day (other than a Saturday or Sunday)
on which commercial banks and foreign exchange markets settle payments in the
principal financial centre for such currency; and/or
(ii) in the case of euro, a day on which the TARGET System is operating (a TARGET
Business Day); and/or
(iii) in the case of a currency and/or one or more Business Centres, a day (other than
a Saturday or a Sunday) on which commercial banks and foreign exchange
markets settle payments in such currency in the Business Centre(s) or, if no
currency is indicated, generally in each of the Business Centres;
Day Count Fraction means, in respect of the calculation of an amount of interest on
any Note for any period of time (from and including the first day of such period to but
excluding the last) (whether or not constituting an Interest Period or an Interest Accrual
Period, the Calculation Period):
(i) if Actual/Actual or Actual/Actual - ISDA is specified hereon, the actual
number of days in the Calculation Period divided by 365 (or, if any portion of that
Calculation Period falls in a leap year, the sum of:
(A) the actual number of days in that portion of the Calculation Period falling in
a leap year divided by 366; and
(B) the actual number of days in that portion of the Calculation Period falling in
a non-leap year divided by 365);
(ii) if Actual/365 (Fixed) is specified hereon, the actual number of days in the
Calculation Period divided by 365
(iii) if Actual/365 (Sterling) is specified hereon, the actual number of days in the
Calculation Period divided by 365 or, in the case of an Interest Payment Date
falling in a leap year, 366
(iv) if Actual/360 is specified hereon, the actual number of days in the Calculation
Period divided by 360
(v) if 30/360, 360/360 or Bond Basis is specified hereon, the number of days
in the Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x Y
2
- Y
1
)] + [30 x (M
2
- M
1
)] + (D
2
- D
1
)
360
where:
Y
1
is the year, expressed as a number, in which the first day of the
Calculation Period falls;
Y
2
is the year, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
M
1
is the calendar month, expressed as a number, in which the first day
of the Calculation Period falls;
M
2
is the calendar month, expressed as a number, in which the day
immediately following the last day included in the Calculation Period falls;
D
1
is the first calendar day, expressed as a number, of the Calculation
Period, unless such number would be 31, in which case D
1
will be 30; and
27
D
2
is the calendar day, expressed as a number, immediately following the
last day included in the Calculation Period, unless such number would be
31 and D
1
, is greater than 29, in which case D
2
will be 30;
21
(vi) if 30E/360 or Eurobond Basis is specified hereon, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x Y
2
- Y
1
)] + [30 x (M
2
- M
1
)] + (D
2
- D
1
)
360
where:
Y
1
is the year, expressed as a number, in which the first day of the
Calculation Period falls;
Y
2
is the year, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
M
1
is the calendar month, expressed as a number, in which the first day
of the Calculation Period falls;
M
2
is the calendar month, expressed as a number, in which the day
immediately following the last day included in the Calculation Period falls;
D
1
is the first calendar day, expressed as a number, of the Calculation
Period, unless such number would be 31, in which case D
1
will be 30; and
D
2
is the calendar day, expressed as a number, immediately following the
last day included in the Calculation Period, unless such number would be
31, in which case D
2
will be 30;
(vii) if 30E/360 (ISDA) is specified hereon, the number of days in the Calculation
Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x Y
2
- Y
1
)] + [30 x (M
2
- M
1
)] + (D
2
- D
1
)
360
where:
Y
1
is the year, expressed as a number, in which the first day of the
Calculation Period falls;
Y
2
is the year, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
M
1
is the calendar month, expressed as a number, in which the first day
of the Calculation Period falls;
M
2
is the calendar month, expressed as a number, in which the day
immediately following the last day included in the Calculation Period falls;
D
1
is the first calendar day, expressed as a number, of the Calculation
Period, unless:
(i) that day is the last day of February; or
(ii) such number would be 31, in which case D
1
will be 30; and
D
2
is the calendar day, expressed as a number, immediately following the
last day included in the Calculation Period, unless:
(i) that day is the last day of February but not the Maturity Date; or
(ii) such number would be 31, in which case D
2
will be 30;
(viii) if Actual/Actual-ICMA is specified hereon,
(A) if the Calculation Period is equal to or shorter than the Determination Period
during which it falls, the number of days in the Calculation Period divided by
the product of: (x) the number of days in such Determination Period; and
(y) the number of Determination Periods normally ending in any year; and
28
(B) if the Calculation Period is longer than one Determination Period, the sum of:
(x) the number of days in such Calculation Period falling in the Determination
Period in which it begins divided by the product of: (1) the number of days in
such Determination Period; and (2) the number of Determination Periods
normally ending in any year; and (y) the number of days in such Calculation
Period falling in the next Determination Period divided by the product of:
(1) the number of days in such Determination Period; and (2) the number of
Determination Periods normally ending in any year
where:
Determination Period means the period from and including a
Determination Date in any year to but excluding the next Determination
Date and
Determination Date means the date(s) specified as such hereon or, if
none is so specified, the Interest Payment Date(s);
Euro-zone means the region comprised of member states of the European Union that
adopt the single currency in accordance with the Treaty establishing the European
Community, as amended;
Interest Accrual Period means the period beginning on and including the Interest
Commencement Date and ending on but excluding the first Interest Period Date and
each successive period beginning on and including an Interest Period Date and ending
on but excluding the next succeeding Interest Period Date;
Interest Amount means:
(i) in respect of an Interest Accrual Period, the amount of interest payable per
Calculation Amount for that Interest Accrual Period and which, in the case of Fixed
Rate Notes, and unless otherwise specified hereon, shall mean the Fixed Coupon
Amount or Broken Amount specified hereon as being payable on the Interest
Payment Date ending the Interest Period of which such Interest Accrual Period
forms part; and
(ii) in respect of any other period, the amount of interest payable per Calculation
Amount for that period;
Interest Commencement Date means the Issue Date or such other date as may be
specified hereon;
Interest Determination Date means, with respect to a Rate of Interest and Interest
Accrual Period, the date specified as such hereon or, if none is so specified:
(i) the first day of such Interest Accrual Period if the Specified Currency is Sterling or
(ii) the day falling two Business Days in London for the Specified Currency prior to the
first day of such Interest Accrual Period if the Specified Currency is neither Sterling
nor euro; or
(iii) the day falling two TARGET Business Days prior to the first day of such Interest
Accrual Period if the Specified Currency is euro;
Interest Period means the period beginning on and including the Interest
Commencement Date and ending on but excluding the first Interest Payment Date and
each successive period beginning on and including an Interest Payment Date and ending
on but excluding the next succeeding Interest Payment Date;
Interest Period Date means each Interest Payment Date unless otherwise specified
hereon;
ISDA Definitions means the 2006 ISDA Definitions, as published by the International
Swaps and Derivatives Association, Inc., unless otherwise specified hereon;
Rate of Interest means the rate of interest payable from time to time in respect of this
Note and that is either specified or calculated in accordance with the provisions hereon
29
Reference Banks means, in the case of a determination of LIBOR, the principal
London office of four major banks in the London inter-bank market, in the case of a
determination of EURIBOR, the principal Euro-zone office of four major banks in the
Euro-zone inter-bank market and, in the case of EIBOR, the principal Abu Dhabi or Dubai
office of four major banks in the United Arab Emirates inter-bank market, in each case
selected by the Calculation Agent;
Reference Rate means the rate specified as such hereon;
Relevant Screen Page means such page, section, caption, column or other part of a
particular information service as may be specified hereon;
Specified Currency means the currency specified as such hereon or, if none is
specified, the currency in which the Notes are denominated; and
TARGET System means the Trans-European Automated Real-Time Gross Settlement
Express Transfer (known as TARGET2) System which was launched on 19 November
2007 or any successor thereto.
(i) Calculation Agent
The Issuer shall procure that there shall at all times be one or more Calculation Agents if
provision is made for them hereon and for so long as any Note is outstanding (as defined in the
Agency Agreement). Where more than one Calculation Agent is appointed in respect of the
Notes, references in these Conditions to the Calculation Agent shall be construed as each
Calculation Agent performing its respective duties under the Conditions. If the Calculation Agent
is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of
Interest for an Interest Accrual Period or to calculate any Interest Amount, Final Redemption
Amount, Early Redemption Amount or Optional Redemption Amount, as the case may be, or to
comply with any other requirement, the Issuer shall appoint a leading bank or financial institution
engaged in the interbank market (or, if appropriate, money, swap or over-the-counter index
options market) that is most closely connected with the calculation or determination to be made
by the Calculation Agent (acting through its principal London office or any other office actively
involved in such market) to act as such in its place. The Calculation Agent may not resign its
duties without a successor having been appointed as aforesaid.
6. REDEMPTION, PURCHASE AND OPTIONS
(a) Final Redemption:
Unless previously redeemed, purchased and cancelled as provided below, each Note shall be
finally redeemed on the Maturity Date specified hereon at its Final Redemption Amount (which,
unless otherwise provided, is its nominal amount).
(b) Early Redemption:
(i) Zero Coupon Notes:
(A) The Early Redemption Amount payable in respect of any Zero Coupon Note
pursuant to Condition 6(c) (Redemption for Taxation Reasons), Condition 6(d)
(Redemption at the Option of the Issuer), Condition 6(e) (Redemption at the
Option of Noteholders) or Condition 6(f) (Redemption at the Option of Noteholders
following a Change of Control) or upon it becoming due and payable as provided
in Condition 10 (Events of Default) shall be the Amortised Face Amount
(calculated as provided below) of such Note unless otherwise specified hereon.
(B) Subject to the provisions of sub-paragraph (C) below, the Amortised Face Amount
of any such Note shall be the scheduled Final Redemption Amount of such Note
on the Maturity Date discounted at a rate per annum (expressed as a percentage)
equal to the Amortisation Yield (which, if none is shown hereon, shall be such rate
as would produce an Amortised Face Amount equal to the issue price of the Notes
if they were discounted back to their issue price on the Issue Date) compounded
annually.
(C) If the Early Redemption Amount payable in respect of any such Note upon its
redemption pursuant to Condition 6(c) (Redemption for Taxation Reasons),
Condition 6(d) (Redemption at the Option of the Issuer), Condition 6(e)
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(Redemption at the Option of Noteholders) or Condition 6(f) (Redemption at the
Option of Noteholders following a Change of Control) or upon it becoming due and
payable as provided in Condition 10 (Events of Default) is not paid when due, the
Early Redemption Amount due and payable in respect of such Note shall be the
Amortised Face Amount of such Note as defined in sub-paragraph (B) above,
except that such sub-paragraph shall have effect as though the date on which the
Note becomes due and payable were the Relevant Date. The calculation of the
Amortised Face Amount in accordance with this sub-paragraph shall continue to
be made (both before and after judgment) until the Relevant Date, unless the
Relevant Date falls on or after the Maturity Date, in which case the amount due
and payable shall be the scheduled Final Redemption Amount of such Note on the
Maturity Date together with any interest that may accrue in accordance with
Condition 5(c) (Zero Coupon Notes).
Where such calculation is to be made for a period of less than one year, it shall be made
on the basis of the Day Count Fraction shown hereon.
(ii) Other Notes
The Early Redemption Amount payable in respect of any Note (other than Notes
described in (i) above), upon redemption of such Note pursuant to Condition 6(c)
(Redemption for Taxation Reasons), Condition 6(d) (Redemption at the Option of the
Issuer), Condition 6(e) (Redemption at the Option of Noteholders) or Condition 6(f)
(Redemption at the Option of Noteholders following a Change of Control) or upon it
becoming due and payable as provided in Condition 10 (Events of Default), shall be the
Final Redemption Amount unless otherwise specified hereon.
(c) Redemption for Taxation Reasons
(i) The Notes may be redeemed at the option of the Issuer in whole, but not in part, on any
Interest Payment Date (if this Note is a Floating Rate Note) or, at any time, (if this Note is
not a Floating Rate Note), on giving not less than 30 nor more than 60 days notice to the
Noteholders (which notice shall be irrevocable), at their Early Redemption Amount (as
described in Condition 6(b) (Early Redemption) above) (together with interest accrued to
the date fixed for redemption), if:
(A) the Issuer (or, if the Guarantee, were called, the Guarantor) has or will become
obliged to pay additional amounts as provided or referred to in Condition 8
(Taxation) as a result of any change in, or amendment to, the laws or regulations
of the Cayman Islands (in the case of payment by the Issuer) or the United Arab
Emirates (in the case of payment by the Guarantor) or, in each case, any political
subdivision or any authority thereof or therein having power to tax, or any change
in the application or official interpretation of such laws or regulations, which
change or amendment becomes effective on or after the date on which agreement
is reached to issue the first Tranche of the Notes; and
(B) such obligation cannot be avoided by the Issuer (or the Guarantor, as the case
may be) taking reasonable measures available to it,
provided that no such notice of redemption shall be given earlier than 90 days prior to the
earliest date on which the Issuer (or the Guarantor, as the case may be) would be
obliged to pay such additional amounts were a payment in respect of the Notes (or either
Guarantee, as the case may be) then due.
(ii) Prior to the publication of any notice of redemption pursuant to this Condition 6(c)
(Redemption for Taxation Reasons), the Issuer shall deliver to the Fiscal Agent a
certificate signed by two Directors of the Issuer (or the Guarantor, as the case may be)
stating that the issuer is entitled to effect such redemption and setting forth a statement
of facts showing that the conditions precedent to the right of the Issuer so to redeem
have occurred, and an opinion of independent legal advisers of recognised standing to
the effect that the Issuer (or the Guarantor, as the case may be) has or will become
obliged to pay such additional amounts as a result of such change or amendment.
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(d) Redemption at the Option of the Issuer
(i) If Call Option is specified hereon, the Issuer may, on giving not less than 15 nor more
than 30 days irrevocable notice to the Noteholders (or such other notice period as may
be specified hereon) redeem, all or, if so provided, some, of the Notes on any Optional
Redemption Date. Any such redemption of Notes shall be at their Optional Redemption
Amount specified hereon (which may be the Early Redemption Amount (as described in
Condition 6(b) (Early Redemption) above), together with interest accrued to the date fixed
for redemption. Any such redemption or exercise must relate to Notes of a nominal
amount at least equal to the Minimum Redemption Amount to be redeemed specified
hereon and no greater than the Maximum Redemption Amount to be redeemed specified
hereon.
(ii) All Notes in respect of which any such notice is given shall be redeemed on the date
specified in such notice in accordance with this Condition.
(iii) In the case of a partial redemption the notice to Noteholders shall also contain the
certificate numbers of the Bearer Notes, or in the case of Registered Notes shall specify
the nominal amount of Registered Notes drawn and the holder(s) of such Registered
Notes, to be redeemed, which shall have been drawn in such place and in such manner
as may be fair and reasonable in the circumstances, taking account of prevailing market
practices, subject to compliance with any applicable laws and stock exchange or other
relevant authority requirements.
(e) Redemption at the Option of Noteholders
(i) If Put Option is specified hereon, the Issuer shall, at the option of the Noteholder, upon
the Noteholder giving not less than 15 nor more than 30 days notice to the Issuer (or
such other notice period as may be specified hereon) redeem such Note on the Optional
Redemption Date(s) at its Optional Redemption Amount specified hereon (which may be
the Early Redemption Amount (as described in Condition 6(b) (Early Redemption)
above)), together with interest accrued to the date fixed for redemption.
(ii) To exercise such option the holder must deposit (in the case of Bearer Notes) such Note
(together with all unmatured Coupons and unexchanged Talons) with any Paying Agent
or (in the case of Registered Notes) the Certificate representing such Note(s) with the
Registrar or any Transfer Agent at its specified office, together with a duly completed
option exercise notice (Exercise Notice) in the form obtainable from any Paying
Agent, the Registrar or any Transfer Agent (as applicable) within the notice period. No
Note or Certificate so deposited and option exercised may be withdrawn (except as
provided in the Agency Agreement) without the prior consent of the Issuer.
(f) Redemption at the Option of Noteholders following a Change of Control
(i) If a Change of Control Event occurs, the Issuer shall, at the option of the Noteholder
redeem such Note on the Redemption Date at its Early Redemption Amount together
with interest accrued to such date. Immediately upon the Issuer becoming aware that a
Change of Control Event has occurred the Issuer shall, give notice (a Change of
Control Notice) to Noteholders in accordance with Condition 14 (Notices) specifying
the nature of the Change of Control Event.
(ii) To exercise such option the holder must deposit (in the case of Bearer Notes) such Note
(together with all unmatured Coupons and unexchanged Talons) with a Paying Agent or
(in the case of Registered Notes) the Certificate representing such Note(s) with the
Registrar or any Transfer Agent at its specified office, together with a duly completed
change of control put option exercise notice (Change of Control Put Exercise Notice)
in the form obtainable from any Paying Agent, the Registrar or any Transfer Agent (as
applicable) within the Redemption Period. No Note or Certificate so deposited and option
exercised may be withdrawn (except as provided in the Agency Agreement) without the
prior consent of the Issuer.
If 75 per cent. or more in nominal amount of the Notes of a Series then outstanding have been
redeemed or, as the case may be, purchased, pursuant to these Conditions, the Issuer may, on
giving not less than 15 nor more than 30 days notice to the Noteholders (such notice to be
given within 30 days of the end of the Redemption Period), redeem or, at the Issuers option,
32
purchase (or procure the purchase of) all but not some only of the remaining outstanding Notes
of that Series at the Early Redemption Amount together (if applicable) with interest accrued to
(but excluding) the date fixed for redemption or purchase, as the case may be.
In this Condition:
a Change of Control Event will occur if at any time the Government of the Emirate of
Ras Al-Khaimah ceases directly or indirectly (i) to own at least 30 per cent. of the issued share
capital of the Guarantor, and/or (ii) to control the Guarantors business;
Redemption Date means, in respect of any Redemption Period, the date which falls 14 days
after the date on which the relevant holder exercises its option in accordance with this
Condition 6(f) (Redemption at the Option of Noteholders following a Change of Control); and
Redemption Period means, in relation to any Change of Control Event, the period from and
including the date on which a Change of Control Event occurs (whether or not the Issuer has
given the Change of Control Notice) to and including the date falling 60 days after the date on
which any such notice is given, provided that if no such notice is given, the Redemption Period
shall not terminate.
For the purposes of this Condition, the Government will be deemed to control the Guarantor if
(whether directly or indirectly and whether by the ownership of share capital, the possession of
voting power, contract, trust or otherwise) it has the power to appoint and/or remove all or the
majority of the members of the board of directors or other governing body of the Guarantor or
otherwise controls, or has the power to control, the affairs and policies of the Guarantor.
(g) Purchases
Each of the Issuer, the Guarantor and any Subsidiary may at any time purchase Notes
(provided that all unmatured Coupons and unexchanged Talons relating thereto are attached
thereto or surrendered therewith) in the open market or otherwise at any price.
(h) Cancellation
All Notes purchased by or on behalf of the lssuer, the Guarantor or any Subsidiary may be
surrendered for cancellation, in the case of Bearer Notes, by surrendering each such Note
together with all unmatured Coupons and all unexchanged Talons to the Fiscal Agent and, in
the case of Registered Notes, by surrendering the Certificate representing such Notes to the
Registrar and, in each case, if so surrendered, shall, together with all Notes redeemed by the
Issuer, be cancelled forthwith (together with all unmatured Coupons and unexchanged Talons
attached thereto or surrendered therewith). Any Notes so surrendered for cancellation may not
be reissued or resold and the obligations of the Issuer and the Guarantor in respect of any such
Notes shall be discharged.
7. PAYMENTS AND TALONS
(a) Bearer Notes
Payments of principal and interest in respect of Bearer Notes shall, subject as mentioned below,
be made against presentation and surrender of the Notes (in the case of all payments of
principal and, in the case of interest, as specified in Condition 7(f)(vi)) (Unmatured Coupons and
Unexchanged Talons) or Coupons (in the case of interest, save as specified in
Condition 7(f)(vi)) (Unmatured Coupons and Unexchanged Talons)), as the case may be, at the
specified office of any Paying Agent outside the United States by a cheque payable in the
relevant currency drawn on, or, at the option of the holder, by transfer to an account
denominated in such currency with, a Bank. Bank means a bank in the principal financial
centre for such currency or, in the case of euro, in a city in which banks have access to the
TARGET System.
(b) Registered Notes
(i) Payments of principal in respect of Registered Notes shall be made against presentation
and surrender of the relevant Certificates at the specified office of any of the Transfer
Agents or of the Registrar and in the manner provided in paragraph (ii) below.
(ii) Interest on Registered Notes shall be paid to the person shown on the Register at the
close of business on the fifteenth day before the due date for payment thereof (the
Record Date). Payments of interest on each Registered Note shall be made in the
33
relevant currency by cheque drawn on a Bank and mailed to the holder (or to the first-
named of joint holders) of such Note at its address appearing in the Register. Upon
application by the holder to the specified office of the Registrar or any Transfer Agent
before the Record Date, such payment of interest may be made by transfer to an account
in the relevant currency maintained by the payee with a Bank.
(c) Payments in the United States
Notwithstanding the foregoing, if any Bearer Notes are denominated in US dollars, payments in
respect thereof may be made at the specified office of any Paying Agent in New York City in the
same manner as aforesaid if:
(i) the Issuer shall have appointed Paying Agents with specified offices outside the United
States with the reasonable expectation that such Paying Agents would be able to make
payment of the amounts on the Notes in the manner provided above when due;
(ii) payment in full of such amounts at all such offices is illegal or effectively precluded by
exchange controls or other similar restrictions on payment or receipt of such amounts;
and
(iii) such payment is then permitted by United States law, without involving, in the opinion of
the Issuer, any adverse tax consequence to the Issuer.
(d) Payments Subject to Fiscal Laws
All payments in respect of principal and interest on the Notes are subject in all cases to: (a) any
fiscal or other laws and regulations applicable thereto in the place of payment, but without
prejudice to the provisions of Condition 8 (Taxation) and (b) any withholding or deduction
required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue
Code of 1986, as amended (the Code), or otherwise imposed pursuant to Sections 1471
through 1474 of the Code and any regulations or agreements thereunder or official
interpretations thereof (FATCA) or any law implementing an intergovernmental approach to
FATCA. No commission or expenses shall be charged to the Noteholders or Couponholders in
respect of such payments.
(e) Appointment of Agents
(i) The Fiscal Agent, the Paying Agents, the Registrar, the Transfer Agents and the
Calculation Agent initially appointed by the Issuer and the Guarantor and their respective
specified offices are listed below. The Fiscal Agent, the Paying Agents, the Registrar,
Transfer Agents and the Calculation Agent(s) act solely as agents of the Issuer and the
Guarantor and do not assume any obligation or relationship of agency or trust for or with
any Noteholder or Couponholder. The Issuer and the Guarantor reserve the right at any
time to vary or terminate the appointment of the Fiscal Agent, any other Paying Agent, the
Registrar, any Transfer Agent or the Calculation Agent(s) and to appoint additional or other
Paying Agents or Transfer Agents, provided that the Issuer shall at all times maintain:
(A) a Fiscal Agent;
(B) a Registrar in relation to Registered Notes;
(C) a Transfer Agent in relation to Registered Notes;
(D) one or more Calculation Agent(s) where the Conditions so require;
(E) Paying Agents having specified offices in at least two major European cities;
(F) such other agents as may be required by any other stock exchange on which the
Notes may be listed; and
(G) a Paying Agent with a specified office in a European Union member state that will
not be obliged to withhold or deduct tax pursuant to any law implementing
European Council Directive 2003/48/EC or any other Directive implementing the
conclusions of the ECOFIN Council meeting of 26-27 November 2000.
(ii) In addition, the Issuer and the Guarantor shall forthwith appoint a Paying Agent in New
York City in respect of any Bearer Notes denominated in U.S. dollars in the
circumstances described in paragraph (c) above.
34
(iii) Notice of any such change or any change of any specified office shall promptly be given
to the Noteholders.
(f) Unmatured Coupons and Unexchanged Talons:
(i) Upon the due date for redemption of Bearer Notes which comprise Fixed Rate Notes,
those Notes should be surrendered for payment together with all unmatured Coupons (if
any) relating thereto, failing which an amount equal to the face value of each missing
unmatured Coupon (or, in the case of payment not being made in full, that proportion of
the amount of such missing unmatured Coupon that the sum of principal so paid bears to
the total principal due) shall be deducted from the Final Redemption Amount, Early
Redemption Amount or Optional Redemption Amount, as the case may be, due for
payment. Any amount so deducted shall be paid in the manner mentioned above against
surrender of such missing Coupon within a period of 10 years from the Relevant Date for
the payment of such principal (whether or not such Coupon has become void pursuant to
Condition 9) (Prescription).
(ii) Upon the due date for redemption of any Bearer Note comprising a Floating Rate Note,
unmatured Coupons relating to such Note (whether or not attached) shall become void
and no payment shall be made in respect of them.
(iii) Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating to
such Note (whether or not attached) shall become void and no Coupon shall be delivered
in respect of such Talon.
(iv) Where any Bearer Note that provides that the relative unmatured Coupons are to
become void upon the due date for redemption of those Notes is presented for
redemption without all unmatured Coupons, and where any Bearer Note is presented for
redemption without any unexchanged Talon relating to it, redemption shall be made only
against the provision of such indemnity as the Issuer may require.
(v) If the due date for redemption of any Note is not a due date for payment of interest,
interest accrued from the preceding due date for payment of interest or the Interest
Commencement Date, as the case may be, shall only be payable against presentation
(and surrender if appropriate) of the relevant Bearer Note or Certificate representing it, as
the case may be. Interest accrued on a Note that only bears interest after its Maturity
Date shall be payable on redemption of such Note against presentation of the relevant
Note or Certificate representing it, as the case may be.
(g) Talons
On or after the Interest Payment Date for the final Coupon forming part of a Coupon sheet
issued in respect of any Bearer Note, the Talon forming part of such Coupon sheet may be
surrendered at the specified office of the Fiscal Agent in exchange for a further Coupon sheet
(and if necessary another Talon for a further Coupon sheet) (but excluding any Coupons that
may have become void pursuant to Condition 9) (Prescription).
(h) Non-Business Days
If any date for payment in respect of any Note or Coupon is not a business day, the holder shall
not be entitled to payment until the next following business day nor to any interest or other sum
in respect of such postponed payment. In this paragraph, business day means a day (other
than a Saturday or a Sunday) on which banks and foreign exchange markets are open for
business in the relevant place of presentation, in such jurisdictions as shall be specified as
Financial Centres hereon and:
(i) (in the case of a payment in a currency other than euro) where payment is to be made by
transfer to an account maintained with a bank in the relevant currency, on which foreign
exchange transactions may be carried on in the relevant currency in the principal
financial centre of the country of such currency; or
(ii) (in the case of a payment in euro) which is a TARGET Business Day.
8. TAXATION
(a) All payments of principal and interest by or on behalf of the Issuer or the Guarantor in respect of
the Notes and the Coupons or under the Guarantee shall be made free and clear of, and without
35
withholding or deduction for, any taxes, duties, assessments or governmental charges of
whatever nature imposed, levied, collected, withheld or assessed by or within the Cayman
Islands or the United Arab Emirates or any authority therein or thereof having power to tax,
unless such withholding or deduction is required by law. In that event, the Issuer or, as the case
may be, the Guarantor shall pay such additional amounts as shall result in receipt by the
Noteholders and the Couponholders of such amounts as would have been received by them
had no such withholding or deduction been required, except that no such additional amounts
shall be payable with respect to any Note or Coupon:
(i) Other connection
to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessments
or governmental charges in respect of such Note or Coupon by reason of his having some
connection with the Cayman Islands or, in the case of payments by the Guarantor, the
United Arab Emirates other than the mere holding of the Note or Coupon; or
(ii) Presentation more than 30 days after the Relevant Date
presented (or in respect of which the Certificate representing it is presented) for payment
more than 30 days after the Relevant Date except to the extent that the holder of it would
have been entitled to such additional amounts on presenting it for payment on the thirtieth
such day; or
(iii) Payment to individuals
where such withholding or deduction is imposed on a payment to an individual and is
required to be made pursuant to European Council Directive 2003/48/EC or any other
Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November
2000 on the taxation of savings income or any law implementing or complying with, or
introduced in order to conform to, such Directive; or
(iv) Payment by another Paying Agent
(except in the case of Registered Notes) presented for payment by or on behalf of a holder
who would have been able to avoid such withholding or deduction by presenting the
relevant Note or Coupon to another Paying Agent in a Member State of the European
Union.
(b) As used in these Conditions, Relevant Date in respect of any Note or Coupon means the
date on which payment in respect of it first becomes due or (if any amount of the money payable
is improperly withheld or refused) the date on which payment in full of the amount outstanding is
made or (if earlier) the date seven days after that on which notice is duly given to the
Noteholders that, upon further presentation of the Note (or relative Certificate) or Coupon being
made in accordance with the Conditions, such payment will be made, provided that payment is
in fact made upon such presentation. References in these Conditions to:
(i) principal shall be deemed to include any premium payable in respect of the Notes,
Final Redemption Amounts, Early Redemption Amounts, Optional Redemption Amounts,
Amortised Face Amounts and all other amounts in the nature of principal payable
pursuant to Condition 6 (Redemption, Purchase and Options) or any amendment or
supplement to it;
(ii) interest shall be deemed to include all Interest Amounts and all other amounts payable
pursuant to Condition 5 (Interest and Other Calculations) or any amendment or
supplement to it; and
(iii) principal and/or interest shall be deemed to include any additional amounts that
may be payable under this Condition.
9. PRESCRIPTION
Claims against the Issuer and/or the Guarantor for payment in respect of the Notes and
Coupons (which for this purpose shall not include Talons) shall be prescribed and become void
unless made within 10 years (in the case of principal) or five years (in the case of interest) from
the appropriate Relevant Date in respect of them.
36
10. EVENTS OF DEFAULT
If any of the following events (Events of Default) occurs and is continuing any Noteholder
may give written notice to the Issuer and the Guarantor at the specified office of the Fiscal Agent
that such Note is immediately repayable, whereupon the Early Redemption Amount of such
Note together (if applicable) with accrued interest to the date of payment shall become
immediately due and payable, unless such event of default shall have been remedied prior to
the receipt of such notice by the Fiscal Agent:
(a) Non-Payment: default is made for more than 14 days (in the case of interest) or seven
days (in the case of principal) on the payment on the due date of interest or principal; or
(b) Breach of other obligations: the Issuer or the Guarantor defaults in the performance or
observance of any of its other obligations under or in respect of the Notes and such
default remains unremedied for 30 days after written notice thereof has been delivered to
the Issuer or the Guarantor, as the case may be, at the specified office of the Fiscal
Agent; or
(c) Cross-default:
(i) any Indebtedness of the Issuer, the Guarantor or any Material Subsidiary is not
paid when due or (as the case may be) within any originally applicable grace
period;
(ii) any such Indebtedness becomes (or becomes capable of being declared) due and
payable prior to its stated maturity otherwise than at the option of the Issuer, the
Guarantor or any Material Subsidiary or (provided that no event of default,
howsoever described, has occurred) any Person entitled to such Indebtedness; or
(iii) the Issuer, the Guarantor or any Material Subsidiary fails to pay when due, or (as
the case may be) within any originally applicable grace period, any amount
payable by it under any guarantee or indemnity of any Indebtedness; or
provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub-
paragraph (ii) above and/or the amount payable under any guarantee or indemnity
referred to in sub-paragraph (iii) above individually or in the aggregate exceeds
U.S.$10,000,000 (or its equivalent in any other currency or currencies); or
(d) Unsatisfied judgment: one or more judgment(s) or order(s) from which no further
appeal or judicial review is permissible under applicable law for the payment of any
amount/an aggregate amount in excess of U.S.$10,000,000 (or its equivalent in any other
currency or currencies) is rendered against the Issuer, the Guarantor or any Material
Subsidiary and continue(s) unsatisfied and unstayed for a period of 30 days after the
date(s) thereof or, if later, the date therein specified for payment; or
(e) Security enforced: a secured party takes possession, or a receiver, manager or other
similar officer is appointed, of the whole or a substantial part of the undertaking, assets
and revenues of the Issuer, the Guarantor or any Material Subsidiary; or
(f) Insolvency etc:
(i) the Issuer, the Guarantor or any Material Subsidiary become(s) insolvent or is
unable to pay its/their debts as they fall due,
(ii) an administrator or liquidator of the Issuer, the Guarantor or any Material
Subsidiary or the whole or a substantial part of the undertaking, assets and
revenues of the Issuer, the Guarantor or any Material Subsidiary is appointed (or
application for any such appointment is made) and, in relation to a Material
Subsidiary or a substantial part of the undertaking, assets and revenues of a
Material Subsidiary, such appointment is not discharged within 30 days,
(iii) the Issuer, the Guarantor or any Material Subsidiary takes any action for a
readjustment or deferment of any of its obligations or makes a general assignment
or an arrangement or composition with or for the benefit of its/their creditors or
declares a moratorium in respect of any of its/their Indebtedness or any guarantee
or indemnity of any Indebtedness given by it or them or,
37
(iv) the Issuer, the Guarantor or any Material Subsidiary ceases or threatens to cease
to carry on all or any substantial part of its/their business, save in connection with
a Permitted Reorganisation; or
(g) Winding up etc: an order is made or an effective resolution is passed for the winding up,
liquidation or dissolution of the Issuer, the Guarantor or any Material Subsidiary, save in
connection with a Permitted Reorganisation; or
(h) Analogous event: any event occurs which under the laws of the Cayman Islands or the
United Arab Emirates has an analogous effect to any of the events referred to in
paragraphs (d) to (g) above; or
(i) Failure to take action etc: any action, condition or thing at any time required to be
taken, fulfilled or done in order:
(i) to enable the Issuer or the Guarantor lawfully to enter into, exercise its rights and
perform and comply with its obligations under and in respect of the Notes;
(ii) to ensure that those obligations are legal, valid, binding and enforceable; and
(iii) to make the Notes and the Coupons admissible in evidence in the courts of the
Cayman Islands or the United Arab Emirates;
is not taken, fulfilled or done; or
(j) Unlawfulness: it is or will become unlawful for the Issuer or the Guarantor to perform or
comply with any of its obligations under or in respect of the Notes; or
(k) Government intervention:
(i) all or any substantial part of the undertaking, assets and revenues of the Issuer,
the Guarantor or any Material Subsidiary is condemned, seized or otherwise
appropriated by any Person acting under the authority of any national, regional or
local government; or
(ii) the Issuer, the Guarantor or any Material Subsidiary is prevented by any such
Person from exercising control over all or any substantial part of its/their
undertaking, assets and revenues; or
(o) Guarantee not in effect: the Guarantee is not (or claimed by the Guarantor not to be) in
full force and effect.
In this Condition:
Material Subsidiary shall mean a Subsidiary the book value of the assets of which exceeds
10 per cent. of the book value of the assets of the Guarantor and its Subsidiaries, taken as a
whole, or the revenues of which exceed 10 per cent. of the revenues of the Guarantor and its
Subsidiaries, taken as a whole, and, for these purposes:
(a) the book value of the assets and the revenues of such Subsidiary shall be determined by
reference to its then most recent audited annual financial statements (or, if none, its then
most recent management accounts); and
(b) the book value of the assets and the revenues of the Guarantor and its Subsidiaries,
taken as a whole, shall be determined by reference to its then most recent audited annual
consolidated financial statements.
A report by two of the directors of the Guarantor that in their opinion a Subsidiary is or was or
was not at any particular time or throughout any specified period a Material Subsidiary shall, in
the absence of manifest error, be conclusive and binding on all parties.
Permitted Reorganisation shall mean:
(a) any disposal by any Material Subsidiary of the whole or a substantial part of its business,
undertaking or assets to the Guarantor or any Subsidiary of the Guarantor;
(b) any amalgamation, consolidation or merger of a Material Subsidiary with the Guarantor or
any Subsidiary of the Guarantor; or
(c) any amalgamation, consolidation, restructuring, merger or reorganisation on terms
previously approved by an Extraordinary Resolution.
38
11. MEETINGS OF NOTEHOLDERS AND MODIFICATIONS
(a) Meetings of Noteholders
The Agency Agreement contains provisions for convening meetings of Noteholders to consider
any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a
modification of any of these Conditions. Such a meeting may be convened by Noteholders
holding not less than 10 per cent, in nominal amount of the Notes for the time being outstanding.
The quorum for any meeting convened to consider an Extraordinary Resolution shall be two or
more persons holding or representing a clear majority in nominal amount of the Notes for the
time being outstanding, or at any adjourned meeting two or more persons being or representing
Noteholders whatever the nominal amount of the Notes held or represented, unless the
business of such meeting includes consideration of proposals, inter alia:
(i) to amend the dates of maturity or redemption of the Notes or any date for payment of
interest or Interest Amounts on the Notes;
(ii) to reduce or cancel the nominal amount of any premium payable on redemption of, the
Notes;
(iii) to reduce the rate or rates of interest in respect of the Notes or to vary the method or
basis of calculating the rate or rates or amount of interest or the basis for calculating any
Interest Amount in respect of the Notes;
(iv) if a Minimum and/or a Maximum Rate of Interest or Redemption Amount is shown
hereon, to reduce any such Minimum and/or Maximum;
(v) to vary any method of, or basis for, calculating the Final Redemption Amount, the Early
Redemption Amount or the Optional Redemption Amount, including the method of
calculating the Amortised Face Amount;
(vi) to vary the currency or currencies of payment or denomination of the Notes;
(vii) to modify the provisions concerning the quorum required at any meeting of Noteholders
or the majority required to pass the Extraordinary Resolution; or
(viii) to modify or cancel the Guarantee,
in which case the necessary quorum shall be two or more persons holding or
representing not less than 75 per cent, or at any adjourned meeting not less than 25 per
cent, in nominal amount of the Notes for the time being outstanding. Any Extraordinary
Resolution duly passed shall be binding on Noteholders (whether or not they were
present at the meeting at which such resolution was passed) and on all Couponholders.
The Agency Agreement provides that a resolution in writing signed by or on behalf of the holders
of not less than 90 per cent, in nominal amount of the Notes outstanding shall for all purposes be
as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly
convened and held. Such a resolution in writing may be contained in one document or several
documents in the same form, each signed by or on behalf of one or more Noteholders.
(b) Modification of Agency Agreement
The Issuer and the Guarantor shall only permit any modification of, or any waiver or
authorisation of any breach or proposed breach of or any failure to comply with, the Agency
Agreement, if to do so could not reasonably be expected to be prejudicial to the interests of the
Noteholders.
(c) Substitution
The Issuer, or any previous substituted company, may at any time, without the consent of the
Noteholders or the Couponholders, substitute for itself as principal debtor under the Notes the
Coupons and the Talons, any company (the Substitute) that is the Guarantor, or any
Subsidiary, provided that no payment in respect of the Notes or the Coupons is at the relevant
time overdue. The substitution shall be made by a deed poll (the Deed Poll), to be
substantially in the form scheduled to the Agency Agreement as Schedule 8, and may take
place only if:
(i) the Substitute shall, by means of the Deed Poll, agree to indemnify each Noteholder and
Couponholder, on an after tax basis, against any tax, duty, assessment or governmental
39
charge that is imposed on it by (or by any authority in or of) the jurisdiction of the country
of the Substitutes residence for tax purposes and, if different, of its incorporation with
respect to any Note, Coupon, Talon or the Deed of Covenant and that would not have
been so imposed had the substitution not been made, as well as against any tax, duty,
assessment or governmental charge, and any cost or expense, relating to the
substitution;
(ii) where the Substitute is not the Guarantor, the obligations of the Substitute under the
Deed Poll, the Notes, Coupons, Talons and Deed of Covenant shall be unconditionally
guaranteed by the Guarantor by means of the Deed Poll and the Deed of Guarantee;
(iii) all action, conditions and things required to be taken, fulfilled and done (including the
obtaining of any necessary consents) to ensure that the Deed Poll, the Notes, Coupons,
Talons and Deed of Covenant represent valid, legally binding and enforceable obligations
of the Substitute, and in the case of the Deed Poll and the Deed of Guarantee of the
Guarantor have been taken, fulfilled and done and are in full force and effect;
(iv) the Substitute shall have become party to the Agency Agreement, with any appropriate
consequential amendments, as if it had been an original party to it;
(v) legal opinions addressed to the Noteholders shall have been delivered to them (care of
the Fiscal Agent) from a lawyer or firm of lawyers with a leading securities practice in
each jurisdiction referred to in (i) above and in England as to the fulfilment of the
preceding conditions of this paragraph (iii) and the other matters specified in the Deed
Poll; and
(vi) the Issuer shall have given at least 14 days prior notice of such substitution to the
Noteholders, stating that copies, or pending execution the agreed text, of all documents
in relation to the substitution that are referred to above, or that might otherwise
reasonably be regarded as material to Noteholders, shall be available for inspection at
the specified office of each of the Paying Agents.
References in Condition 10 (Events of Default) to obligations under the Notes shall be deemed
to include obligations under the Deed Poll, and, where the Deed Poll contains a guarantee, the
events listed in Condition 10 (Events of Default) shall be deemed to include that guarantee not
being (or being claimed by the guarantor not to be) in full force and effect.
12. REPLACEMENT OF NOTES, CERTIFICATES, COUPONS AND TALONS
If a Note, Certificate, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it may be
replaced, subject to applicable laws, regulations and stock exchange or other relevant authority
regulations, at the specified office of the Fiscal Agent in Luxembourg (in the case of Bearer
Notes, Coupons or Talons) and of the Registrar (in the case of Certificates) or such other
Paying Agent or Transfer Agent, as the case may be, as may from time to time be designated
by the Issuer for the purpose and notice of whose designation is given to Noteholders, in each
case on payment by the claimant of the fees and costs incurred in connection therewith and on
such terms as to evidence, security and indemnity (which may provide, inter alia, that if the
allegedly lost, stolen or destroyed Note, Certificate, Coupon or Talon is subsequently presented
for payment or, as the case may be, for exchange for further Coupons, there shall be paid to the
Issuer on demand the amount payable by the Issuer in respect of such Notes, Certificates,
Coupons or further Coupons) and otherwise as the Issuer may require. Mutilated or defaced
Notes, Certificates, Coupons or Talons must be surrendered before replacements will be issued.
13. FURTHER ISSUES
The Issuer may from time to time without the consent of the Noteholders or Couponholders
create and issue further notes having the same terms and conditions as the Notes (so that, for
the avoidance of doubt, references in these Conditions to Issue Date shall be to the first issue
date of the Notes) and so that the same shall be consolidated and form a single series with such
Notes, and references in these Conditions to Notes shall be construed accordingly.
14. NOTICES
(a) Notices to the holders of Registered Notes shall be mailed to them at their respective addresses
in the Register and deemed to have been given on the fourth weekday (being a day other than a
Saturday or a Sunday) after the date of mailing. Notices to the holders of Bearer Notes shall be
40
valid if published in a daily newspaper of general circulation in London (which is expected to be
the Financial Times). If any such publication is not practicable, notice shall be validly given if
published in another leading daily English language newspaper with general circulation. Any
such notice shall be deemed to have been given on the date of such publication or, if published
more than once or on different dates, on the date of the first publication as provided above.
(b) Couponholders shall be deemed for all purposes to have notice of the contents of any notice
given to the holders of Bearer Notes in accordance with this Condition.
15. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts
(Rights of Third Parties) Act 1999.
16. GOVERNING LAW AND DISPUTE RESOLUTION
(a) Governing law
The Notes, the Coupons and the Talons and any non-contractual obligations arising out of or in
connection with them shall be governed by, and construed in accordance with, English law.
(b) Arbitration
Subject to Condition 16(c) (Option to Litigate), any dispute, claim, difference or controversy arising
out of, relating to or having any connection with the Notes, the Coupons and the Talons (including
any dispute, claim, difference or controversy relating to any non-contractual obligations arising out
of or in connection with the Notes, the Coupons and the Talons; and any dispute, claim, difference
or controversy regarding their existence, validity, interpretation, performance, breach or
termination or the consequences of their nullity) (a Dispute) shall be referred to and finally
resolved by arbitration under the LCIA Arbitration Rules (the Rules), which Rules (as amended
from time to time) are incorporated by reference into this Condition. For these purposes:
(i) the seat, or legal place, of arbitration will be London, England and all hearings shall take
place in London, England;
(ii) the governing law of the arbitration agreement shall be English law;
(iii) there shall be three arbitrators, each of whom shall be disinterested in the arbitration,
shall have no connection with any party thereto and shall be a lawyer experienced in
international securities transactions; and
(iv) the language of the arbitration shall be English.
(c) Option to Litigate
Notwithstanding Condition 16(b) (Arbitration) above, any Noteholder may, in the alternative, and
at its sole discretion, by notice in writing to the Issuer and the Guarantor:
(i) within 28 days of service of a written request for arbitration to the Registrar of the LCIA
Court (a Request for Arbitration as described more particularly in the Rules); or
(ii) in the event no arbitration is commenced,
require that a Dispute be heard by a court of law. If any Noteholder gives such notice, the
Dispute to which such notice refers shall be determined in accordance with Condition 16(d)
(Effect of Exercise of Option to Litigate) and, subject as provided below, any arbitration
commenced under Condition 16(b) (Arbitration) in respect of that Dispute will be terminated.
Each person who gives such notice and the recipient of that notice will bear its own costs in
relation to the terminated arbitration.
If any notice to terminate the arbitration in accordance with this Condition is given after service
of any Request for Arbitration in respect of any Dispute, the Noteholder must also promptly give
notice to the LCIA Court and to any Tribunal (each as defined in the Rules) already appointed in
relation to the Dispute that such Dispute will be settled by the courts. Upon receipt of such
notice by the LCIA Court, the arbitration and any appointment of any arbitrator in relation to such
Dispute will immediately terminate. Any such arbitrator will be deemed to be functus officio. The
termination is without prejudice to:
(i) the validity of any act done or order made by that arbitrator or by the court in support of
that arbitration before his appointment is terminated;
41
(ii) his entitlement to be paid his proper fees and disbursements; and
(iii) the date when any claim or defence was raised for the purpose of applying any limitation
bar or any similar rule or provision.
(d) Effect of Exercise of Option to Litigate
In the event that a notice pursuant to Condition 16(c) (Option to Litigate) is issued, the following
provisions shall apply:
(i) subject to paragraph (iii) below, the courts of England shall have exclusive jurisdiction to
settle any Dispute and each of the Issuer and the Guarantor submits to the exclusive
jurisdiction of such courts;
(ii) each of the Issuer and the Guarantor agrees that the courts of England are the most
appropriate and convenient courts to settle any Dispute and, accordingly, that it will not
argue to the contrary; and
(iii) this Condition is for the benefit of the Noteholders only. As a result, and notwithstanding
paragraph (i) above, any Noteholder may take proceedings relating to a Dispute
(Proceedings) in any other courts with jurisdiction. To the extent allowed by law, the
Noteholders may take concurrent Proceedings in any number of jurisdictions.
(e) Process agent
Each of the Issuer and the Guarantor agrees that the documents which start any Proceedings
and any other documents required to be served in relation to those Proceedings may be served
on it by being delivered to Maples and Calder at its registered office at 11
th
Floor, 200
Aldersgate Street, London, EC1A 4HD, United Kingdom and undertakes that, in the event of
such person ceasing so to act or ceasing to be registered in England, it will immediately (and in
any event within 30 days of the event taking place) appoint another person as its agent for
service of process in England in respect of any Proceedings or Disputes. Failure by a process
agent to notify the person that appointed it of any process will not invalidate the relevant
proceedings. Nothing herein shall affect the right to serve process in any other manner
permitted by law.
(f) Waiver of immunity
The Issuer and the Guarantor hereby irrevocably and unconditionally waives with respect to the
Notes, the Coupons and the Talons any right to claim sovereign or other immunity from
jurisdiction or execution and any similar defence and irrevocably and unconditionally consents to
the giving of any relief or the issue of any process, including without limitation, the making,
enforcement or execution against any property whatsoever (irrespective of its use or intended
use) of any order or judgment made or given in connection with any Proceedings or Disputes.
42
USE OF PROCEEDS
The net proceeds of the issue of each Tranche of Notes will be loaned to the Bank by the Issuer
pursuant to a loan agreement.
43
FORM OF FINAL TERMS
Set out below is the form of Final Terms that will be completed for each Tranche of Notes.
Final Terms dated [date]
RAKFUNDING CAYMAN LTD
Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] (the Notes)
guaranteed by
THE NATIONAL BANK OF RAS AL-KHAIMAH (P.S.C.)
under the U.S.$1,000,000,000
Guaranteed Euro Medium Term Note Programme (the Programme)
PART ACONTRACTUAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth
in the Base Prospectus dated 12 June 2014 (the Base Prospectus) [and the supplement[s] to it
dated [date]] which [together] constitute[s] a base prospectus for the purposes of Directive 2003/71/EC
as amended (including the amendments made by Directive 2010/73/EU) (the Prospectus
Directive). [This document constitutes the Final Terms of the Notes described herein for the purposes
of Article 5.4 of the Prospectus Directive and must be read in conjunction with such Base Prospectus
[as so supplemented].]
1
Full information on the Issuer, the Guarantor and the offer of the Notes is only
available on the basis of the combination of these Final Terms and the Base Prospectus [and the
supplement[s] to it dated [date]]. The Base Prospectus [and the supplement[s] to it] [is] [are] available
for viewing in accordance with Article 14 of the Prospectus Directive on the website of the Central Bank
of Ireland (www.centralbank.ie) and during normal business hours at [address], and copies may be
obtained from [address] free of charge.
[Include whichever of the following apply or specify as Not Applicable. Note that the numbering
should remain as set out below, even if Not Applicable is indicated for individual paragraphs or sub-
paragraphs. Italics denote directions for completing the Final Terms.]
[When completing the Final Terms consideration should be given as to whether such terms or
information constitute significant new factors and consequently trigger the need for a supplement to
the Base Prospectus under Article 16 of the Prospectus Directive.]
[If the Notes have a maturity of less than one year, then the minimum denomination must be 100,000
or its equivalent in any other currency.]
1
Delete where the Notes are neither admitted to trading on a regulated market in the European Economic Area
nor offered in the European Economic Area in circumstances where a base prospectus is required to be
published under the Prospectus Directive.
44
1. (i) Issuer: RAKFUNDING CAYMAN LTD
(ii) Guarantor: The National Bank of Ras Al-Khaimah (P.S.C.)
2. (i) Series Number: [ ]
(ii) Tranche Number: [ ]
(iii) Date on which the Notes
will be consolidated and
form a single Series
[The Notes will be consolidated and form a single Series with
[identify earlier Tranches] on [the Issue Date/exchange of the
Temporary Global Note for interests in the Permanent Global
Note, as referred to in paragraph 21 below, which is expected
to occur on or about [date]][Not Applicable]
3. Specified Currency: [ ]
4. Aggregate Nominal Amount of
Notes immediately after
issuance of the Tranche:
(i) Series: [ ]
(ii) Tranche: [ ]
5 Issue Price: [ ] per cent. of the Aggregate Nominal Amount [plus
accrued interest from [insert date] (if applicable)]
6. (i) Specified Denominations: [ ]
(N.B. Notes must have a minimum denomination of 100,000
(or equivalent).)
(Note where multiple denominations above [100,000] or
equivalent are being used, the following sample wording
should be followed:
[100,000] and integral multiples of [1,000] in excess thereof
up to and including [199,000]. No Notes in definitive form will
be issued with a denomination above [199,000])
(ii) Calculation Amount [ ]
[If only one Specified Denomination, insert the Specified
Denomination. If more than one Specified Denomination,
insert the highest common factor.]
[Note: There must be a common factor in the case of two or
more Specified Denominations]
7. (i) Issue Date: [ ]
(ii) Interest Commencement
Date:
[Specify/Issue Date/Not Applicable]
(N.B. An Interest Commencement Date will not be relevant for
certain Notes, for example Zero Coupon Notes)
8. Maturity Date: [Specify/Interest Payment Date [falling in] [nearest to]
[ ]]
[Specify date or (for Floating Rate Notes) Interest Payment
Date falling in or nearest to the relevant month and year]
9. Interest Basis: [[ ] per cent. Fixed Rate]
[[ ] month [currency]
LIBOR/EURIBOR/EIBOR]
+/- [ ] per cent. Floating Rate]
[Zero Coupon]
(further particulars specified below)
45
10. Redemption/Payment Basis: Subject to any purchase and cancellation or early redemption,
the Notes will be redeemed on the Maturity Date at [ ] per
cent. of their nominal amount
11. Change of Interest or
Redemption/Payment Basis:
[For the period from (and including) the Interest
Commencement Date, up to (but excluding) [ ], paragraph
[14/15] below applies, and, for the period from (and including)
[ ] up to (and including) the Maturity Date, paragraph
[14/15] below applies] [Not Applicable]
12. Put/Call Options: [Investor Put]
[Issuer Call]
[Not Applicable]
[(further particulars specified below)]
13. (i) Status of the Notes: Senior
(ii) Date Board approval for
issuance of Notes [and
Guarantee] obtained:
[ ] [and [ ], respectively][Not Applicable]
(N.B. Only relevant where Board (or similar) authorisation is
required for the particular Tranche of Notes.)
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
14. Fixed Rate Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs of this
paragraph)
(i) Rate[(s)] of Interest: [ ] per cent. per annum payable in arrear on each Interest
Payment Date
(ii) Interest Payment Date(s): [ ] in each year, up to and including the Maturity Date
(iii) Fixed Coupon Amount(s): [[ ] per Calculation Amount] [Not Applicable]
(iv) Broken Amount(s): [[ ] per Calculation Amount, payable on the Interest
Payment Date falling [in/on] [ ]][Not Applicable]
(v) Day Count Fraction: [Actual/Actual][Actual/Actual ISDA]
[Actual/365 (Fixed)]
[Actual/365 (Sterling)]
[Actual/360]
[30/360][360/360][Bond Basis]
[30E/360][Eurobond basis]
[30E/360 (ISDA)]
[Actual/Actual (ICMA)]
(See Condition 5(h) (Definitions) for alternatives)
(vi) [Determination Dates: [[ ] in each year][Not Applicable]
(Only relevant where Day Count Fraction is Actual/Actual
(ICMA). In such a case, insert regular interest payment dates,
ignoring issue date or maturity date in the case of a long or
short first or last coupon)]
15. Floating Rate Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs of this
paragraph)
(i) Interest Period(s): [ ]
(ii) Specified Interest
Payment Date(s):
[ ] [, subject to adjustment in accordance with the Business
Day Convention set out in (v) below/, not subject to adjustment,
as the Business Day Convention in (v) below is specified to be
Not Applicable]
46
(iii) First Interest Payment
Date:
[ ]
(iv) Interest Period Date: [ ] [, subject to adjustment in accordance with the Business
Day Convention set out in (v) below/, not subject to adjustment,
as the Business Day Convention in (v) below is specified to be
Not Applicable]
(v) Business Day Convention [Floating Rate Business Day Convention]
[Following Business Day Convention]
[Modified Following Business Day Convention]
[Preceding Business Day Convention]
[No Adjustment]
(vi) Business Centre(s): [ ]
(vii) Manner in which the
Rate(s) of Interest is/are
to be determined:
[Screen Rate Determination/ISDA Determination]
(viii) Party responsible for
calculating the Rate(s) of
Interest and Interest
Amount(s) (if not the
Calculation Agent):
[[Name] shall be the Calculation Agent ] [Not Applicable]
(ix) Screen Rate
Determination:
[Applicable/Not Applicable]
- Reference Rate: [ ] month [[currency]
LIBOR/EURIBOR/EIBOR]
- Interest Determination
Date(s):
[ ]
- Relevant Screen Page: [ ]
(x) ISDA Determination: [Applicable/Not Applicable]
- Floating Rate Option: [ ]
- Designated Maturity: [ ]
- Reset Date: [ ]
(xi) Linear Interpolation: [Not Applicable] [Applicable - the Rate of Interest for the [long/
short][first/last] Interest Period shall be calculated using Linear
Interpolation (specify for each short or long interest period)]
(xii) Margin(s): [+/-] [ ] per cent. per annum
(xiii) Minimum Rate of Interest: [ ] per cent. per annum
(xiv) Maximum Rate of
Interest: [ ] per cent. per annum
(xv) Day Count Fraction: [Actual/Actual][Actual/Actual ISDA]
[Actual/365 (Fixed)]
[Actual/365 (Sterling)]
[Actual/360]
[30/360][360/360][Bond Basis]
[30E/360][Eurobond basis]
[30E/360 (ISDA)]
[Actual/Actual (ICMA)]
(See Condition 5(h) (Definitions) for alternatives)
47
16. Zero Coupon Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining subparagraphs of this
paragraph)
(i) Amortisation Yield: [ ] per cent. per annum
(ii) Amortised Face Amount: [ ] [As per Condition 6(b) (Early Redemption)]
(iii) Day Count Fraction in
relation to Early
Redemption Amounts:
[Actual/Actual][Actual/Actual ISDA]
[Actual/365 (Fixed)]
[Actual/365 (Sterling)]
[Actual/360]
[30/360][360/360][Bond Basis]
[30E/360][Eurobond basis]
[30E/360 (ISDA)]
[Actual/Actual (ICMA)]
(See Condition 5(h) (Definitions) for alternatives)
PROVISIONS RELATING TO REDEMPTION
17. Call Option [Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs of this
paragraph)
(i) Optional Redemption
Date(s):
[ ]
(ii) Optional Redemption
Amount(s) of each Note:
[ ] per Calculation Amount
(iii) If redeemable in part:
Minimum Redemption
Amount: [ ] per Calculation Amount
Maximum Redemption
Amount: [ ] per Calculation Amount
(iv) Notice period: Minimum period: [ ] days
Maximum period: [ ] days
(N.B. When setting notice periods, the Issuer is advised to
consider the practicalities of distribution of information through
intermediaries, for example, clearing systems and custodians,
as well as any other notice requirements that may apply, for
example, as between the Issuer and the Agent. For example,
Euroclear and Clearstream, Luxembourg require a minimum of
5 business days notice for a call)
18. Put Option [Applicable/Not Applicable]
(If not applicable, delete the remaining sub-paragraphs of this
paragraph)
(i) Optional Redemption
Date(s):
[ ]
(ii) Optional Redemption
Amount(s):
[ ] per Calculation Amount
(iii) Notice period: Minimum period: [ ] days
Maximum period: [ ] days
(N.B. When setting notice periods, the Issuer is advised to
consider the practicalities of distribution of information through
intermediaries, for example, clearing systems and custodians,
as well as any other notice requirements that may apply, for
example, as between the Issuer and the Agent. For example,
Euroclear and Clearstream, Luxembourg require a minimum of
5 business days notice for a put)
48
19. Final Redemption Amount [ ] per Calculation Amount
20. Early Redemption Amount
Early Redemption Amount(s) of
each Note payable on
redemption for taxation
reasons or on event of default
or other early redemption:
[[ ] per Calculation Amount] [In accordance with Condition
6(b) (Early Redemption)]
GENERAL PROVISIONS APPLICABLE TO THE NOTES
21. Form of Notes: [Bearer Notes:
[Temporary Global Note exchangeable for a Permanent
Global Note which is exchangeable for Definitive Notes in
the limited circumstances specified in the Permanent
Global Note]
[Temporary Global Note exchangeable for Definitive
Notes on [ ] days notice]
[Permanent Global Note exchangeable for Definitive
Notes in the limited circumstances specified in the
Permanent Global Note]]
(N B. The exchange upon notice option should not be
expressed to be applicable if the Specified Denomination
of the Notes in paragraph 6 includes language
substantially to the following effect: [100,000] and
integral multiples of [1,000] in excess thereof up to and
including [199,000])
[Registered Notes:
Global Certificate registered in the name of a nominee for
a Common Depositary for Euroclear and Clearstream,
Luxembourg]
22. Financial Centre(s): [Not Applicable/give details. Note that this item relates to
the date and place of payment, and not interest period
end dates, to which paragraph 15(vi) relates]
23. Talons for future Coupons to
be attached to Definitive Notes
(and dates on which such
Talons mature):
[Yes, as the Notes have more than 27 coupon payments,
Talons may be required if, on exchange into definitive
form, more than 27 coupon payments are still to be
made][No]
Signed on behalf of the Issuer:
By:
Duly authorised
Signed on behalf of the Guarantor:
By:
Duly authorised
49
PART B - OTHER INFORMATION
1. LISTING
(i) Listing and Admission to trading: [Application has been made by the Issuer
(or on its behalf) for the Notes to be listed
on the Official List and admitted to trading
on the Main Securities Market of the Irish
Stock Exchange with effect from [ ].] [ ]
[Not Applicable.]
(Where documenting a fungible issue, need
to indicate that original Notes are already
admitted to trading)
(ii) Estimate of total expenses related to
admission to trading:
[ ]
2. RATINGS
Ratings: [The Notes to be issued [[have been]/[are
expected to be]] rated]/[The following
ratings reflect ratings assigned to Notes of
this type issued under the Programme
generally]:
[insert details] by [insert the legal name of
the relevant credit rating agency entity(ies)
and associated defined terms].
[Each of [defined terms] is established in
the European Union and is registered under
Regulation (EC) No. 1060/2009 (as
amended) (the CRA Regulation).]
[[Insert legal name of credit rating agency]
is established in the EU and is not
registered under Regulation (EC) No.
1060/2009 (the CRA Regulation).]
[[Insert legal name of credit rating agency]
is not established in the EU but the rating it
has given to the Notes is endorsed by
[insert legal name of credit rating agency],
which is established in the EU and
registered under Regulation (EC) No.
1060/2009 (the CRA Regulation).]
[[Insert legal name of credit rating agency]
is not established in the EU but is certified
under Regulation (EC) No. 1060/2009 (the
CRA Regulation).]
[[Insert legal name of credit rating agency]
is not established in the EU and is not
certified under Regulation (EU) No.
1060/2009 (the CRA Regulation) and the
rating it has given to the Notes is not
endorsed by a credit rating agency
established in the EU and registered under
the CRA Regulation.]
(The above disclosure should reflect the
rating allocated to Notes of the type being
issued under the Programme generally or,
where the issue has been specifically rated,
that rating.)
50
3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE
[Save for any fees payable to the [Managers /Dealers], so far as the Issuer is aware, no person
involved in the issue of the Notes has an interest material to the offer. The [Managers/Dealers]
and their affiliates have engaged, and may in the future engage, in investment banking and/or
commercial banking transactions with, and may perform other services for, the Issuer and its
affiliates in the ordinary course of business.]
(Need to include a description of any interest, including a conflicting one, that is material to the
issue/offer, detailing the persons involved and the nature of the interest. May be satisfied by the
inclusion of the statement above.)
[(When adding any other description, consideration should be given as to whether such matters
described constitute significant new factors and consequently trigger the need for a supplement
to the Base Prospectus under Article 16 of the Prospectus Directive.)]
4. YIELD (FIXED RATE NOTES ONLY)
Indication of yield: [ ] per cent. [per annum]
The yield is calculated at the Issue Date on the basis of
the Issue Price. It is not an indication of future yield.
5. HISTORIC INTEREST RATES (FLOATING RATE NOTES ONLY)
Details of historic [[currency] LIBOR/EURIBOR/EIBOR] rates can be obtained from [Reuters] at [].
6. OPERATIONAL INFORMATION
(i) ISIN Code: [ ]
(ii) Common Code: [ ]
(iii) Any clearing system(s) other than
Euroclear and Clearstream,
Luxembourg and the relevant
identification number(s):
[Not Applicable]/[Give name(s) and number(s)]
(iv) Delivery: Delivery [against/free of] payment
(v) Names and addresses of
additional Paying Agent(s) or
Transfer Agent(s) (if any):
[Not Applicable] [ ]
7. DISTRIBUTION
(i) Method of distribution: [Syndicated/Non-syndicated]
(ii) If syndicated, names of Managers: [Not Applicable]/[Give names]
(iii) Stabilising Manager(s) (if any): [Not Applicable]/[Give name(s)]
(iv) If non-syndicated, name of
relevant Dealer:
[Not Applicable]/[Give names]
(v) U.S. Selling Restrictions: [Reg. S Compliance Category 2]; [TEFRA C/TEFRA
D/TEFRA not applicable]
8. THIRD PARTY INFORMATION
[[Relevant third party information,] has been extracted from [specify source]. Each of the Issuer
and the Guarantor confirms that such information has been accurately reproduced and that, so far
as it is aware and is able to ascertain from information published by [specify source], no facts have
been omitted that would render the reproduced information inaccurate or misleading.]
51
SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM
1. INITIAL ISSUE OF NOTES
Global Notes and Certificates may be delivered on or prior to the original issue date of the Tranche
to a Common Depositary.
Upon the initial deposit of a Global Note with a Common Depositary for Euroclear and
Clearstream, Luxembourg or registration of Registered Notes in the name of any nominee for
Euroclear and Clearstream, Luxembourg and delivery of the relative Global Certificate to the
Common Depositary, Euroclear or Clearstream, Luxembourg will credit each subscriber with a
nominal amount of Notes equal to the nominal amount thereof for which it has subscribed and
paid.
Notes that are initially deposited with the Common Depositary may also be credited to the
accounts of subscribers with (if indicated in the relevant Final Terms) other clearing systems
through direct or indirect accounts with Euroclear and Clearstream, Luxembourg held by such
other clearing systems. Conversely, Notes that are initially deposited with any other clearing
system may similarly be credited to the accounts of subscribers with Euroclear, Clearstream,
Luxembourg or other clearing systems.
2. RELATIONSHIP OF ACCOUNTHOLDERS WITH CLEARING SYSTEMS
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or any other
clearing system (Alternative Clearing System) as the holder of a Note represented by a Global
Note or a Global Certificate must look solely to Euroclear, Clearstream, Luxembourg or any such
Alternative Clearing System (as the case may be) for his share of each payment made by the
Issuer to the bearer of such Global Note or the holder of the underlying Registered Notes, as the
case may be, and in relation to all other rights arising under the Global Notes or Global
Certificates, subject to and in accordance with the respective rules and procedures of Euroclear,
Clearstream, Luxembourg, or such Alternative Clearing System (as the case may be). Such
persons shall have no claim directly against the Issuer in respect of payments due on the Notes
for so long as the Notes are represented by such Global Note or Global Certificate and such
obligations of the Issuer will be discharged by payment to the bearer of such Global Note or the
holder of the underlying Registered Notes, as the case may be, in respect of each amount so paid.
3. EXCHANGE
3.1 Temporary Global Notes
Each Temporary Global Note will be exchangeable, free of charge to the holder, on or after its
Exchange Date:
3.1.1 if the relevant Final Terms indicates that such Global Note is issued in compliance with
the C Rules or in a transaction to which TEFRA is not applicable (as to which, see
Overview of the ProgrammeSelling Restrictions), in whole, but not in part, for the
Definitive Notes deferred and described below; and
3.1.2 otherwise, in whole or in part upon certification as to non-U.S. beneficial ownership in the
form set out in the Agency Agreement for interests in a Permanent Global Note or, if so
provided in the relevant Final Terms, for Definitive Notes.
3.2 Permanent Global Notes
Each Permanent Global Note will be exchangeable, free of charge to the holder, on or after its
Exchange Date in whole but not, except as provided under paragraph 3.4 below, in part for
Definitive Notes:
3.2.1 if the Permanent Global Note is held on behalf of Euroclear or Clearstream, Luxembourg
or an Alternative Clearing System and any such clearing system is closed for business
for a continuous period of 14 days (other than by reason of holidays, statutory or
otherwise) or announces an intention permanently to cease business or in fact does so;
or
3.2.2 if principal in respect of any Notes is not paid when due, by the holder giving notice to the
Fiscal Agent of its election for such exchange.
52
In the event that a Global Note is exchanged for Definitive Notes, such Definitive Notes shall be
issued in Specified Denomination(s) only. A Noteholder who holds a principal amount of less than
the minimum Specified Denomination will not receive a definitive Note in respect of such holding
and would need to purchase a principal amount of Notes such that it holds an amount equal to one
or more Specified Denominations.
3.3 Global Certificates
If the Final Terms state that the Notes are to be represented by a Global Certificate on issue, the
following will apply in respect of transfers of Notes held in Euroclear or Clearstream, Luxembourg
or an Alternative Clearing System. These provisions will not prevent the trading of interests in the
Notes within a clearing system whilst they are held on behalf of such clearing system, but will limit
the circumstances in which the Notes may be withdrawn from the relevant clearing system.
Transfers of the holding of Notes represented by any Global Certificate pursuant to Condition 2(b)
(Transfer of Registered Notes) may only be made in part:
3.3.1 if the relevant clearing system is closed for business for a continuous period of 14 days
(other than by reason of holidays, statutory or otherwise) or announces an intention
permanently to cease business or does in fact do so; or
3.3.2 if principal in respect of any Notes is not paid when due,
3.3.3 with the consent of the Issuer,
provided that, in the case of the first transfer of part of a holding pursuant to paragraph 3.3.1 or
3.3.2 above, the Registered Holder has given the Registrar not less than 30 days notice at its
specified office of the Registered Holders intention to effect such transfer.
3.4 Partial Exchange of Permanent Global Notes
For so long as a Permanent Global Note is held on behalf of a clearing system and the rules of
that clearing system permit, such Permanent Global Note will be exchangeable in part on one or
more occasions for Definitive Notes if principal in respect of any Notes is not paid when due.
3.5 Delivery of Notes
On or after any due date for exchange the holder of a Global Note may surrender such Global
Note or, in the case of a partial exchange, present it for endorsement to or to the order of the
Fiscal Agent. In exchange for any Global Note, or the part thereof to be exchanged, the Issuer will
(i) in the case of a Temporary Global Note exchangeable for a Permanent Global Note, deliver, or
procure the delivery of, a Permanent Global Note in an aggregate nominal amount equal to that of
the whole or that part of a Temporary Global Note that is being exchanged or, in the case of a
subsequent exchange, endorse, or procure the endorsement of, a Permanent Global Note to
reflect such exchange or (ii) in the case of a Global Note exchangeable for Definitive Notes,
deliver, or procure the delivery of, an equal aggregate nominal amount of duly executed and
authenticated Definitive Notes. In this Base Prospectus, Definitive Notes means, in relation to
any Global Note, the definitive Bearer Notes for which such Global Note may be exchanged (if
appropriate, having attached to them all Coupons and a Talon) and, in relation to any Global
Certificate, the definitive Certificates for which such Global Certificate may be exchanged.
Definitive Notes will be security printed in accordance with any applicable legal and stock
exchange requirements in or substantially in the form set out in the Schedules to the Agency
Agreement. On exchange in full of each Permanent Global Note, the Issuer will, if the holder so
requests, procure that it is cancelled and returned to the holder together with the relevant
Definitive Notes.
3.6 Exchange Date
Exchange Date means, in relation to a Temporary Global Note, the day falling after the expiry
of 40 days after its issue date and, in relation to a Permanent Global Note, a day falling not less
than 60 days, or in the case of failure to pay principal in respect of any Notes when due 30 days,
after that on which the notice requiring exchange is given and on which banks are open for
business in the city in which the specified office of the Fiscal Agent is located and in the city in
which the relevant clearing system is located.
53
4. AMENDMENT TO CONDITIONS
The Temporary Global Notes, Permanent Global Notes and Global Certificates contain provisions
that apply to the Notes that they represent, some of which modify the effect of the terms and
conditions of the Notes set out in this Base Prospectus. The following is a summary of certain of
those provisions:
4.1 Payments
No payment falling due after the Exchange Date will be made on any Global Note unless
exchange for an interest in a Permanent Global Note or for Definitive Notes is improperly withheld
or refused. Payments on any Temporary Global Note issued in compliance with the D Rules
before the Exchange Date will only be made against presentation of certification as to non-U.S.
beneficial ownership in the form set out in the Agency Agreement. All payments in respect of
Notes represented by a Global Note will be made against presentation for endorsement and, if no
further payment falls to be made in respect of the Notes, surrender of that Global Note to or to the
order of the Fiscal Agent or such other Paying Agent as shall have been notified to the
Noteholders for such purpose. A record of each payment so made will be endorsed on each
Global Note, which endorsement will be prima facie evidence that such payment has been made
in respect of the Notes. Condition 7(e)(i)(G) (Appointment of Agents) and Condition 8(a)(iv)
(Payment by another Paying Agent) will apply to the Definitive Notes only. For the purpose of any
payments made in respect of a Global Note, the words in the relevant place of presentation shall
not apply in the definition of business day in Condition 7(h) (Non-Business Days).
All payments in respect of Notes represented by a Global Certificate will be made to, or to the
order of, the person whose name is entered on the Register at the close of business on the record
date which shall be on the Clearing System Business Day immediately prior to the date for
payment, where Clearing System Business Day means Monday to Friday inclusive except
25 December and 1 January.
4.2 Prescription
Claims against the Issuer and/or the Guarantor in respect of Notes that are represented by a
Permanent Global Note will become void unless it is presented for payment within a period of 10
years (in the case of principal) and five years (in the case of interest) from the appropriate
Relevant Date (as defined in Condition 9 (Prescription)).
4.3 Meetings
The holder of a Permanent Global Note or of the Notes represented by a Global Certificate shall
(unless such Permanent Global Note or Global Certificate represents only one Note) be treated as
being two persons for the purposes of any quorum requirements of a meeting of Noteholders and,
at any such meeting, the holder of a Permanent Global Note shall be treated as having one vote in
respect of each integral currency unit of the Specified Currency of the Notes. All holders of
Registered Notes are entitled to one vote in respect of each integral currency unit of the Specified
Currency of the Notes comprising such Noteholders holding, whether or not represented by a
Global Certificate.
4.4 Cancellation
Cancellation of any Note represented by a Permanent Global Note that is required by the
Conditions to be cancelled (other than upon its redemption) will be effected by reduction in the
nominal amount of the relevant Permanent Global Note.
4.5 Purchase
Notes represented by a Permanent Global Note may only be purchased by the Issuer, the
Guarantor or any Subsidiary (as defined in the Conditions) if they are purchased together with the
rights to receive all future payments of interest.
4.6 Issuers Option
Any option of the Issuer provided for in the Conditions of any Notes while such Notes are
represented by a Permanent Global Note shall be exercised by the Issuer giving notice to the
Noteholders within the time limits set out in and containing the information required by the
Conditions, except that the notice shall not be required to contain the serial numbers of Notes
drawn in the case of a partial exercise of an option and accordingly no drawing of Notes shall be
54
required. In the event that any option of the Issuer is exercised in respect of some but not all of the
Notes of any Series, the rights of accountholders with a clearing system in respect of the Notes
will be governed by the standard procedures of Euroclear, Clearstream, Luxembourg or any other
clearing system (as the case may be).
4.7 Noteholders Options
Any option of the Noteholders provided for in the Conditions of any Notes while such Notes are
represented by a Permanent Global Note may be exercised by the holder of the Permanent Global
Note giving notice to the Fiscal Agent within the time limits relating to the deposit of Notes with a
Paying Agent set out in the Conditions substantially in the form of the notice available from any
Paying Agent, except that the notice shall not be required to contain the serial numbers of the
Notes in respect of which the option has been exercised, and stating the nominal amount of Notes
in respect of which the option is exercised and at the same time presenting the Permanent Global
Note to the Fiscal Agent, or to a Paying Agent acting on behalf of the Fiscal Agent, for notation.
4.8 Events of Default
Each Global Note provides that the holder may cause such Global Note, or a portion of it, to
become due and repayable in the circumstances described in Condition 10 (Events of Default) by
stating in the notice to the Fiscal Agent the nominal amount of such Global Note that is becoming
due and repayable. If principal in respect of any Note is not paid when due, the holder of a Global
Note or Registered Notes represented by a Global Certificate may elect for direct enforcement
rights against the Issuer and the Guarantor under the terms of a Deed of Covenant to come into
effect in relation to the whole or a part of such Global Note or one or more Registered Notes in
favour of the persons entitled to such part of such Global Note or such Registered Notes, as the
case may be, as accountholders with a clearing system. Following any such acquisition of direct
rights, the Global Note or, as the case may be, the Global Certificate and the corresponding entry
in the register kept by the Registrar will become void as to the specified portion or Registered
Notes, as the case may be. However, no such election may be made in respect of Notes
represented by a Global Certificate unless the transfer of the whole or a part of the holding of
Notes represented by that Global Certificate shall have been improperly withheld or refused.
4.9 Notices
So long as any Notes are represented by a Global Note and such Global Note is held on behalf of
a clearing system, notices to the holders of Notes of that Series may be given by delivery of the
relevant notice to that clearing system for communication by it to entitled accountholders in
substitution for publication as required by the Conditions or by delivery of the relevant notice to the
holder of the Global Note.
5. ELECTRONIC CONSENT AND WRITTEN RESOLUTION
While any Global Note is held on behalf of, or any Global Certificate is registered in the name of
any nominee for, a clearing system, then:
5.1.1 approval of a resolution proposed by the Issuer given by way of electronic consents
communicated through the electronic communications systems of the relevant clearing
system(s) in accordance with their operating rules and procedures by or on behalf of the
holders of not less than 75 per cent. in nominal amount of the Notes outstanding (an
Electronic Consent as defined in the Agency Agreement) shall for all purposes
(including matters that would otherwise require an Extraordinary Resolution (as defined in
the Conditions) to be passed at a meeting for which the special quorum was satisfied),
take effect as an Extraordinary Resolution passed at a meeting of Noteholders duly
convened and held, and shall be binding on all Noteholders and holders of Coupons and
Talons whether or not they participated in such Electronic Consent; and
5.1.2 where Electronic Consent is not being sought, for the purpose of determining whether a
Written Resolution (as defined in the Agency Agreement) has been validly passed, the
Issuer shall be entitled to rely on consent or instructions given in writing directly to the
Issuer by accountholders in the clearing system with entitlements to such Global Note or
Global Certificate or, where the accountholders hold any such entitlement on behalf of
another person, on written consent from or written instruction by the person for whom
such entitlement is ultimately beneficially held, whether such beneficiary holds directly
with the accountholder or via one or more intermediaries and provided that, in each case,
55
the Issuer obtained commercially reasonable evidence to ascertain the validity of such
holding and have taken reasonable steps to ensure that such holding does not alter
following the giving of such consent or instruction and prior to the effecting of such
amendment. Any resolution passed in such manner shall be binding on all Noteholders
and Couponholders, even if the relevant consent or instruction proves to be defective. As
used in this paragraph, commercially reasonable evidence includes any certificate or
other document issued by Euroclear, Clearstream, Luxembourg or any other relevant
clearing system, or issued by an accountholder of them or an intermediary in a holding
chain, in relation to the holding of interests in the Notes. Any such certificate or other
document shall in the absence of manifest error, be conclusive and binding for all
purposes. Any such certificate or other document may comprise any form of statement or
print out of electronic records provided by the relevant clearing system (including
Euroclears EUCLID or Clearstream, Luxembourgs CreationOnline system) in
accordance with its usual procedures and in which the accountholder of a particular
principal or nominal amount of the Notes is clearly identified together with the amount of
such holding. The Issuer shall not be liable to any person by reason of having accepted
as valid or not having rejected any certificate or other document to such effect purporting
to be issued by any such person and subsequently found to be forged or not authentic.
56
DESCRIPTION OF THE ISSUER
General
RAKFUNDING CAYMAN LTD (RAKFUNDING or the Issuer) was incorporated in the Cayman
Islands as an exempted limited liability company on 20 May 2014 under the Companies Law (as
revised) of the Cayman Islands, registered in the Cayman Islands with registration number 288110. Its
registered office is at the offices of Maples Corporate Services Limited at P.O. Box 309, Ugland House,
Grand Cayman, KY1-1104, Cayman Islands and the telephone number of the registered office is
+1345 949 80666. RAKFUNDING has entered into a registered office agreement with Maples
Corporate Services Limited for the provisions of registered office services in the Cayman Islands. In
consideration of the foregoing, Maples Corporate Services Limited will receive various fees payable by
RAKFUNDING at rates agreed upon from time to time, plus expenses.
The authorised share capital of RAKFUNDING as at 27 May 2014 is U.S.$50,000 divided into 50,000
ordinary shares with a par value of U.S.$1.00 each. The issued share capital of RAKFUNDING is 100
shares, which is fully paid and held by the Bank. RAKFUNDING has no subsidiaries.
Business of RAKFUNDING
RAKFUNDING has no significant prior operating history or significant prior business.
The objects of RAKFUNDING, as referred to in its memorandum of association (as registered or
adopted on 20 May 2014), are unrestricted. RAKFUNDING will not engage in any business activity
other than the issuance of Notes under the Programme and the issuance of shares in its capital and
other activities incidental or related to the foregoing.
Financial Statements
Since the date of its incorporation, no financial statements of RAKFUNDING have been prepared.
Directors of RAKFUNDING
The board of directors of RAKFUNDING and their principal occupations are as follows:
Director Principal Occupation
Peter William England Chief Executive Officer of the Bank
Deepak Ramanlal Majithia Head of Finance of the Bank
The business address of each member of the board of directors is RAKBANK Building, Sheikh
Mohammed Bin Zayed Road, P.O. Box 5300, Ras Al-Khaimah, UAE.
No member of the board of directors has any actual or potential conflict of interest between his duties
to RAKFUNDING and his private interests and/or other duties.
RAKFUNDING has no employees and is not expected to have any employees in the future.
57
DESCRIPTION OF THE BANK
Overview
The National Bank of Ras Al-Khaimah (P.S.C.) was incorporated as a public shareholding company by
an Emiri Decree dated 15 June 1976 in the UAE and commenced its operations in March 1978. The
Banks commercial registration number is 34857. The registered office of the Bank is at RAKBANK
building, Exit 129, Sheikh Mohammed Bin Zayed Road, P.O. Box 5300, Ras Al-Khaimah, UAE The
Banks telephone number is +971 7-2062222.
The Bank was founded by the government of the Emirate of Ras Al-Khaimah to promote the
development of the Emirate. Headquartered in Ras Al-Khaimah, the Bank is the national bank of the
Emirate and continues to play an important role in its economic growth. Following a reorganisation in
2001 (see History and Development), the Bank focused more on personal banking and particularly
on high volume unsecured lending to small businesses operating across the UAE. Although the
Government appoints all of the Board of Directors of the Bank, the Bank is run on a purely commercial
basis with most of its business being undertaken outside of Ras Al-Khaimah.
As at the date of this Base Prospectus, the Government owns 49.3 per cent. of the Bank with a further
3.4 per cent. owned by a company wholly owned by the Government. The balance of the capital is held
publicly: while 6.28 per cent. is held by a prominent UAE individual, Ahmed Essa Al Naeem,
approximately 40.95 per cent. is held by other UAE nationals and by other nationalities. The Banks
shares have been listed and traded on the Abu Dhabi Securities Market since 14 August 2005.
The Bank operates a diversified distribution and delivery network comprising 34 branches in the UAE
and 205 automated teller machines and electronic deposit machines (each an ATM), sales and
marketing staff, telemarketing and external direct sales agents. The Bank offers a wide range of retail
and SME banking products and services, has been one of the pioneers in the offering of mortgage
products and is one of the largest issuers of credit cards in the UAE. The Bank also offers corporate
banking products to a limited number of corporate clients. As at 31 December 2013, the Bank had
approximately 475,000 customers, which were predominantly retail banking customers, compared to
approximately 390,000 customers as at 31 December 2012.
The Bank compares favourably, in terms of total assets, among the medium sized banks in the UAE
with total assets of approximately AED 30,126.8 million as at 31 December 2013, a 10.6 per cent.
increase from AED 27,250.1 million as at 31 December 2012. The Banks net profit for 2013 was AED
1,430.8 million, an increase of approximately 2 per cent. over the previous year. The Banks total
equity before the proposed dividend as at 31 December 2013 was AED 6,516.1 million, an increase of
approximately 14.4 per cent. over the previous year. The Banks net profit for the three months ended
31 March 2014 was AED 334.6 million, a decrease of 9.1 per cent. compared to the three months
ended 31 March 2013. The Banks total equity was AED 6,013.1 million as at 31 March 2014, reflecting
the proposed dividend. The Banks Tier 1 capital adequacy ratio was 29 per cent. as at 31 December
2013 and its return on equity was 23.4 per cent. as at 31 December 2013.
The Bank has a long term issuer rating of BBB+ from Fitch and Baa1 from Moodys. Both Fitch and
Moodys are established in the European Union and registered under the CRA Regulation.
History and Development
The Bank was originally founded in 1976 and underwent a major transformation in 2001 as it
rebranded into RAKBANK and shifted its focus from corporate banking to retail and small business
banking. The Banks focus in this market segment is largely on providing banking services to small
scale trading businesses owned by long term expatriates across the UAE, mainly of Indian and other
Asian origin. Such businesses are categorised by the Bank as SMEs. References in this Prospectus to
the Banks Retail Banking division principally relate to the provision of banking services to these small
businesses as well as to more conventional consumer banking to UAE nationals. The focus on this
small business market with large numbers of small sized but high margin loans has been a successful
one for the Bank and its loan portfolio performed well during the global financial crisis. The following
table shows the development of the Bank over the five years to 31 December 2013.
31 December
2009
31 December
2010
31 December
2011
31 December
2012
31 December
2013
(AED000s)
Loans and advances (net) 13,429,696 16,401,741 18,368,470 20,283,427 21,959,245
58
31 December
2009
31 December
2010
31 December
2011
31 December
2012
31 December
2013
(AED000s)
Net interest income and (from
2013) net income from Islamic
financing 1,255,138 1,620,498 2,033,798 2,306,344 2,465,507
Net profit 726,149 1,002,751 1,203,540 1,402,799 1,430,818
Net interest margin (%) (1) 8.1% 8.4% 8.9% 8.9% 8.6%
Non performing financings
ratio (%) (2) 2.55% 2.46% 2.53% 2.51% 2.41%
(1) Net interest income including interest on investments divided by average assets.(2) Non-performing loans divided by gross loans.
In January 2013, the Bank established RAKBANK AMAL, its Islamic Banking division, to offer a suite of
Sharia-compliant products and services in retail and business banking including personal, auto, home
and business finance. The Bank also established an Islamic finance company called RAK Islamic
Finance Pvt. J.S.C. (RAK Islamic Finance Company), incorporated on 25 June 2012, which
currently sells Sharia-compliant credit cards. It is a 99.9 per cent. subsidiary of the Bank.
BOSS FZCO and RAK Technologies FZCO were both incorporated on 11 April 2010 to provide back
office support services to the Bank. Each of BOSS FZCO and RAK Technologies FZCO have an
authorised and issued share capital of AED 500,000 and were formed under the Dubai Silicon Oasis
Authority guidelines.
Strategy
The Banks strategy focuses on the following:
Focus on retail banking
The Bank intends to maintain its focus on retail banking. This strategy has resulted in increased revenues
and profitability since 2009. For the year ended 31 December 2013, Retail Banking accounted for
72.8 per cent. of the Banks total assets and 90.6 per cent. of its operating income. The high margins
available in the retail banking sector makes the focus on this area an important strategic target.
Moreover, the Bank believes that its size and structure allow it to provide a superior customer service and
therefore compete effectively in this sector, compared to its peers. The Bank believes that customers
choose RAKBANK as a result of its superior customer service and the value for money it provides.
For the year ended 31 December 2013, the Banks operating income from Retail Banking was AED
2,855.2 million compared to AED 2,738.9 million for the year ended 31 December 2012 and its total
assets amounted to AED 21,935.1 million as at 31 December 2013 compared to AED 20,571.8 million
as at 31 December 2012. For the three months ended, 31 March 2014, the Banks operating income
from Retail Banking was AED 741.5 million compared to AED 698.2 million for the three months ended
31 March 2013 and its total assets amounted to AED 22,420.9 million as at 31 March 2014 compared
to AED 20,384 million as at 31 March 2013.
The Banks key Retail Banking and SME products include:
Current accounts and savings accounts;
Personal Loans to expatriates and nationals;
Rakfinance Business Loans;
Credit cards;
Mortgages;
Auto-loans;
Fee based income on distribution of third party insurance and wealth products;
Trade Finance; and
Liability products.
These products are sold using a diverse range of UAE-based distribution and delivery channels such
as branches, ATMs and sales and marketing staff. Sales functions are also outsourced to a number of
59
external agencies which engage in direct selling (see Competitive AdvantagesDistribution and
delivery channels). In particular, the Bank continues to focus very strongly on SME services, which
essentially comprise services to long term expatriates of Indian and other customers of Asian origin,
who run small businesses in the UAE (such businesses currently comprise 53 per cent. of the Banks
total retail customers. Filipino and Pakistani customers constitute 7 per cent. and 6 per cent. of the
Banks total retail customers, respectively, compared to 14 per cent. of UAE nationals as at the date of
this Base Prospectus).
Selective focus on small and mid-sized businesses
The Bank intends to increase its traditional lending to SMEs in Dubai, Ras Al-Khaimah and in the other
emirates. In particular, the Bank will focus strongly on lending to such businesses for specific purposes
and targeted uses, which may or may not constitute secured lending, and on trade finance. The
comparatively low margins available in the corporate sector have reinforced the Banks decision to
adopt a selective focus on small and medium-sized businesses.
Growth of Islamic finance business
In January 2013, the Bank established RAKBANK AMAL, its Islamic Banking division, and introduced
Sharia-compliant Islamic banking products through various Islamic instruments such as Murabaha,
Salam, Mudaraba, Wakala and Ijara products. The Islamic Banking division, in line with the broader
Islamic finance market, is growing rapidly and the Bank intends to invest in its Islamic Banking division
and introduce additional Sharia-compliant instruments to attract additional savings deposits. The Bank
established an Islamic finance company, RAK Islamic Finance Company, which currently sells
Sharia-compliant credit cards.
Diversified growth within the UAE
Although the Bank was established in Ras Al-Khaimah, the Bank is continuing to develop its retail
franchise in other emirates predominantly in Dubai, Abu Dhabi and Sharjah.
As at 31 December 2013, the majority of the Banks customer deposits (approximately 66 per cent. of
the total) are deposits held with the Banks Dubai branches, with the remainder being held with
branches in Ras Al-Khaimah (approximately 15 per cent. of the total), Abu Dhabi (approximately
9 per cent. of the total), Sharjah (approximately 9 per cent. of the total) and Ajman (approximately
1 per cent. of the total).
As at 31 December 2013, the majority of the Banks loans and advances were made to customers based
in Dubai (approximately 58 per cent. of the total), with the remainder being made to customers in
Abu Dhabi (approximately 17 per cent. of the total), Sharjah (approximately 14 per cent. of the total), Ras
Al-Khaimah (approximately 8 per cent. of the total) and Ajman (approximately 3 per cent. of the total).
Quality and speed of service
Maintaining a high quality of customer service, and a customer oriented culture within the Bank are
central components of the Banks strategy. The Banks size allows it to respond quickly to customers,
thereby differentiating itself from its larger competitors. The Bank intends to maintain its service
standards by investing in its existing relationships with SME customers, particularly Indian nationals
and on retaining key staff members and by continuing to provide staff with training at its dedicated
training centre, the RAK Academy.
Lower dependence on National Loan Portfolio
Approximately 25 per cent. of the Banks loans at 31 December 2013 constituted the national loan
portfolio (being the portfolio consisting of loans to UAE nationals) (the National Loan Portfolio). The
Bank has a diversified deposit base that includes retail and corporate customers, government bodies
and public sector agencies, which are regarded by the Bank as a relatively stable and low cost source
of funding. However, top line growth was affected by a significant reduction in the Banks National Loan
Portfolio as a result of the Bank focusing on higher margin products and its customers seeking cheaper
refinancing options with other banks.
Investment securities portfolio
Approximately AED 149.8 million of the Banks operating income as at 31 December 2013 comprised
of investment income (including interest, dividends, and profit on sale/maturity of investments). The
Bank has a diversified portfolio of investment securities that includes debt securities issued by
government bodies, quasi-governmental organisations and financial institutions, which are regarded by
60
the Bank as a relatively stable source of income. The Bank aims to continue to grow its portfolio of
investment securities to maintain a stable source of income.
Recognition as an employer of choice
The Bank is recognised as an employer of choice in the UAE by fostering a motivational environment
which rewards superior performance.
The Bank places great emphasis on learning and skills development, and runs a dedicated training
centre, named the RAK Academy, which offers a wide range of professional training programs for the
Banks employees. The Bank also provides exceptional career opportunities to young UAE nationals,
investing in the development of their knowledge and skills and preparing them for future positions in
which they can play influential roles in the UAE banking industry.
During the year ended 31 December 2013, the Bank continued to sponsor the education of a number
of National students annually at the Higher Colleges of Technology and the American University of Ras
Al-Khaimah. The Bank was one of the first banks in the UAE to achieve the 40 per cent. nationalisation
standard set by the UAE Central Bank in 2002 under its Emiratization programme for local corporate
and financial institutions. The Bank worked closely with many national development organizations in
2013, including the Tanmia and Emirates Nationals Development Programme, to reach a 41.6 per
cent. target as at 31 December 2013.
Competitive Advantages
The Bank believes that it has a strong market position, particularly in the market of lending to small
businesses, which is based on a number of key competitive advantages:
Focused strategy
The Bank has a strong and well-developed focus on the fast-growing and high-margin small business
banking sector. It has also decided to focus selectively on SME banking and on mortgage lending. Its
target market for both these sectors is clearly defined and carefully targeted.
As part of this strategy, the Bank focuses on product innovation that provides a variety of retail
products to its customers and it believes that it provides a high quality, speedy service. The Bank was
among the first banks in the UAE to offer mortgages to expatriates.
Developed and diversified distribution and delivery channels
The Bank sells its products through a number of channels in the UAE, including 34 branches and 205
ATMs, sales and marketing staff and telemarketing. Sales functions are also outsourced to a number
of external agencies who engage in direct selling efforts with the Banks customers. The focus on
selling through non-branch channels has increased substantially since 2003 and has resulted in a
significant increase in business without the need for an equivalent expansion of the branch network. A
majority of new business, such as growing the exposure to expatriate customers and auto loans
products, is through non-branch based channels such as online and mobile selling resulting in a
selective targeting of suitable potential customers.
Committed and well-trained workforce
The Bank has what it regards as a high employee retention rate (74 per cent. for the years ended
31 December 2013 and 76.5 per cent. for the year ended 31 December 2012). The majority of the
Banks senior management, most of whom have many years of experience with international banks,
have been with the Bank for several years.
The Bank operates a dedicated training centre, the RAK Academy, through which all new and existing
staff are trained in areas such as customer service focus and product knowledge. A significant
proportion of the training is carried out by full-time dedicated instructors.
Quality of service and speed of response time
The Bank prides itself on providing a very high quality of customer service.
The comparatively small size of the Bank as well as its internal structure and processes, allows new
products and services to be brought to market in a short time. This provides fast response times to
customers, enabling the Bank to react quickly.
The Bank maintains a high quality of customer service and a customer oriented culture which are
central components of the Banks strategy. The Banks size allows it to be more responsive to
61
customers, which enables it to differentiate itself from its larger competitors. The Bank intends to
maintain its service standards by retaining key staff members and by continuing to provide staff with
training at its dedicated training centre, the RAK Academy.
Well defined and developed credit policies and procedures
The Bank believes it has well-defined and conservative lending policies and procedures. Each retail
banking asset is, in accordance with underwriting standards, approved through a detailed product
programme. Corporate banking proposals are subject to a detailed approval process with the
appropriate authority in most cases being the Credit Committee and/or the Chairman (see
Management and EmployeesCredit Committee).
Stable funding base
Approximately 76.6 per cent. of the Banks assets at 31 December 2013 were funded by customer
deposits, 0.01 per cent. by inter-bank funding, 1.8 per cent. by other liabilities and the balance by its
capital and reserves. The Bank has a diversified deposit base that includes retail and corporate
customers, government bodies and public sector agencies, which are regarded by the Bank as
relatively stable and a low cost source of funding. The 10 largest depositors with the Bank accounted
for approximately 15 per cent. of total deposits.
High Tier 1 capital ratio and high returns on equity
The Bank maintains a leadership position in the UAE in terms of its Tier 1 capital ratio which as at 31 March
2014 stood at 27.6 per cent. As at 31 March, 2014, the Banks total Tier 1 capital was AED 5,678.5 million
(which does not include the profit for the three months ended 31 March 2014) which provides it with a
substantial capital base to enable it to pursue its strategic initiatives and to support the growth of its
business. Due to the higher margins earned on its loan portfolio, the Bank has also been able to generate
high returns on this high level of capital. In the year ended 31 December 2013, the Bank generated a return
on equity of 23.4 per cent. (see Selected Financial InformationKey Financial Ratios).
Strong brand
The Bank has a strong brand in the UAE, with a loyal customer base consisting primarily of Indian
expat-owned businesses and customers along with Emirati nationals with whom the Bank has long
standing relationships. With its emphasis on customer satisfaction, the Bank continually surveys its
customers. The customer satisfaction score for 2013 was 93 per cent.
Information technology
The Bank has made significant investments in information technology (IT) and aims to continue to
improve its IT infrastructure and to ensure increased automation in its processes. The Bank has
upgraded its technology to provide internet and mobile banking services to its customers and
expanded its web-based solutions by introducing Click & Collect through which existing and new
customers can open their RAKBANK Fast Saver, current, and savings accounts on the Banks website,
www.rakbank.ae, an interface that is completely online. (For further information on the Banks
investment in IT, see Information Technology below).
Competition
The Bank faces competition in all of its principal business areas. In both its Retail Banking and
Corporate Banking businesses, the Banks principal competitors include both banks which are locally
incorporated in the UAE, as well as certain foreign banks operating in the UAE. As at 31 December
2013 there were 51 banks holding full commercial banking licences in the UAE, of which 23 were
banks that were locally incorporated in the UAE.
Despite the relatively high level of competition in the banking sector, the recent and continuing growth
of the UAE economy is expected to lead to an overall growth in demand for banking services. The
Banks objective is to participate in this growth and to increase its market share based on its selling
skills, service quality standards and personalised customer care.
Awards
Best Internet Banking Initiative award in the Middle East at the 2014 Asian Banker Middle East
Retail Product Awards
62
Best Core Banking Implementation Project award in the Middle East at the 2014 Asian Banker
Middle East Retail Product Awards
Gold Summit Creative award (SCA) during the 2013 Summit International Award (SIA) for AMAL
Launch TVC
VRL Prepaid Middle East award 2013 for Outstanding Innovation for the RAKBANK Bayani Card
Bank of the Year award at the 2012 Arabian Business Achievement Awards
Best Marketing Campaign of the Year award at the Middle East Prepaid Awards 2012 for the
MasterCard Bling campaign
Best Credit Card in the Middle East and North Africa in 2011 by Bankers Middle East
Best Bank in customer service in the Annual Bank Benchmarking Survey conducted by Ethos
Consultancy for 2006, 2007, 2008, 2009, and 2010
TICSS certification by the International Customer Service Institute in 2008
5th Most Admired Company in the Middle East by Arabian Business magazine in 2007
MasterCard Worldwide Gold Award for the Titanium Credit Card
Share Capital and Shareholders
As at 31 December 2013, the authorised, issued and fully paid-up ordinary share capital of the Bank
comprised 1,676.25 million ordinary shares of AED 1 each (compared to 1,523.86 million ordinary
shares of AED 1 each as at 31 December 2012).
As at the date of this Base Prospectus, 49.3 per cent. of the issued share capital of the Bank was
registered in the name of the Government with a further 3.4 per cent. held by a company wholly owned
by the Government. Of the balance of 47.23 per cent. a proportion was held by a number of prominent
UAE families and enterprises. In accordance with the Banks articles of association, as amended on
8 May 2014, 60 per cent. of the shares of the Bank must be owned by, and may only be acquired by,
natural persons having UAE nationality or legal persons or corporations fully owned by UAE nationals.
In 2009, the Bank received funds from the Ministry of Finance of the Federal Government in
accordance with an agreement dated 31 December 2009 as part of a facility set up by the UAE Central
Bank to provide liquidity support to banks operating in the UAE and for stimulating and maintaining
economic activity in the UAE During the year 2012, the subordinated debt amounting to AED
684.47 million was repaid in full by the Bank.
Currently, the Bank has the following subsidiaries:
Name of subsidiary Proportion of
ownership interest
Country of
incorporation
Principal activities
RAK Islamic Finance company
PVT. J.S.C
99.99% UAE Islamic financing
Back office support services
(BOSS) FZCO
80% UAE Back office support
RAK Technology FZCO 80% UAE Information technology support
RAKFUNDING CAYMAN LTD 100% Cayman
Islands
Issuance of Notes
During the year 2013, BOSS FZCO and RAK Technologies FZCO generated nil profit and had
negligible net assets with a non-controlling interest which was deemed to be immaterial.
Description of the Banks Business
The Banks business is divided into three main business divisions: (i) Retail Banking; (ii) Corporate
Banking; and (iii) Treasury.
63
The following table sets out the total assets, total liabilities and operating income attributable to each of
the Banks business divisions as at and for the financial years ended 31 December 2013 and
31 December 2012.
31 December 2013 AED millions
Retail
Banking
Corporate
Banking
Treasury
& Others
Unallocated Total
Operating Income 2,855.2 105 190.1 3,150.3
Total assets 21,935.1 925.9 6,176.7 1,088.9 30,126.7
Total Liabilities 13,545.4 8,314.6 1,358.2 392.5 23,610.7
31 December 2012 AED millions
Retail
Banking
Corporate
Banking
Treasury
& Others
Unallocated Total
Operating Income 2,738.9 52.2 102.1 2,893.2
Total assets 20,571.8 493.5 5,078.5 1,105.9 27,250.1
Total Liabilities 12,737.1 6,835.9 1,548.5 433.4 21,554.9
Retail Banking
Retail Banking is the largest business division in terms of revenue and assets. As at and for the year
ended 31 December 2013, operating income from Retail Banking was AED 2,855.2 million (compared
to AED 2,738.9 million for the year ended 31 December 2012) and its total assets amounted to
AED 21,935.1 million (compared to AED 20,571.8 million as at 31 December 2012).
Exposure to UAE nationals constituted 25 per cent. of total loans as at 31 December 2013, against 33 per
cent. of total loans as at 31 December 2012. Exposure to UAE nationals constituted 23 per cent. of total
loans as at 31 March 2014, against 30 per cent. of total loans as at 31 March 2013.
The Banks Retail Banking services are principally provided to small businesses and include:
(i) Current Accounts, including personal accounts and company accounts;
(ii) Saving Accounts, including Fast Saver, RAKsave, RAKvantage, Evantage and RAKvalue-
Accounts;
(iii) Credit and debit cards, including Titanium Credit Cards, RAK Bank Gant La Carte Credit Card,
Prepaid Cards and RAK value credit cards;
(iv) Mortgages, which enable customers to finance the purchase of property in Abu Dhabi, Dubai and
Ras Al-Khaimah at low and affordable interest rates starting from 4.5 per cent.;
(v) Personal loans, which provide customers with low interest rates with flexible repayment periods of
up to 48 months for expatriates and UAE nationals;
(vi) Auto loans, including RAK auto loans, which enable customers to purchase vehicles with flexible
repayment periods and a minimum 20 per cent. down payment; and
(vii) Loans provided to SMEs and or the owners thereof, including unsecured loans by RAK finance
and RAK Trade loans.
Loans and advances
A high proportion of the loans in the retail banking portfolio are unsecured (71 per cent. as at
31 December 2013). Loans that benefit from security are secured by way of residential mortgages,
auto mortgages or salary transfers. In addition, the Bank takes cash and approved investment
securities as collateral against some loans or guaranteed obligations. The Bank believes that, given
its loan approval procedures, its loan portfolio is highly diversified across product range, industry
sectors, nationalities and geographical areas within the UAE, as borne out by its historically low
default rates.
Mortgages
Home mortgages were introduced in 2004 and the Bank was amongst the first banks in the UAE to offer
mortgage finance to expatriates buying apartments and villas in the UAE. As at 31 December 2013, the
64
mortgage finance business loans outstanding amounted to AED 3.7 billion and the Bank is one of the
leading providers of mortgages in Dubai. The Bank has achieved significant growth in its mortgage
finance business and expects mortgages to account for an increasing proportion of the retail banking
asset portfolio. The Bank believes that growth in this area will be sustainable despite a possible increase
in competition from other mortgage providers as the Bank expects demand for mortgage finance in the
UAE will continue to increase.
Credit cards
The Bank is one of the largest issuers of credit cards in the UAE. It currently issues both Mastercard
and VISA.
The Bank introduced two new credit cards in 2013: (i) the Titanium Business Credit Card (see Small
and Medium Enterprises below) and (ii) the Bayani Prepaid Card. The Bayani Prepaid Card is a
reloadable prepaid card with two wallets that cater for the large Filipino community that provides them
with the opportunity to send money to the Philippines instantly at the best rates through the use of SMS
services.
Small and medium enterprises
The SME unit, set up within the Retail Banking division, services customers who run small businesses
with the UAE with borrowing requirements of less than AED 5 million. The Bank mainly provides non-
collateralised loans to these customers.
The relatively high margins available in this sector has made this an attractive area for the Bank. The
Bank believes that its strong risk management practices and risk assessment expertise places it in a
good position to selectively expand this portfolio. In 2013, the Bank introduced the Titanium Business
Credit Card, which is a free-for-life credit card for SMEs that combines convenience and savings to
facilitate payments and extend exclusive benefits.
Certain income from traditional SME lending for specific purposes and/or secured lending constitutes
income which is allocated to the Corporate Banking unit. The major services provided to these
customers include: (i) working capital solutions, including loans and overdrafts; (ii) trade finance
products, including letters of credit, trust receipts and guarantees; and (iii) foreign exchange solutions,
including spots and forwards. Such lending currently comprises a very small proportion of the Banks
total loan portfolio although the Bank intends to increase its proportion of traditional SME lending in the
future.
RAKFinance
RAKFinance provides small and medium sized businesses and individuals collateral free, low interest
rate loans with flexible repayment periods of up to 72 months. The loans provided by RAKFinance can
be high loan amounts of up to AED 3 million.
Auto Loans
Rakauto Loans provides loans with flexible repayment periods of up to 60 months with an option to
defer up to 10 instalments. A minimum 20 per cent., down payment is required.
Wealth Management
The Bank has a Wealth Management unit which offers tailored products to customers within three main
categories; (i) private banking for customers with deposits and loans in excess of AED 3 million, (ii) Al
Momiaz for customers with deposits and loans between AED 300,000 and AED 3 million, and
(iii) RAKSelect for customers with deposits and loans between AED 100,000 and AED 300,000. The
Bank views its key competitive advantages in this area as being attractive pricing and strong customer
relationships. The Banks strategy in this area is to target contacts and relatives of existing customers.
Corporate and Commercial Banking
The Bank retains a relatively small exposure to large corporates in the UAE and this exposure is
evenly distributed between Ras Al-Khaimah and Dubai. As at and for the year ended 31 December
2013, operating income from Corporate Banking was AED 105 million compared to AED 52.2 million
as at the year ended 31 December 2012 and its total assets as at 31 December 2013 amounted to
AED 925.9 million compared to AED 493.9 million as at 31 December 2012.
The comparatively low margins available in the corporate sector have reinforced the managements
decision to adopt a very selective focus, however, lending to commercial ventures located in Dubai and
65
Ras Al-Khamiah is an important activity for the Bank. The Bank is also seeking to provide corporate
and commercial banking services to its long standing small business customers who have been
successful and expanded their businesses over time. The Government remains an important customer
in terms of potential lending arrangements in the future (although the current exposure to the
Government is negligible).
The Bank offers its Corporate Banking customers a variety of products. The major revenue generating
products are:
fund based overdrafts, which are offered to assist customers to meet their working capital
requirements;
bills discounting, which offers customers cash against cheques issued by the their customers;
invoice discounting, which provides customers with the opportunity to transform credit sales into
working capital;
loans including asset backed financing, which provide customers with term loans ranging between
1 to 5 years to part fund ongoing business expansions; and
import and export financing, which is provided to importers to provide liquidity for buying against
sight payment.
The Bank believes that it adopts a conservative approach to corporate banking in comparison with its
key competitors by focusing on the quality of the loan book and applying stringent criteria for corporate
lending. Under this segment, the Bank will generally not consider applications from companies which
do not have at least three years of audited financial statements and a minimum of a three year
presence in the UAE.
Treasury and Others
The main activities of the Treasury business include activities related to money market activities,
investments in debt and equity securities, foreign exchange transactions with other banks and financial
institutions including the UAE Central Bank.
For the year ended 31 December 2013, the Banks operating income from the Treasury division was
AED 190.1 million compared to AED 102.1 million for the year ended 31 December 2012 and as at
31 December 2013 its total assets amounted to AED 6,176.7 million compared to AED 5,078.5 million
as at 31 December 2012.
The Treasury division is the custodian of liquidity and primarily supports growth of the Retail Banking
and Corporate Banking divisions. The Treasury division provides all foreign exchange and funding
requirements, provides liquidity to the Banks divisions, manages over 24 Nostro accounts and
monitors any potential asset/liability mismatches. The Treasury division also manages the Banks asset
and liability book, the Banks market risk, which includes cash flow, the Banks liquidity, foreign
exchange, interest rate exposure and investment portfolio.
Treasury offers the following range of products:
FX Spot;
FX Forward;
FX Options and Structured Products;
Strategic Deposits from Institutional Investors.
The Bank has established several relationships with over 20 major banks and financial institutions
worldwide. Its most important correspondent banking relationships are with Bank of New York Mellon
(New York), Standard Chartered Bank (New York), Deutsche Bank (Frankfurt), Lloyds Bank (London),
Credit Suisse FB (Zurich), Bank of Tokyo - Mitsubishi (Tokyo), Canara Bank (Mumbai) and Axis Bank
(Mumbai).
The Bank follows a conservative trading and investment strategy and generally does not undertake trading
activities on its own account in the foreign exchange, money markets and fixed income markets. The
Treasury divisions back-office operates on a fully automated front-to-back-end system, which monitors
positions, cash flows and trading limits. The Banks management information systems are well developed
and profitability is closely tracked and monitored on a daily basis. In addition, ratios are tracked and
compared to internal thresholds. The Banks management has set the Liquid Asset Ratio (as defined
below) requirement of the Bank at 15 per cent., which is maintained in cash and near cash investments.
66
The Treasury division of the Bank invests in securities comprising interest-bearing debt instruments
issued by the Government, organisations which are quasi-governmental, financial institutions and local
and foreign reputable organisations. The Bank also invests in equity shares listed in the UAE.
The following table sets out the Banks investments by jurisdiction of incorporation or nationality of the
ultimate owner of the issuer of the relevant securities as at 31 December 2013 and 31 December 2012.
31 December 2013 31 December 2012
AED000 AED000
UAE
Government 535,545 322,940
Government related entities 835,509 338,099
Financial institutions 629,115 768,145
Corporates
Non-UAE
Government/Quasi-government 94,280 37,329
Indian corporations (including banks) 542,631 18,538
Other banks and financial institutions 58,872 101,827
UAE equities
Total 2,695,952 1,586,878
Investment securities are classified as held-to-maturity, available-for-sale financial assets or held for
trading and marked to market at fair value. The fair value of the debt instruments is based on quoted
market prices.
The following table presents an analysis of debt securities held by the Bank by rating agency
designation as at 31 December 2013 and 31 December 2012, based on Moodys and Fitch ratings or
their equivalent.
31 December 2013 31 December 2012
AED000 AED000
AA to A- 781,681 778,470
Baa1 to Baa3 1,231,843 412,008
Unrated 682,428 396,400
Total 2,695,952 1,586,878
Islamic Banking
In 2013, the Bank introduced in Sharia-compliant Islamic banking products through various Islamic
instruments such as Murabaha, Salam, Mudaraba and Wakala with Ijara products being introduced in
2014.
The Bank also launched Fast Lane in 2013, the first dedicated Islamic Auto Finance Centre in Al
Barsha in Dubai to offer AMAL Auto Finance solutions to car buyers in just 60 minutes.
The following table sets out the Banks Islamic financing assets as at 31 December 2013 and 31 March
2014:
31 March 2014 31 December 2013
Islamic financing assets AED000 AED000
Analysis of Islamic financing assets
Islamic Salam personal finance 931,918 730,088
Islamic Auto Murabaha 512,614 370,079
Islamic business finance 126,966 34,938
Islamic ljara property finance 3,000
Islamic credit cards 68,131 42,589
Total Islamic financing assets 1,642,629 1,177,694
Provision for impairment (10,570) (5,312)
1,632,059 1,172,382
67
Distribution and Delivery Channels
The Bank has a wide range of distribution and delivery channels. As at 31 December 2013, these
included:
34 branches in the UAE (as at 31 December 2013, there were 13 branches in Dubai, seven in Ras
Al Khaimah, six in Abu Dhabi, five in Sharjah and one in each of Al Ain, Ajman and Fujairah);
the Banks sales and marketing staff calling on carefully targeted existing and prospective
customers to explain and sell the Banks products;
external agencies hired by the Bank to sell its products, principally sales companies focused on
selling to Indian-owned small businesses;
205 ATMs in the UAE providing a 24 hour service;
a telephone banking service allowing customers to carry out many routine banking transactions
over the telephone, 24 hours a day, seven days a week;
an internet facility allowing customers to carry out services such as applying for credit cards and
mortgage loans is currently in operation; and
mobile banking and social media.
In 2013, the Bank opened a new branch in Fujairah, relocated its Kalba branch to larger premises and
refurbished an existing branch in Al Ain. The Bank also launched AMAL Fast Lane as the first centre in
the region dedicated to the timely provision of Sharia-compliant auto finance.
The Bank expanded its web-based solutions by introducing Click & Collect through which existing and
new customers can open their RAKBANK Fast Saver, current, and savings accounts on the Banks
website, www.rakbank.ae, in a completely online interface.
Within two Business Days, Click & Collect ensures that customers can visit a UAE branch of their
choice at any time within a month of the date of opening their account to collect their welcome pack
which includes their debit card, PIN, cheque book, and online and mobile banking details.
The Bank introduced additional services to its mobile banking services to enable customers to order
new cheque books, transfer balances, apply for supplementary cards, report a lost or stolen credit
card, seek investment details and apply for an advance against salary.
The Bank revamped its mobile banking application to include information about the Banks products,
insurance policies, and RAKBANK Deals - a one-stop online destination to a wide array of offers
including the Banks Lifestyle Privileges, RAKfeast and Prepaid Card offers. The new, integrated
application facilitates the ability of customers to browse through current offers on the Best Deals
section of the Banks website and to discover additional bargains using GPS.
Risk Management
The Banks activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Exposure to
risk is core to the financial services business. The Banks aim is therefore to achieve an appropriate
balance between risk and return and to minimise potential adverse effects on the Banks financial
performance.
The Banks risk management policies are designed to identify and analyse these risks, to set
appropriate risk limits and controls, and to monitor the risks and adherence to relevant limits by means
of reliable and up-to-date information systems. The Bank regularly reviews its risk management
policies and systems to reflect changes in markets, products and emerging best practice.
Credit risk
Credit risk is defined as the risk that the Banks customers, clients or counter parties fail to perform or
are unwilling to pay interest, repay the principal or otherwise to fulfil their contractual obligations under
loan agreements or other credit facilities, thus causing the Bank to suffer a financial loss.
Credit risk also arises through the downgrading of counter parties, whose credit instruments are held
by the Bank, consequently resulting in the value of the assets to fall. As credit risk is the Banks most
significant risk, considerable resources, expertise and controls are devoted to managing this risk within
the core departments of the Bank. The Banks credit policy provides for the development of a
68
systematic and consistent approach to identifying and managing borrower and counter party risks
contained in all retail, SME and corporate assets.
The credit team, including collections, with a total staff of 340, are responsible for the recognition and
management of credit risk both at transaction and portfolio levels and for ensuring that risk procedures
are adhered to in a manner that is consistent with the framework set out in the credit risk policy,
product programs, credit circulars and that comply with regulatory norms.
The Bank manages, limits and controls concentration of credit risk wherever it is identified, in
particular, to individual counterparties and groups, and to industries and countries. The Bank has a
Product Program Guide (PPG) that sets limits of exposure and lending criteria. The Bank also has
credit limits that set out the lending and borrowing limits to and from other banks.
The Bank stratifies the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on an ongoing basis. Limits on the level of credit risk by product,
industry sector and by country are approved by the Credit Committee and the Board of Directors. The
Bank seeks to ensure its portfolios are diversified to the greatest extent possible and that
concentrations of lending to a particular group of borrowers by reference to nationality, age, industry
sector or geography are avoided where possible.
The exposure to any one borrower, including banks, is further restricted by sub-limits covering on- and
off-balance sheet exposures, and by daily delivery risk limits in relation to trading items such as
forward foreign exchange contracts. Actual exposures against limits are monitored on an ongoing
basis.
The majority of the Banks lending is unsecured. All personal loans to individuals are typically extended
pursuant to an agreement with the individual to transfer his or her salary to the Bank. However, the
Bank obtains collateral in respect of mortgages and auto-loans as against the assets for which the
lending is provided. As per market practice in the UAE, the Bank also requests and holds an undated
security cheque to cover the loan amount
The Bank has in place policies which govern the determination of the eligibility of various types of
collateral, including credit protection, to be considered for credit risk mitigation which includes the
minimum operational requirements that are required for the specific collateral to be considered as an
effective risk mitigant. The majority of the Banks collateral consists of mortgaged properties.
The collateral is valued periodically ranging from a quarterly basis to an annual basis, depending on
the type of collateral. Specifically for mortgaged property, a framework for the valuation of mortgaged
properties is established to ensure adequate policies and procedures are in place for the efficient and
proper conduct of the valuation of mortgaged properties and other related activities in relation to the
interpretation, monitoring and management of the valuation of mortgaged properties.
The Bank occasionally takes possession of mortgaged property which was held as collateral for a loan.
In the case of retail auto loans, where the underlying asset is repossessed as a part of the recovery
process, these assets are disposed of in an auction by authorised third parties and the Bank does not
carry any such assets on its books.
Concentrations of Risks of Financial Assets with Credit Risk Exposure
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or other
conditions. Concentrations indicate the relative sensitivity of the Banks performance to developments
affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Banks policies and procedures include specific
guidelines to limit concentrations of exposures to counterparties, geographies and industries. Identified
concentration of credit risk is controlled and managed accordingly.
As at 31 December 2013, the Banks top 10 loans by value accounted for less than 2 per cent. of the
Banks total loan portfolio.
69
Exposures by geography
The following table sets out the Banks credit exposures categorised by geographical region, based on
the country of domicile of its counterparties as at 31 December 2013 and 31 December 2012.
On balance sheet items
31 December 2013
UAE
AED000
OECD
AED000
Others
AED000
Total
AED000
Due from banks 373,257 165,230 5,412 543,899
Loans and advances
- Retail loans 20,852,955 66,476 116,177 21,035,608
- Corporate loans 919,701 1,139 2,797 923,637
Investment securities
- Held-to-maturity 1,957,901 18,494 677,289 2,653,684
- Available-for-sale 42,268 42,268
Other assets 195,120 195,120
Total 24,341,202 251,339 801,675 25,394,216
31 December 2012
UAE
AED000
OECD
AED000
Others
AED00
Total
AED000
Due from banks 782,095 405,975 7,761 1,195,831
Loans and advances:
- Retail loans 19,652,388 41,112 97,001 19,790,501
- Corporate loans 491,549 1,377 492,926
Investment securities
- Held-to-maturity 1,429,407 18,538 96,245 1,544,190
- Available-for-sale 42,688 42,688
Other assets 187,372 187,372
Total 22,585,499 465,625 202,384 23,253,508
Exposures by industry
The following table sets out the Banks credit exposures on loans and advances and debt securities
categorised by industry as at 31 December 2013 and 31 December 2012:
On balance sheet items
31 December 2013
Loans and
advances
AED000
Debt
securities
AED000
Due from
banks
AED000
Total
funded
AED000
Off balance
sheet Items
AED000
Total
AED000
Agriculture, fishing & related
activities
7,938 7,938 154 8,092
Crude oil , gas, mining &
quarrying
26,348 178,981 205,329 89,022 294,351
Manufacturing 288,326 288,326 191,901 480,227
Electricity & water 15,087 59,533 74,620 1,518 76,138
Construction 922,989 922,989 127,738 1,050,727
Trading 3,766,355 3,766,355 722,469 4,488,824
Transport, storage &
communication
1,131,076 146,883 1,277,959 56,288 1,334,247
Financial Institutions 42,194 992,105 543,899 1,578,198 201,908 1,780,106
Services 1,012,269 1,012,269 263,750 1,276,019
Government 1,318,450 1,318,450 97,343 1,415,793
Retail and consumer banking 15,081,567 15,081,567 5,557,438 20,639,005
Others 60,709 60,709 1,562 62,271
Total exposures 22,354,858 2,695,952 543,899 25,594,709 7,311,091 32,905,800
70
On balance sheet items
31 December 2012
Loans and
advances
AED000
Debt
securities
AED000
Due from
banks
AED000
Total
funded
AED000
Off balance
sheet Items
AED000
Total
AED000
Agriculture, fishing & related
activities
18,296 18,296 629 18,925
Crude oil , gas, mining &
quarrying
390 390 112,720 113,110
Manufacturing 205,043 205,043 173,003 378,046
Electricity & water 15,131 15,131 735 15,866
Construction 733,114 733,114 104,464 837,578
Trading 2,711,962 2,711,962 500,882 3,212,844
Transport, storage &
communication
777,752 73,460 851,212 43,079 894,291
Financial Institutions 27,279 888,510 1,195,831 2,111,620 166,722 2,278,342
Services 760,366 760,366 195,234 955,600
Government 624,908 624,908 118,685 743,593
Retail and consumer banking 15,296,538 15,296,538 5,197,846 20,494,384
Others 61,666 61,666 1,637 63,303
Total exposures 20,607,537 1,586,878 1,195,831 23,390,246 6,615,636 30,005,882
For further information on the Banks impairment policies, see Loan Classification and Impairment
Policy below.
Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its obligations when they fall due as a result of
customer deposits being withdrawn, cash requirements from contractual commitments, or other cash
outflows, such as debt maturities. Such outflows would deplete available cash resources for customer
lending, trading activities and investments. In extreme circumstances, a lack of liquidity could result in
reductions in the balance sheet and sales of assets, or potentially an inability to fulfil lending
commitments. The risk that the Bank will be unable to do so is inherent in all banking operations and
can be affected by a range of institution-specific and market-wide events including, but not limited to,
credit events, systemic shocks and natural disasters.
The Bank manages its liquidity in accordance with UAE Central Bank requirements and the Banks
internal guidelines mandated by the Asset and Liability Committee (ALCO). Based on the directives
of the ALCO, the Treasury division manages the liquidity of the Bank.
On the funding side, the Bank has a large proportion of its assets in the form of own funds which
reduces the requirement for external funds. The Bank relies on deposits from its relationship-based
retail and corporate customers as its primary source of funding and only on a short term basis uses
interbank borrowings to fund its assets. Deposits from customers generally have shorter maturities and
a large portion of them are repayable on demand as is endemic to these markets. The short-term
nature of these deposits increases the Banks liquidity risk and the Bank manages this risk through the
maintenance of competitive pricing and constant monitoring of market trends. In addition, as most of
the deposit customers of the Bank are relationship- based and, based on past trends, these, deposits
that these customers maintain are sustainable in nature, therefore reducing the liquidity risk to a large
extent. The Bank does not rely on large ticket deposits and its depositor profile is very diverse leading
to a more stable deposit funding. The 10 largest depositors accounted for approximately 15 per cent. of
the Banks deposits as at 31 December 2013.
On the deployment side, the Bank maintains a portfolio of highly liquid assets largely made up of
balances with the UAE Central Bank, certificates of deposits issued by the UAE Central Bank, inter-
bank facilities and investment securities including investments in local government bonds which can be
repurchased to meet short term liquidity mismatches and be offloaded to meet longer term
mismatches. The UAE Central Bank has prescribed reserve requirements on deposits of 1 per cent.
and 14 per cent. on time and demand deposits, respectively. As a contingency funding plan, the Bank
evaluates and maintains debt financing plans which can be executed if required.
The Bank also monitors its liquid assets to total liabilities ratio (the Liquid Asset Ratio) on a daily
basis and has set up internal management action triggers to take suitable corrective actions once the
internal thresholds have been reached.
71
As at 31 December 2013, 22.7 per cent. of the Banks total assets were liquid assets, compared to
20 per cent. as at 31 December 2012. The ASRR of the Bank as at 31 December 2013 stood at
88.1 per cent. which is substantially above the minimum requirement of 100 per cent., required by the
UAE Central Bank. Similarly the Liquid Asset Ratio of the Bank, in accordance with UAE Central Bank
requirements, stood at 20 per cent. as at 31 December 2013 which reflected a prudent liquidity
position.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market risks arise from open positions in interest rate, currency
and equity instruments, all of which are exposed to general and specific market movements and
changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign
exchange rates and equity prices.
The Bank does not enter into derivative trades for speculative or hedging purposes. The only exposure
to derivatives is in respect of forward exchange contracts which are entered, to meet customer needs.
(For further details, on the Banks outstanding forward exchange transactions see note 21 to the
Banks 2013 Annual Financial Statements.)
Interest rate risk
Cash flow interest risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest. Fair value interest rate risk is the risk that the value of a
financial instrument will fluctuate because of changes in market interest rates. The Bank takes on
exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair
value and cash flow risks. Interest margins may increase as a result of such changes but may reduce
losses in the event that unexpected movements arise. The Bank monitors interest rate risk through the
use of a detailed gap report and stress tests to analyse the impact of anticipated movements in interest
rates.
Operational risk
Operational risk is the risk of loss arising from inadequate or failed internal processes, people and
systems or from external events, whether intentional, unintentional or natural. It is an inherent risk
faced by all businesses and covers a large number of operational risk events including business
interruption and systems failures, internal and external fraud, employment practices and workplace
safety, customer and business practices, transaction execution and process management, and
damage to physical assets.
Whilst operational risk cannot be eliminated in its entirety, the Bank endeavours to minimise it by
ensuring that a strong control infrastructure is in place throughout the organisation. The management
of operational risk commences with the adoption of a formal governance structure under the Risk
Management Committee to provide strategic direction oversight and monitoring of the operational risk
framework. The framework incorporates standards for risk that are based on best practice and codify
the core governing principles for operational risk management. It ensures that the identification,
evaluation, control, measurement, monitoring and reporting of operational risks are consistent across
the Bank. It also reviews the adequacy of insurances the Bank holds, although not viewed as a
mitigating factor.
Credit Approval Procedures
Retail banking credit approval procedures
The Bank adopts a comprehensive approach to approving retail credit applications. Every retail
banking product has a detailed policy guideline that is documented in the respective PPG, which are
approved by the Board of Directors of the Bank. All lending is done strictly as per the underwriting
standards specified in the respective PPG or policy documents. The credit applications are sourced
through the Banks distribution network and logged on a tracking system. The tracking system runs a
customer check on the Banks internal blacklist database and then sends the results to the Credit
Department.
The Credit Department is independent, both in terms of management and operations. Applications are
processed through the Retail Lending System (RLS) which sets out the detailed policy rules in
accordance with the PPG guidelines including the eligibility matrix, deviation matrix, delegation matrix
and credit circulars loaded on the system. Detailed analysis of a customers Bank statements and
repayment ability and the customers exposure according to UAE Central Bank systems (including
72
business visit reports in respect of business loans) is completed and information is data-entered on the
system. Based on the data and policy rules, an automated report is generated by the system which
details the customers eligibility and deviations from eligibility; these are analysed by credit analysts to
reach a decision. Approvals are provided in accordance with the delegation matrix and are provided to
the Contact Point Verification Unit (CPVU) after the application tracking system has been updated.
The CPVU verifies the office and residential addresses of the customer and also conducts checks
against the UAE Central Bank blacklist system. In addition, an independent Fraud Prevention Unit
completes random sampling of applications and conducts field visits to a customers premises and
completes telephonic smart checks, in respect of which feedback is provided to the Credit Underwriting
Unit for required actions. Following the update of the applications tracking system, a customers credit
application is then provided to the independent Credit Operations and Card Centre for processing and
disbursing.
The provisions and interest-in-suspense are computed pursuant to a formula-based provision
methodology in accordance with the process set out in the Banks respective Product Programs. The
formula-based provision is based on data about the instalments overdue and varies from product to
product. A non-formula or specific provision is computed where it is confirmed that either a customer
has fled the country, or has been confirmed as fraudulent. These cases can result in a 100 per cent.
provision being made on notification and can override the formula provisioning methodology.
The provisioning and interest-in-suspense policies applied across various asset classes are in line with
International Accounting Standards and are more conservative than the UAE Central Bank guidelines.
Corporate banking credit approval procedures
The Bank adopts a conservative approach to approving corporate credit applications, limiting its
exposure to high-risk sectors and seeking to avoid undue risk concentration.
The Bank has comprehensive internal policies, circulars and guidelines on lending to corporate
banking clients. The credit policy framework is documented in its credit policy and procedures manual,
which deals with all aspects of the lending process. The document defines the ceilings on company/
group/industry sector exposures as well as the Banks desired return on assets. Furthermore, the
sectors and industries to which lending should be avoided are also stated for sectors such as shipping,
aircraft, venture capital and construction.
The Banks lending is primarily based on the cashflow of the borrower, and where possible it seeks to
obtain covenants against its lending.
The credit application is initiated by the line management and is independently evaluated by the Credit
Department whose direct line of reporting is to the Chief Executive Officer. The credit application
provides a comprehensive assessment and analysis of various risks such as the borrowers business
risk, management capabilities, security and proposed limit structure. Detailed financial information are
also required to be submitted with the application, including three years audited financial statements,
prescribed financial ratios, and financial projections. The credit application includes a so called SWOT
(strength, weaknesses, opportunities and threats) analysis carried out by the line management.
Breaches, if any, in the credit policy or in internal or external regulations are clearly identified in the
credit application along with justification and mitigating factors, where applicable.
Every credit application requires a relationship strategy to be defined by the Line Manager and agreed
by the Credit Department. Each corporate relationship has an identified Relationship Manager and all
accounts are reviewed at least annually. Approvals are accorded through a discretionary authority
framework that covers line management, the Chief Executive Officer, the Credit Committee and the
Board of Directors.
A credit grading system has been structured to measure the credit quality of the borrower, to capture
changes in risk profile as they occur and to provide an aid to management in monitoring the credit
portfolio. The credit grades are calculated based on a standardized credit grade scoring matrix used
by the Bank.
On a portfolio level the Banks corporate exposure by credit grade, industry, large exposures,
substandard/non-performing portfolio and operating results are reviewed by the Head of Corporate
Banking and Head of Credit on a monthly basis.
73
Loan Classification and Impairment Policy
Loans and advances and provision for impairment
Loans and advances are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and advances are initially recognized at fair value, which is the
cash consideration required to originate or purchase a loan including any transaction costs, and
measured subsequently at amortised cost using the effective interest method.
At each financial position date the Bank assesses whether there is objective evidence that loans and
advances are impaired. Loans and advances are impaired and impairment losses are incurred only if
there is objective evidence that the Bank will not be able to collect all amounts due.
The criteria that the Bank uses to determine that there is objective evidence of an impairment loss
include:
delinquency in contractual payments of principal or interest;
cash flow difficulties experienced by the borrower;
breach of loan covenants or conditions;
initiation of bankruptcy proceedings;
deterioration of the borrowers competitive position;
deterioration in the value of collateral; and
observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of financial assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
The following table sets out the provision for impairment for (i) retail and small business loans and
(ii) corporate loans as at 31 December 2013 and 31 December 2012:
31 December 2013
Retail loans
AED000
Corporate loans
AED000
Total
AED000
Balance brought forward 292,203 31,907 324,110
Impairment charge/ (release) 393,145 (1,050) 392,095
Written off during the year (320,316) (276) (320,592)
Balance carried forward 365,032 30,581 395,613
31 December 2012
Balance brought forward 305,351 32,627 337,978
Impairment charge/ (release) 250,751 (302) 250,449
Written off during the year (263,899) (418) (264,317)
Balance carried forward 292,203 31,907 324,110
The following table sets out the provision for impairment for (i) retail loans and (ii) corporate loans as at 31 March
2014:
31 March 2014
Retail loans
AED000
Corporate loans
AED000
Total
AED000
Balance brought forward 365,032 30,581 395,613
Impairment charge/ (release) 146,921 140 147,061
Written off during the period (95,279) (228) (95,507)
Balance carried forward 416,674 30,493 447,167
The Bank reviews its loan portfolio to assess impairment on at least a monthly basis. In determining
whether an impairment loss should be recorded in the consolidated income statement, the Bank makes
judgements as to whether there is any observable data indicating that there is a measurable decrease
in the estimated future cash flows from a portfolio of loans before the decrease can be identified with
an individual loan in that portfolio.
74
This evidence may include observable data indicating that there has been an adverse change in the
payment status of borrowers in a group, or national or local economic conditions that correlate with
defaults on assets in the group. Management takes into account the historical loss experience in
estimating future cash flows in assessing the loan portfolio for impairment. The methodology and
assumptions used for estimating both the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates and actual loss experience. A +/-5
percentage change in the provision would increase/decrease the profit by AED 19.8 million as at
31 December 2013 (compared to AED 16 million as at 31 December 2012).
The ratio of provisions held to aggregate impaired loans (the coverage ratio) is an indicator of the
Banks achievements in managing lower default rates and improving recovery rates. For the
computation of the coverage ratio, the Bank considers the total impairment provision including the
portfolio provision for risk inherent in the Banks portfolio (see note 3.2.2 of the Banks 2013 Annual
Financial Statements for further detail on restructured loans).
The total impairment provision for loans and advances of the Bank was AED 395.6 million as at
31 December 2013 (compared to AED 324.1 million as at 31 December 2012) of which AED
329.6 million as at 31 December 2013 (compared to AED 271.9 million as at 31 December 2012)
represented provisions in respect of the individually impaired loans and advances and the remaining
AED 66 million as at 31 December 2013 (compared to AED 52.2 million as at 31 December 2012)
represented the portfolio provision to reflect the risk inherent in the Banks loan portfolio. The total
impairment provision for loans and advances of the Bank (minus recoveries of AED 16.7m) was AED
130.3 million as at 31 March 2014 (compared to AED 61.4 million as at 31 March 2013).
The following table sets out the amount of individually impaired loans and advances, Islamic financing
assets and the fair value of related collateral held by the Bank as security as at 31 December 2012 and
31 December 2013:
31 December 2013 31 December 2012
Retail
Loans
AED000
Corporate
loans
AED000
Total
AED000
Retail
Loans
AED000
Corporate
Loans
AED000
Total
AED00
Individually impaired loans 497,147 42,693 539,840 471,804 44,705 516,509
Fair value of collateral (246,298) (9,570) (255,868) (259,839) (9,570) (269,409)
Net 250,849 33,123 283,972 211,965 35,135 247,100
The following table sets out the Banks gross amount of individually impaired loans and advances by
industry as at 31 December 2013 and 31 December 2012:
Overdue
Less than
90 days
AED000
above 90
Days
AED000
Total
AED000
Specific
Provision
AED000
31 December 2013
Agriculture, fishing & related activities 72 72 72
Crude oil, gas, mining & quarrying
Manufacturing 1,379 1,379 1,379
Electricity & water
Construction 83 46,558 46,641 38,998
Trading 319 38,346 38,665 34,662
Transport, storage & communication 2 5,093 5,095 5,095
Financial institution 2 2 1
Services 75 7,198 7,273 7,273
Government
Retail and consumer banking 5,147 435,133 440,280 241,700
Others 433 433 433
Total impaired loans 5,626 534,214 539,840 329,613
75
Overdue
Less than
90 days
AED000
above 90
Days
AED000
Total
AED000
Specific
Provision
AED000
31 December 2012
Agriculture, fishing & related activities
Crude oil, gas, mining & quarrying
Manufacturing 9 2,185 2,194 2,223
Electricity & water
Construction 1 45,284 45,285 37,494
Trading 164 29,226 29,390 23,462
Transport, storage & communication 1,658 7,093 8,751 8,751
Financial institution
Services 10 4,099 4,109 4,109
Government
Retail and consumer banking 11,377 414,869 426,246 195,369
Others 534 534 534
Total impaired loans 13,219 503,290 516,509 271,942
Legal and Internal Audit
Industry regulation and supervision
Banking and financial institutions in the UAE are subject to governmental supervision and regulation
exercised by the Securities and Commodities Authority (SCA), the UAE Central Bank and the
competent local authority in the Emirate in which the institution is registered, which in Dubai is the
Department of Economic Development.
The principal source of banking regulation in the UAE is the UAE Central Bank. The UAE Central Bank
provides prudential supervision of each banks capital adequacy, liquidity and anti-money laundering
controls and its general banking activities. Monitoring by the UAE Central Bank is undertaken by way
of regular inspections of banks and their records and the requirement for regular submission of data
including, but not limited to, deposited funds, loans and mortgage business, liquidity status and anti-
money laundering measures.
The Bank submits monthly, quarterly and annual reports to the Banking Supervision and Examination
Department of the UAE Central Bank. In addition, the Banks Memorandum and Articles of Association
and any amendments thereto, its audited financial statements, its distribution of dividends and certain
other documents are all approved by the UAE Central Bank.
As a UAE company, the Bank is also subject to supervision and regulation by both the UAE Ministry of
Economy and Planning and other regulatory authorities within each of the emirates that collectively
constitute the UAE In addition, the Department of Economic Development has a very wide jurisdiction
in relation to issues such as the incorporation of companies and the regulation of internal and external
trade. Finally, as a company listed on the Abu Dhabi Securities Market, the Bank is subject to the rules
and regulations of that securities market as enforced by the SCA.
Internal Audit
The Internal Audit department at the Bank has a high level of independence with direct access to the
Board of Directors. The Head of Audit reports directly to the Audit Committee of the Board of Directors.
An annual audit plan is prepared which is approved by the Audit Committee of the Board of Directors.
The Internal Audit department follows a risk-based audit methodology and the frequency of the audit of
an auditable entity within the Bank is determined based on various risk factors. The audits are
executed based on this plan and all reports are presented to the Audit Committee. A follow up audit is
undertaken within three months for those units that are rated unsatisfactory.
Real Estate
As at 31 December 2013, the Bank owned land and buildings shown in its accounts as being worth
AED 542.9 million (compared to AED 471.4 million as at the year ended 31 December 2012).
76
Capital Expenditure
The Bank does not expect to incur capital expenditure outside its ordinary course of business. For the
year ended 31 December 2013, the Bank incurred approximately AED120 million of capital
expenditure. The Bank expects to undertake approximately AED 120 million of capital expenditure in
the next two years, principally for the purposes of the expansion of the Banks business in terms of
infrastructure and IT.
Distributions of Profit
At a meeting held on 29 January 2014, the Board of Directors proposed a cash dividend of 50 per cent.
of the nominal value of its shares amounting to AED 838.1 million of the issued and paid up capital in
respect of the year ended 31 December 2013 (compared to a 10 per cent. stock dividend amounting to
AED 152.4 million and 40 per cent. cash dividend amounting to AED 609.5 million, each in respect of
the year ended 31 December 2012).
Dividends are not accounted for until they have been approved at the annual general meeting and,
accordingly, the proposed dividend has been accounted for as an appropriation of retained earnings of
the year ended 31 December 2013 after it has been approved by the shareholders. The cash dividend
in respect of the year ended 31 December 2013 has been approved and paid to shareholders of the
Bank.
Capital Adequacy
Basel II
The UAE Central Bank is the Banks principal regulator and sets and monitors its capital requirements.
The Banks objective is to have an adequate capital base to enable it to pursue its strategic initiatives
and to support the growth of its business.
The Banks senior management, employing techniques based on the guidelines developed by the
Basel Committee on Banking Supervision (the Basel Committee) and the UAE Central Bank,
monitors capital adequacy and the use of regulatory capital. Returns are filed with the UAE Central
Bank on a quarterly basis.
The UAE Central Bank requires each bank to: (i) hold the minimum level of regulatory capital; and
(ii) maintain a ratio of total regulatory capital to risk-weighted assets, at or above a minimum of 12 per
cent. (this is more than the 8 per cent. minimum ratio recommendation of the Basel II Accord (Basel II)).
Basel II was introduced in the UAE with effect from 17 November 2009. The Bank complies with the
Basel II capital adequacy guidelines and its risk asset ratios are well in excess of those set by the
Basel Committee.
The Bank has successfully implemented the standardised approaches to credit risk as required by the
UAE Central Bank.
The Bank is required to report capital resources and risk-weighted assets under the Basel II Pillar 1
framework. The Bank has adopted the standardised approach for the calculation of credit risk and
market risk capital charge. To address operational risk, the alternative standardized approach is
followed for the capital charge calculation under Pillar 1.
The following table sets out the Banks capital structure and capital adequacy in accordance with Basel
II requirements as at 31 March 2014 and 31 December 2013:
31 March 2014
AED000
31 December 2013
AED000
Tier 1 capital
Ordinary share capital 1,676,245 1,676,245
Share premium 110,350 110,350
Statutory and other reserves 3,277,610 2,877,477
Retained earnings 614,316 421,180
Total 5,678,521 5,085,252
Tier 2 capital
Total regulatory capital 5,678,521 5,085,252
77
31 March 2014
AED000
31 December 2013
AED000
Risk weighted assets
Credit risk 19,707,885 18,720,220
Market risk 13,871 4,618
Operational risk 849,176 849,176
Total risk weighted assets 20,570,932 19,574,014
Capital adequacy ratio on regulatory capital 27.60% 25.98%
Capital adequacy ratio on Tier 1 capital 27.60% 25.98%
The above ratios are computed without considering the current year profits and proposed cash
dividends. On approval of the Banks consolidated financial statements by the UAE Central Bank and
thereafter by the shareholders, the capital position and risk assets ratio will be as follows:
31 March 2014
AED000
31 December 2013
AED000
Total Tier 1 capital 5,678,521 5,677,947
Total Tier 2 capital
Total capital base 5,678,521 5,677,947
Risk asset ratio on total capital base (%) 27.60% 29.01%
Risk asset ratio on Tier 1 capital base (%) 27.60% 29.01%
In anticipation of the future implementation of Basel III, the Bank calculates and monitors its key
parameters i.e. the liquidity coverage ratio (Liquidity Coverage Ratio or LCR) as calculated in
accordance with available UAE Central Bank draft guidelines.
Anti-Money Laundering Policies
The Bank has implemented detailed anti-money laundering and know-your-customer policies and
procedures. The responsibility for implementation and compliance rests with the Head of Internal
Controls, who is assisted by a full time AML Compliance Manager and the compliance unit. Both the
Head of Internal Controls and the AML Compliance Manager are experienced in monitoring and
ensuring compliance to standards of international best practice.
All cash transactions are closely monitored and suspicious transactions are reported to the Anti-Money
Laundering and Suspicious Cases Unit of the UAE Central Bank. The Compliance Unit monitors all
transactions for countries or individuals mentioned in the OFAC list and is supported by sophisticated
technology in identifying suspicious transactions before the underlying transactions are processed by
the banking systems.
All employees of the Bank are required to attend an anti-money laundering workshop. As at
31 December 2013, more than 95 per cent. of the Banks staff have attended the course. An
independent unit of the Bank conducts a KYC check, which is mandatory for all new accounts.
Information Technology
The IT department of the Bank regularly reviews the technology changes in the market and assesses
the need to upgrade the Banks technology platform in order to support the business growth as set out
in the short-term business plan.
The IT strategy for the next three years was formulated to ensure that the anticipated growth in
business volumes is accommodated and that the Bank benefits from the use of the latest technology.
Automation levels are continually upgraded and the Bank is going through a process of re-engineering.
Since the Bank successfully implemented a state of the art retail lending system in 2007, and an
internet banking system, state of the art contact management centre and a CRM, solution in 2012 the
Bank has continued to undergo testing and quality control of its IT systems. In 2011 the Bank moved
into a new head office building in Ras Al-Khaimah into which all existing head office functions have
been transferred. Furthermore the Bank has replaced its core banking in 2012.
The Bank uses various servers based on IBM AIX, Oracle Solaris, Windows and Linux platforms,
Finacle from Infosys for core banking system, Flexcube from Oracle for Islamic, Prime from TSys for
78
credit cards, Retails Lending Module from Nucleus, and IBM Middleware IT software amongst others
and the IT department has grown over the years. Whilst some software is currently developed in-
house, the Bank has entered into strategic agreements with leading Indian software developers to
develop and install various automation and system changes requested by the business. The Bank also
has an ATM network consisting of 205 machines as at 31 December 2013. These machines are linked
to the UAE Central Bank switch (allowing non-bank customers to use the Banks ATM network) which
provides the Banks customers with easy access to their funds.
Insurance
The Bank has various insurance policies in place, including fire, property, terrorism, third-party liability
and bankers blanket bond insurance policies. The Bank believes that these insurance policies provide
it with comprehensive insurance coverage against the various risks to which it may be exposed.
Litigation
During the ordinary course of its business, the Group is subject to legal proceedings and adjudications.
The Group is not involved in any litigation, arbitration or administrative proceedings relating to claims
which could have a material adverse effect on its financial condition and the results of operations and
is not aware of any such litigation, arbitration or administrative proceeding that is pending or
threatened. Therefore no material provision has been made as at 31 December 2013 regarding any
outstanding legal proceedings against the Group.
Auditors
The Banks auditors are PricewaterhouseCoopers of P.O. Box 11987, Dubai.
PricewaterhouseCoopers are regulated in the UAE by the UAE Ministry of Economy and Planning.
They have audited the Banks 2012 Annual Financial Statements and 2013 Annual Financial
Statements and have issued an unqualified opinion in each case. PricewaterhouseCoopers have also
reviewed the Banks 2014 Interim Financial Information.
Related Party Transactions
Related parties of the Bank comprise shareholders, key management, businesses controlled by
shareholders and directors of the Bank as well as businesses over which they exercise significant
influence. During the year, the Bank entered into significant transactions with related parties in the
ordinary course of business. The transactions and balances arising from these transactions as at and
for the years ended 31 December 2013 and 31 December 2012 are as follows:
31 December 2013
AED000
31 December 2012
AED000
Transactions during the year
Interest/Profit income 955 1,333
Interest/Profit expense 11,201 19,528
Commission income 742 777
Directors remuneration 5,216 5,212
Remuneration payable to key management personnel 39,104 40,374
31 December 2013
AED000
31 December 2012
AED000
Balances at 31 December:
Loans and advances:
- Shareholders and their related companies 25,740 107
- Directors and their related companies 3,875 231
- Key management personnel 17,899 20,018
47,514 20,356
Due to customers:
- Shareholders and their related companies 1,073,772 642,582
- Directors and their related companies 78,247 42,194
- Key management personnel 9,748 22,924
1,161,767 707,700
Irrevocable commitments, contingent liabilities and forward contracts
- Shareholders and their related companies 74,262 118,752
- Directors and their related companies 6,657 445
80,919 119,197
79
SELECTED FINANCIAL INFORMATION
The selected financial information below has been extracted from, and should be read in conjunction
with, and is qualified in its entirety by reference to, the Banks 2012 Annual Financial Statements, 2013
Annual Financial Statements and the 2014 Interim Financial Information (and, in each case, the notes
thereto), which have each been appended hereto, and form part of, this Base Prospectus save that
interest on investments have been reported under interest income instead of non-interest income for the
3 month period 31 March 2014 and this line item has been re-grouped accordingly in the presentation of
financial information below for the years ended 31 December 2012 and 31 December 2013.
Consolidated Income Statement
Three months ended Year ended 31 December
31 March
2014 2013 2013 2012
(reviewed) (audited)
(AED000s)
Interest income 667,743 666,891 2,677,480 2,656,906
Interest expense (51,329) (72,537) (247,505) (350,562)
Net interest income 616,414 594,354 2,429,975 2,306,344
Income from Islamic financing 30,080 843 47,116
Islamic profit distribution (7,281) (239) (11,584)
Net income from Islamic financing
2
22,799 604 35,532
Net interest income and income from Islamic financing 639,213 594,958 2,465,507 2,306,344
Net fee and commission income 149,504 129,638 528,863 488,174
Foreign exchange income 20,179 17,012 74,800 67,634
Income from investment securities 2,340 159 41,308 (1,515)
Other operating income 13,441 10,630 39,849 32,527
Operating income 824,677 752,397 3,150,327 2,893,164
Operating expenses (359,767) (322,990) (1,378,886) (1,281,250)
Provision for impairment of loans and advances net of write
backs (130,342) (61,430) (340,623) (209,115)
Net profit for the period/year 334,568 367,977 1,430,818 1,402,799
Attributed to:
Equity holders of the Bank 334,568 367,977 1,430,818 1,402,799
Non-controlling interests
Net profit for the period/year 334,568 367,977 1,430,818 1,402,799
2
Commenced in 2013
80
Consolidated Statement of Financial Position
Three months
ended 31 March Year ended 31 December
2014 2013 2012
(reviewed) (audited)
(AED000s)
ASSETS
Cash and balances with the UAE Central Bank 3,502,701 3,622,262 2,904,054
Due from other banks 560,040 543,899 1,195,831
Loans and advances 22,588,144 21,959,245 20,283,427
Investment securities 3,557,700 2,695,952 1,586,878
Property and equipment 1,006,540 1,028,873 1,035,773
Other assets 302,888 276,538 244,174
Total assets 31,518,013 30,126,769 27,250,137
LIABILITIES
Due to other banks 570,772 3,357 233,841
Due to customers 23,515,976 23,069,147 20,719,725
Other liabilities 1,350,687 472,745 539,914
Provision for employees end of service benefits 67,489 65,450 61,442
Total liabilities 25,504,924 23,610,699 21,554,922
SHAREHOLDERS EQUITY
Share capital 1,676,245 1,676,245 1,523,859
Share premium 110,350 110,350 110,350
Retained earnings 948,884 1,452,439 1,183,109
Other reserves 3,277,610 3,277,036 2,877,897
Equity attributable to equity holders of the Bank 6,013,089 6,516,070 5,695,215
Non-controlling interests
Total shareholders equity 6,013,089 6,516,070 5,695,215
Total liabilities and shareholders equity 31,518,013 30,126,769 27,250,137
Funding
An analysis of the Banks funding is set out under Financial ReviewTotal liabilities and equity.
Credit Commitments and Contingent Items
Credit-related commitments include commitments to extend credit, standby letters of credit, guarantees
and acceptances which are designed to meet the requirements of the Banks customers.
The table below sets out the Banks credit-related commitments as at 31 March 2014, 31 December
2013 and 31 December 2012.
Three months
ended 31 March Year ended 31 December
2014 2013 2012
(reviewed) (audited)
(AED000s)
Commitments to extend credit 6,925,340 6,648,849 5,980,372
Guarantees 592,580 570,353 492,854
Letters of credit 58,706 62,951 111,708
Acceptances 60,976 28,938 30,702
Capital commitments 12,786 11,937 37,324
7,650,388 7,323,028 6,652,960
Letters of credit are written undertakings by the Bank on behalf of a customer authorising a third party
to draw drafts on the Bank, up to a stipulated amount, under specific terms and conditions. These
letters of credit are collateralised by the underlying shipments of goods to which they relate and
therefore have significantly less risk.
81
Cash requirements under guarantees and standby letters of credit are considerably less than the
amount of the commitment because the Bank does not generally expect the third party to draw funds
under the agreement.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form
of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the
Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss, although not easy to quantify, is considerably less than the total unused
commitments since most commitments to extend credit are contingent upon customers maintaining
specific credit standards. Commitments to extend credit amounting to AED 6,571 million as at
31 December 2013, compared to AED 5,855 million as at 31 December 2012, are revocable at the
option of the Bank.
Consolidated Statement of Cash Flows
Three months ended
31 March
Year ended
31 December
2014 2013 2013 2012
(reviewed) (audited)
(AED000s)
Operating activities
Net profit for the period/year 334,568 367,977 1,430,818 1,402,799
Adjustments:
Provision for impairment of loans and advances net of
write backs 147,061 75,448 340,623 209,115
Depreciation 31,922 29,619 126,908 99,860
Provision for employees end of service benefits 3,873 3,360 13,776 15,797
Gain on disposal of property and equipment (199) (228) (465) (502)
Amortisation of premium / (discount) relating to securities
held to maturity 3,368 2,445 13,399 (1,334)
(Gain) / loss on sale of investment securities (739) (34,986)
Release of fair value loss to income statement on
redemption of available-for-sale investment securities 1,515
Operating cash flows before payment of employees end
of service benefits and changes in assets and liabilities 519,854 478,621 1,890,073 1,727,250
Payment of employees end of service benefits (1,834) (2,416) (9,768) (7,422)
Changes in assets and liabilities:
Statutory deposits with the UAE Central Bank (37,436) (62,893) (460,456) (260,131)
Certificate of deposits with the UAE Central Bank with
original maturities of over 3 months (650,000)
Due from other banks with original maturities of three
months or over 120,902 206,952 (206,952)
Loans and advances and Islamic financing assets (in the
case of 2013 and Q1 of 2014) (net of charge for
impairment and amortization and amount written off /
back) (775,960) 14,966 (2,016,441) (2,124,072)
Other assets (26,350) (40,620) (32,364) (42,531)
Due to other banks (net of amounts due to UAE
Central Bank) 567,415 1,208,482 (97,108) (136,607)
Due to customers 446,829 (298,463) 2,349,422 2,429,560
Other liabilities 39,819 (71,243) (67,169) 96,419
Net cash generated from operating activities 732,337 1,347,336 1,763,141 825,514
Investing activities
Purchase of investment securities (863,803) (1,422,936) (1,935,575) (641,074)
Purchase of property and equipment (9,595) (29,499) (120,343) (184,161)
Proceeds from maturity / disposal of investment
securities 847,668 228,970
Proceeds from disposal of property and equipment 205 293 800 1,197
Net cash used in investing activities (873,193) (1,452,142) (1,207,450) (595,068)
82
Three months ended
31 March
Year ended
31 December
2014 2013 2013 2012
(reviewed) (audited)
(AED000s)
Financing activities
Subordinated debt repayment (684,467)
Dividend paid to equity holders of the Bank (609,543) (415,598)
Dividend paid to non- controlling interests
Net cash used in financing activities (609,543) (1,100,065)
Net decrease in cash and cash equivalents (140,856) (104,806) (53,852) (869,619)
Cash and cash equivalents at the beginning of the
period/year 1,310,347 1,364,199 1,364,199 2,233,818
Cash and cash equivalents at the end of the period/year 1,169,491 1,259,393 1,310,347 1,364,199
Key Financial Ratios
The following table sets out certain key ratios calculated with results derived from the Banks 2012
Annual Financial Statements, 2013 Annual Financial Statements and 2014 Interim Financial
Information. These ratios are not calculated on the basis of IFRS and are not IFRS measures of
financial performance.
Three months
ended 31 March Year ended 31 December
2014 2013 2012
(% unless otherwise stated)
Net interest margin
(1)
8.4 8.6 8.9
Total loans/total assets 71.7 72.9 74.4
Customers deposits/total assets 74.6 76.6 76.0
Total advances to total deposits ratio
(2)
91.0 88.1 90.3
Liquid assets ratio
(3)
18.9 19.8
Cost to income ratio
(4)
43.6 43.8 44.3
Return on equity
(5)
21.4 23.4 27.0
Return on assets
(6)
4.4 5.0 5.4
Non performing financings ratio
(7)
2.4 2.4 2.5
Non performing financings provisions ratio
(8)
79.5 73.3 62.8
Capital adequacy ratio
(9)
27.6 29.0 28.8
Earnings per share (AED)
(10)
0.80 0.85 0.84
Notes:
(1) Net interest income including interest on investments divided by average assets (annualised for the three month period ended
31 March 2014).
(2) Calculated in accordance with UAE Central Bank regulations.
(3) Calculated in accordance with UAE Central Bank regulations. This ratio was not applicable for the year ended 31 December
2012.
(4) Total operating cost divided by total operating income.
(5) Net profit for the year divided by average shareholders equity (annualised for the three month period ended 31 March 2014).
(6) Net profit for the year divided by average total assets (annualised for the three month period ended 31 March 2014).
(7) Non-performing loans divided by gross loans.
(8) Total impairment provision (including the portfolio provision for risk inherent in the Banks portfolio) divided by non-performing
loans.
(9) Calculated in accordance with UAE Central Bank regulations.
(10) Annualised for the three month period ending 31 March 2014.
83
FINANCIAL REVIEW
The following discussion contains an analysis of the audited consolidated results of operations of the
Bank as at and for the years ended 31 December 2012 and 31 December 2013 and the unaudited
consolidated results of operations of the Bank as at and for the three months ended 31 March 2013
and 31 March 2014 and should be read in conjunction with the 2012 Annual Financial Statements,
2013 Annual Financial Statements, consolidated interim financial statements as at and for the three
months ended 31 March 2013 and 2014 Interim Financial Information, as the case may be. Unless
otherwise specified, the financial data discussed below has been extracted without material adjustment
from the financial statements referred to above.
References in this financial review to 2012 and 2013 are for the 12 months ended 31 December 2012
and 31 December 2013 respectively. The percentage or percentage changes in this financial review
are based on the amounts reported in the Banks financial statements referred to above. As a result,
percentage or percentage changes stated in this financial review may not be an exact arithmetical
change of the numbers stated in the this financial review. As a result of rounding, the totals stated in
the tables and text below may not be an exact arithmetical sum of the numbers in respect of which they
are expressed to be a total.
For the purposes of this financial review, the references to Bank include the Bank and its three
subsidiaries, RAK Islamic Finance PVT. J.S.C., BOSS FZCO and RAK Technologies FZCO, unless the
context otherwise requires.
Business Overview
The Bank was founded by the government of the Emirate of Ras Al-Khaimah to promote the
development of the Emirate. Headquartered in Ras Al-Khaimah, the Bank is the national bank of the
Emirate and plays an important role in its economic growth.
The Bank categorises its business into three business segments: Retail Banking, Corporate Banking
and Treasury and Others. As at 31 December 2013, the assets of the Retail Banking segment
accounted for approximately AED 21.9 billion, or 72.8 per cent. of the Banks total assets and its total
liabilities amounted to approximately AED 13.5 billion, or 57.4 per cent. of the Banks total liabilities. As
at 31 December 2013, the assets of the Corporate Banking segment accounted for AED 925.9 million,
or 3.1 per cent. of the Banks total assets and its total liabilities amounted to approximately AED 8.3
billion, or 35.2 per cent. of the Banks total liabilities. As at 31 December 2013, the assets of the
Treasury segment accounted for approximately AED 6.2 billion, or 20.5 per cent. of the Banks total
assets and its total liabilities amounted to approximately AED 1.4 billion, or 5.8 per cent. of the Banks
total liabilities.
For the year ended 31 December 2013, the Banks net profit was AED 1.4 billion (an increase of 2 per
cent. compared to the year ended 31 December 2012) and its total assets amounted to AED 30.1
billion compared to AED 27.3 billion as at 31 December 2012. The Banks total equity was AED 6.5
billion, an increase of 14.4 per cent. from AED 5.7 billion as at 31 December 2012.
Significant Accounting Policies
Certain of the Banks accounting policies require significant managerial judgment on matters that are
inherently uncertain, including the valuation of certain assets and liabilities and the adoption of
estimates and assumptions based on historical experience and other factors considered reasonable
and significant by the Banks management.
The Bank has established policies and control procedures intended to ensure that stringent valuation
methods are applied in accordance with applicable accounting principles during the presentation of its
2012 Annual Financial Statements and 2013 Annual Financial Statements.
The Banks management believes that the following significant accounting policies require more critical
judgements or estimates or involve a greater degree of complexity in the application of accounting
standard that affect the Banks financial condition and results of operation.
Classification of financial instruments
The Bank classifies its financial instruments into the following categories:
Loans and advances: Loans and advances are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active markets. Loans and advances are
initially recognised at fair value, which is the cash consideration to originate or purchase a
84
loan including any transaction costs, and measured subsequently at amortised cost using the
effective interest method.
Islamic financing: The Bank engages in Shariah compliant Islamic banking activities through
various Islamic instruments such as Murabaha, Salam, Mudaraba and Wakala. The
accounting policy for initial recognition, subsequent measurement and derecognition of
Islamic financial assets and liabilities are as per loans and advances.
Held-to-maturity: Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the Banks management has the positive
intention and ability to hold to maturity.
Available-for-sale: Available-for-sale investments are those non-derivative financial assets
that are designated as available-for-sale or are not classified as (a) loans and advances,
(b) held-to-maturity investments. Available-for-sale assets are subsequently carried at fair
value.
Due to customers
Deposits are recognised initially at fair value, net of transaction costs incurred. Deposits are
subsequently carried at amortised cost using the effective interest method.
Interest income and expense
Interest income and expense are recognised in the income statement for all instruments measured at
amortised cost using the effective interest method. The effective interest method is a method of
calculating the amortised cost of a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or
financial liability.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss.
In 2013 and 2012, interest earned whilst holding investment securities was reported as income from
investment securities in the income statement. With effect from 1 January 2014, such interest is
reported as interest income as a result of the significant increase of the investment portfolio and the
fact that a significant majority of investments are held to maturity in order to enable the Bank to collect
the regular cash flows derived under such instruments.
Impairment losses on loans and advances
The Bank reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining
whether an impairment loss should be recorded in the income statement, the Bank makes judgements
as to whether there is any observable data indicating that there is a measurable decrease in the
estimated future cash flows from a portfolio of loans before the decrease can be identified with an
individual loan in that portfolio. This evidence may include observable data indicating that there has
been an adverse change in the payment status of borrowers in a group, or national or local economic
conditions that correlate with defaults on assets in the Group. Management takes into account the
historical loss experience in estimating future cash flows in assessing the loan portfolio for impairment.
The methodology and assumptions used for estimating both the amount and timing of future cash flows
are reviewed regularly to reduce any differences between loss estimates an actual loss experience. A
+/-5 per cent. change in the provision would increase/decrease the profit by AED 19.8 million
(compared to AED 16 million in 2012).
Held-to-maturity investments
The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires judgement.
In making this judgement, the Bank evaluates its intention and ability to hold such investments to
maturity. If the Bank fails to hold these investments to maturity other than in specific circumstances -
for example, selling an insignificant amount close to maturity or for exceptional credit related reasons -
it will be required to reclassify the entire class as available-for-sale. The investments would therefore
be measured at fair value not amortised cost.
85
RESULTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2013
Net Interest Income and Net Income from Islamic Financing
The following table sets out the Banks net interest income and net income from Islamic financing for
the periods indicated.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Interest income 2,677,480 2,656,906 0.8
Interest expense (247,505) (350,562) (29.4)
Net interest income 2,429,975 2,306,344 5.4
Income from Islamic financing 47,116
Islamic profit distribution (11,584)
Net income from Islamic financing 35,532
Net interest income and income from Islamic financing 2,465,507 2,306,344 6.9
The Banks net interest income and income from Islamic financing increased by 6.9 per cent. from AED
2,306.3 million for the year ended 31 December 2012 to AED 2,465.5 million for the year ended
31 December 2013. This increase was principally the result of an 8.5 per cent. increase in gross loans
and advances from AED 20,607.5 million for the year ended 31 December 2012 to AED
22,354.9 million for the year ended 31 December 2013 and income from investments doubling over the
period. The growth in loans and advances occurred despite a decline of AED 1.3 billion in the National
Loan Portfolio.
The Banks net interest income increased by 5.4 per cent. from AED 2,306.3 million for the year ended
31 December 2012 compared to AED 2,429.9 million for the year ended 31 December 2013. This
increase was principally the result of a 29.4 per cent. decrease in the Banks interest expense from
AED 350.6 million for the year ended 31 December 2012 to AED 247.5 million for the year ended
31 December 2013 due to the more efficient use of the Banks funds and being able to obtain more
favourable rates in the market. The 0.8 per cent. increase in the Banks interest income was primarily
due to income from investments doubling over the period, partially offset by a reduction in its National
Loan Portfolio which has been significantly reduced as a result of the refinancing of such loans by
customers to other banks (see Description of the BankStrategyLower dependence on National
Loan Portfolio).
The Bank reported income from Islamic financing for the first time in 2013, which is when it launched
its Islamic finance operations. In January 2013, the Bank established RAKBANK AMAL, its Islamic
Banking division through an Islamic finance company, RAK Islamic Finance Company for issuing of
Islamic credit cards. The Bank introduced Sharia-compliant Islamic banking products through various
Islamic instruments such as Murabaha, Salam, Mudaraba, Wakela and Ijara products were introduced
by the Bank in 2014. The Bank recorded net income from Islamic financing of AED 35.5 million for the
year ended 31 December 2013.
Interest income from commercial loans and overdrafts, credit card and retail loans constituted 51.3 per
cent., 23.8 per cent. and 19.9 per cent. of the Banks total interest income, respectively, for the year
ended 31 December 2013. Income from Islamic Salam personal finance and Islamic auto Murabaha
constituted 73.7 per cent. and 24.9 per cent. of the Banks total income from Islamic financing,
respectively, for the year ended 31 December 2013.
86
Non-interest Income
The following table sets out the Banks non-interest income for each year indicated.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Net fee and commission income 528,863 488,174 8.3
Foreign exchange income 74,800 67,634 10.6
Income from investment securities 41,308 (1,515)
Other operating income 39,849 32,527 22.5
Non-interest income constituted 21.7 per cent. of the Banks total operating income for the year ended
31 December 2013 and 20.3 per cent. of the Banks total operating income for the year ended
31 December 2012. The main component of this line item was net fees and commission income. Total
non-interest income for the year ended 31 December 2013 increased 16.7 per cent. from AED
586.8 million for the year ended 31 December 2012 to AED 684.8 million for the year ended
31 December 2012. This increase was principally due to income from dividends, sale of investment
securities and fee income from other products increasing over the period.
Operating income
As a result of the foregoing, the Banks operating income for the year ended 31 December 2013
increased 8.9 per cent. from AED 2,893.2 million for the year ended 31 December 2012 to AED
3,150.3 million for the year ended 31 December 2013.
Operating expenses
The following table sets out the components of the Banks total operating expenses for each year
indicated.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Staff costs 597,280 610,342 (2.1)
Occupancy costs 90,567 94,968 (4.6)
Marketing expenses 32,514 31,600 2.9
Depreciation 126,908 99,860 27.1
Services 49,520 46,104 7.4
Legal and consultancy fees 53,376 45,979 16.1
Computer expenses 65,859 55,193 19.3
Outsourced staff costs 295,578 247,108 19.6
Others 67,284 50,096 34.3
Operating expenses 1,378,886 1,281,250 7.6
The Banks total operating expenses increased by 7.6 per cent. from AED 1,281.3 million for the year
ended 31 December 2012 to AED 1,378.9 million for the year ended 31 December 2013. Staff costs,
including outsourced staff costs, constituted 64.8 per cent. of the Banks total operating expenses for
the year ended 31 December 2013. Depreciation increased by 27.1 per cent. from AED 99.9 million for
the year ended 31 December 2012 to AED 126.9 million for the year ended 31 December 2013. This
increase in operating expenses was principally a result of the Banks increasing investment in its
branch network and information technology.
87
Provision for Impairment of Loans and Advances Net of Write Backs
The following table sets out the Banks provision for impairment of loans and advances for each year
indicated.
Retail loans Corporate loans Total
(AED000s)
31 December 2013
Impairment charge / (release) 393,145 (1,050) 392,095
Net recovery during the year (51,472) (51,472)
341,673 (1,050) 340,623
31 December 2012
Impairment charge 250,751 (302) 250,449
Net recovery during the year (41,334) (41,334)
209,417 (302) 209,115
Percentage change (%) 63.2% 247.7% 62.9%
The Banks provision for impairment of loans and advances increased by 62.9 per cent. from AED
209.1 million for the year ended 31 December 2012 to AED 340.6 million for the year ended
31 December 2013. A number of factors contributed to this increase. The Bank believed that the
provision for impairment of loans and advances in 2012 was exceptionally low, including as a result of
write-backs from previous years. In addition, the Bank experienced significant deterioration in its
National Loan Portfolio in 2013. As a result, the Bank has taken further precautionary provisions and
restructured loans within this portfolio. The Banks impaired loan coverage ratio (calculated as the
aggregate of impaired loans against provision held) for the year ended 31 December 2013 was
73.3 per cent. compared to 62.8 per cent. for the year ended 31 December 2012. This ratio does not
take into consideration mortgaged properties and other realisable assets collaterals available against
impaired loans.
Net profit for the year
As a result of the foregoing, the Banks net profit for the year ended 31 December 2013 increased
2 per cent. from AED 1,402.8 million for the year ended 31 December 2012 to AED 1,430.8 million for
the year ended 31 December 2013.
Financial Condition as at 31 December 2012 and 2013
Total assets
The following table sets out the components of the Banks total assets as at 31 December 2013 and
31 December 2012.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Cash and balances with the UAE Central Bank 3,622,262 2,904,054 24.7
Due from other banks 543,899 1,195,831 (54.5)
Loans and advances 21,959,245 20,283,427 8.3
Investment securities 2,695,952 1,586,878 69.9
Property and equipment 1,028,873 1,035,773 (0.7)
Other assets 276,538 244,174 13.3
Total assets 30,126,769 27,250,137 10.6
The Banks total assets increased 10.6 per cent. from AED 27,250.1 million as at 31 December 2012 to
AED 30,126.8 million as at 31 December 2013. This increase was primarily due to a 69.9 per cent.
increase in investment securities and an 8.3 per cent. increase in loans and advances. The Banks
investment portfolio amounted to AED 2,696 million as at 31 December 2013 and was entirely
denominated in U.S. dollars or AED.
88
Cash and balances with the UAE Central Bank
The following table sets out the composition of Banks cash and balances with the UAE Central Bank
as at 31 December 2013 and 31 December 2012.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Cash in hand 568,206 508,696 11.7
Balances with the UAE Central Bank 198,242
Statutory deposit with the UAE Central Bank 2,105,814 1,645,358 28.0
Certificates of deposit with the UAE Central Bank 750,000 750,000
3,622,262 2,904,054 24.7
The Banks cash and balances with the UAE Central Bank increased 24.7 per cent. from AED
2,904.1 million as at 31 December 2012 to AED 3,622.3 million as at 31 December 2013. This increase
was principally the result of a 28 per cent. increase in the Banks statutory deposit with the UAE
Central Bank from AED 1,645.4 million as at 31 December 2012 to AED 2,105.8 million as at
31 December 2013.
Due from other banks
The following table sets out the composition of the Banks assets due from other banks as at
31 December 2012 and 31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Placements with other banks 275,475 664,580 (58.5)
Demand deposits 170,942 413,786 (58.7)
Clearing account balances 97,482 117,465 (17.0)
543,899 1,195,831 (54.5)
Banks in UAE 373,257 782,095 (52.3)
Banks outside UAE 170,642 413,736 (58.8)
543,899 1,195,831 (54.5)
The Banks assets due from other banks decreased 54.5 per cent. from AED 1,195.8 million as at
31 December 2012 to AED 543.9 million as at 31 December 2013. This decreases reflected a
decrease across the whole of the Banks portfolio of assets due from other banks.
Loans and advances
The Banks loan portfolio comprises loans and advances and Islamic financing to commercial and retail
entities across a range of economic sectors made on both a conventional and Islamic basis. The
following table sets out the composition of the Banks total loans and advances (including Islamic
financing assets) as at 31 December 2012 and 31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Commercial loans and overdrafts 9,778,256 9,600,684 1.8
Retail loans 6,848,808 7,051,179 (2.9)
Credit cards 2,864,215 2,713,784 5.5
Auto loans 1,685,885 1,241,890 35.8
Islamic financing assets 1,177,694
Total loans and advances 22,354,858 20,607,537 8.5
Overall, the Banks loans and advances increased 8.5 per cent. from AED 20,607.5 million as at
31 December 2012 to AED 22,354.9 million as at 31 December 2013. This increase was principally the
result of the introduction of the Banks Islamic finance business as well as a 1.8 per cent. increase in
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the Banks commercial loans and overdrafts. These increases offset the 18 per cent. decrease in retail
loans, being National Loan Portfolio advances. As at 31 December 2013, commercial loans and
overdrafts (comprising loans and overdrafts to corporates, including the Banks mid-capitalisation
corporate customers and SMEs both in the form of traditional, secured SME financing and non-
traditional, unsecured SME lending) and retail loans constituted 43.7 per cent. and 30.6 per cent.,
respectively, of the Banks total loans.
As at 31 December 2013, Islamic financing assets, amounting to AED 1,177.7 million, constituted
5.3 per cent. of the Banks total loans and advances. Of these Islamic financing assets, AED
730.1 million was from Islamic Salam personal finance and AED 370.1 million was from Islamic Auto
Murabaha representing 62 per cent. and 31.4 per cent. of the Banks total Islamic financing assets
respectively.
As at 31 December 2013, the majority of the Banks loans and advances were made to customers
based in Dubai (approximately 58 per cent. of the total), with the remainder being made to customers
in Abu Dhabi (approximately 17 per cent. of the total), Sharjah (approximately 14 per cent. of the total),
Ras Al-Khaimah (approximately 8 per cent. of the total) and Ajman (approximately 3 per cent. of the
total).
Investment securities
The following table sets out the composition of the Banks investment securities as at 31 December
2013 and 31 December 2012.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Available-for-sale securities
Quoted debt securities 42,268 42,688 (1.0)
Held-to-maturity securities
Quoted debt securities 2,653,684 1,544,190 71.8
Total 2,695,952 1,586,878 69.9
As at 31 December 2012, the Bank had investment securities of AED 1,586.9 million compared to AED
2,695.9 million as at 31 December 2013. The Bank proactively increased its portfolio of investment
securities by 69.9 per cent. during 2013 as it seeks more stable sources of income. As such the
increase in investment securities has been almost entirely in held-to-maturity investment securities.
Property and equipment
The following table sets out the composition of the Banks property and equipment as at 31 December
2013 and 31 December 2012.
Land and
buildings
Leasehold
improvements
Other fixed
assets
Capital work
in progress Total
(AED000s)
Net book amounts
As at 31 December 2013 542,907 46,776 397,208 41,982 1,028,873
As at 31 December 2012 471,399 45,803 397,031 121,540 1,035,773
Percentage change (%) 15.2 2.1 0.0 (65.5) (0.7)
Land and buildings comprise branches, offices and certain residential premises purchase for the
occupation of management and staff. Property and equipment is stated at cost less accumulated
depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items.
Capital work in progress is stated at cost and is transferred to the appropriate asset category when it is
brought into use and is depreciated in accordance with the Banks accounting policy.
The Banks property and equipment decreased 0.7 per cent. from AED 1,035.8 million as at
31 December 2012 to AED 1,028.9 million as at 31 December 2013 principally as a result of the
depreciation in the value of such assets.
90
Other assets
The following table sets out the composition of the Banks other assets as at 31 December 2013 and
31 December 2012.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Interest receivable 175,973 164,794 6.8
Profit receivable on Islamic financing assets 11,941
Prepayments and deposits 54,229 61,324 (11.6)
Others 34,395 18,056 90.5
Other assets 276,538 244,174 13.3
The Banks other assets increased 13.3 per cent. from AED 244.2 million as at 31 December 2012 to
AED 276.5 million as at 31 December 2013. This increase was principally a result of a 6.8 per cent.
increase in interest receivable and the introduction of the new Islamic finance business.
Total liabilities and equity
The table below sets out the Banks total liabilities and equity as at 31 December 2012 and
31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Due to other banks 3,357 233,841 (98.6)
Due to customers 23,069,147 20,719,725 11.3
Other liabilities 472,745 539,914 (12.4)
Provision for employees end of service benefits 65,450 61,442 6.5
Total liabilities 23,610,699 21,554,922 9.5
Total shareholders equity 6,516,070 5,695,215 14.4
Due to other banks
The table below sets out the Banks due to other banks funding as at 31 December 2012 and
31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Term deposits 100,000
Current account balance with the UAE Central Bank 133,376
Demand deposits 3,357 465 621.9
3,357 233,841 (98.6)
During 2013, there was a significant decrease of 98.6 per cent. from AED 233.8 million as at
31 December 2012 to AED 3.4 million as at 31 December 2013 in the Banks liabilities to other banks.
The reduction in the Banks current account balance with the UAE Central Bank was due to the nature
of the account whereby the balance moves frequently.
Due to customers
The Banks funding base principally consists of customers deposits, including Islamic customers
deposits, which constituted 96.1 per cent. of the Banks total liabilities as at 31 December 2012 and
97.7 per cent. as at 31 December 2013.
91
The table below sets out a breakdown of the Banks customers deposits as at 31 December 2012 and
31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Due to customers
Time deposits 7,104,006 9,249,064 (23.2)
Current accounts 9,573,066 7,817,296 22.5
Savings deposits 3,416,942 2,749,198 24.3
Call deposits 1,010,673 904,167 11.8
Islamic customer deposits 1,964,460
23,069,147 20,719,725 11.3
Islamic customer deposits
Wakala investment deposits 1,017,385
Mudaraba term investment deposits 55,673
Qard-E-Hasan -current accounts 145,001
Mudaraba -current accounts 618,427
Mudaraba -savings deposits 125,376
Mudaraba -call deposits 2,598
1,964,460
The Banks customer deposits increased 11.3 per cent. from AED 20,719.7 million as at 31 December
2012 to AED 23,069.1 million as at 31 December 2013. Time deposits, which constituted 30.8 per cent.
of the Banks total customer deposits as at 31 December 2013, decreased 23.2 per cent. which was
offset but a comparable increase of 22.5 per cent. in current accounts and 24.3 per cent. in savings
accounts, which constituted 41.5 per cent. and 14.8 per cent. of the Banks total customer deposits,
respectively. The introduction of the Islamic financing business increased the Banks customer
deposits by AED 1,964.5 million and constituted 8.5 per cent. of the Banks total customer deposits as
at 31 December 2013. As at 31 December 2013, Wakala investment deposits and Mudaraba current
accounts constituted 51.8 per cent. and 31.5 per cent., respectively, of the Banks total Islamic
customer deposits.
As at 31 December 2013, the majority of the Banks customer deposits (approximately 66 per cent. of
the total) are deposits held with the Banks Dubai branches, with the remainder being held with
branches in Ras Al-Khaimah (approximately 15 per cent. of the total), Abu Dhabi (approximately 9 per
cent. of the total), Sharjah (approximately 9 per cent. of the total) and Ajman (approximately 1 per cent.
of the total).
Other liabilities
The table below sets out a breakdown of the Banks other liabilities as at 31 December 2012 and
31 December 2013.
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Interest payable 39,738 94,931 (58.1)
Profit distributable in Islamic customer deposits 9,106
Accrued expenses 155,364 175,797 (11.6)
Managers cheques issued 150,123 151,215 (0.7)
Others 118,414 117,971 0.4
472,745 539,914 (12.4)
The Banks other liabilities decreased by 12.4 per cent. from AED 539.9 million as at 31 December
2012 to AED 472.7 million as at 31 December 2013 primarily as a result of a 58.1 per cent. decrease in
interest payable and a 11.6 per cent. decrease in accrued expenses.
92
Total shareholders equity
Year ended 31 December
Percentage
change
2013 2012 2013/2012
(AED000s) (%)
Share capital 1,676,245 1,523,859 10.0
Share premium 110,350 110,350 0.0
Retained earnings 1,452,439 1,183,109 22.8
Other reserves 3,277,036 2,877,897 13.9
Total shareholders equity 6,516,070 5,695,215 14.4
As at 31 December 2013, the Banks authorised, issued and fully paid share capital comprises
1,676.25 million shares of AED 1 each, compared to 1,523.86 million shares of AED 1 each as at
31 December 2012. At a meeting of the shareholders held on 24 March 2013, the shareholders of the
Bank approved a stock dividend in respect of 2012 at 10 per cent. of the issued and paid up capital
amounting to AED 152.4 million and cash dividend at 40 per cent. of issued and paid up capital amount
to AED 609.5 million. Accordingly the authorised and issued share capital was increased by the
amount of stock dividend.
Results of Operations for the Three Months Ended 31 March 2014 and 31 March 2013
The Banks net profit for the three months ended 31 March 2014 decreased 9.1 per cent. from AED
368 million for the three months ended 31 March 2013 to AED 334.6 million for the three months
ended 31 March 2014.
Net interest income, including income from Islamic financing, increased 7.4 per cent. from AED
595.2 million for the three months ended 31 March 2013 to AED 639.2 million (net of distributions to
depositors) for the three months ended 31 March 2014 principally as a result of a reduction in the cost
of deposits. Non-interest income increased 17.8 per cent. from AED 157.4 million for the three months
ended 31 March 2013 to AED 185.6 million for the three months ended 31 March 2014. As a result, the
Banks operating income increased 9.6 per cent. from AED 752.4 million for the three months ended
31 March 2013 to AED 824.7 million for the three months ended 31 March 2014.
However, these increases were offset by a 112.2 per cent. increase in provision for impairment of
loans and advances net of write backs. This continues the trend of the Banks conservative
provisioning policy seen for the year ended 31 December 2013 in respect of certain personal loans. As
the Banks National Loan Portfolio has continued to decrease in size and quality, the Bank expects to
record impairment charges of up to AED 200 million for the financial year ending on 31 December
2014 in respect of such portfolio (see Description of the BankStrategyLower dependence on
National Loan Portfolio), which the Bank however does not expect to be replicated in subsequent
financial years.
Operating costs also increased by 11.4 per cent. from AED 323 million for the three months ended
31 March 2013 to AED 359.8 million for the three months ended 31 March 2014 due to increases in
employment costs.
Financial Condition as at 31 March 2014 and 31 December 2013
The Banks total assets increased 4.6 per cent. from AED 30,126.8 million as at 31 December 2013 to
AED 31,518 million as at 31 March 2014. This was principally a result of a 32 per cent. increase in
investment securities from AED 2,695.9 million as at 31 December 2013 to AED 3,557.7 million as at
31 March 2014 as well as a 2.9 per cent. increase in net loans and advances from AED 21,959.2 million
as at 31 December 2013 to AED 22,588.1 million as at 31 March 2014. Pursuant to the Banks continued
policy to increase investment securities as shown during the year ended 31 December 2013 and during
the first three months of 2014, it has authorisation to invest up to AED 200 million in equities. As at
31 March 2014, the Bank had invested approximately AED 60 million in equities.
The Banks total liabilities increased 8 per cent. from AED 23,610.7 million as at 31 December 2013 to
AED 25,504.9 million as at 31 March 2014. Customer deposits grew 1.9 per cent. from AED
23,069.1 million as at 31 December 2013 to AED 23,516 million as at 31 March 2014. This increase
was principally a result of the 17.4 per cent. increase in Islamic customer deposits from AED
1,964.5 million as at 31 December 2013 to AED 2,306.4 million as at 31 March 2014 driven by a
26.8 per cent. increase in Mudaraba current accounts and a 11.9 per cent. increase in Wakala
investment deposits.
93
The Banks total shareholders equity decreased 7.7 per cent. from AED 6,516.1 million as at
31 December 2013 to AED 6,013.1 million as at 31 March 2014. This was the result of a AED
503.6 million reduction in retained earnings reflecting the difference between the Banks profit as at
31 March 2014 and the cash dividend of AED 838.1 million recommended by the Board at their
meeting held on 29 January 2014 in respect of the year ended 31 December 2013 in addition to profit
for the three month period ended 31 March 2014 amounting to AED 334.6 million. At that meeting, the
Board also proposed to increase the Banks general banking risk reserve by AED 100 million, its credit
risk reserve by AED 100 million and its regulatory credit risk reserve by AED 26 million in order to align
such reserves at 1.5 per cent. of the Banks total credit risk weighted assets.
94
MANAGEMENT AND EMPLOYEES
Management
Board of Directors
The Bank operates under the direction of a board of directors (the Board or the Board of
Directors), which is comprised of eight members including the Chairman of the Board, H E Shaikh
Omar bin Saqr Al-Qassimi. The Board of Directors vested with powers to manage the Bank and
conduct its business in accordance with its objects and with Federal Law No. 8 of 1984 concerning
commercial companies of the UAE (the Commercial Companies Law), the Banks articles of
association and resolutions of the shareholders, and is elected by shareholders for a term of three
years. The Board of Directors appoints an executive committee (EXCO) and other committees from
amongst its members and also appoints a Chief Executive Officer who is responsible for implementing
board resolutions and running the day-to-day business of the Bank, although the overall responsibility
for the direction and strategy of the business of the Bank remains vested in the Board of Directors.
The following table provides certain information in relation to the Banks Board of Directors:
Name
Position
Year of
Appointment
HE Shaikh Omar bin Saqr Al-Qasimi Chairman 2012
HE Engr. Shaikh Salem bin Sultan Al-Qasimi Director 2012
Mr. Hamad Abdulaziz Al-Sagar Director 2012
Mr. Abdul Aziz Abdulla Al-Zaabi Director 2012
Mr. Yousuf Obaid Bin Essa Al Nuaimi Director 2012
Mr. Ahmed Essa Al Naeem Director 2012
Mr. Salem Ali Al Sharhan Director 2012
Mr. John Graham Honeybill Director 2013
The Board of Directors comprises several members of the ruling family of the Emirate of Ras Al-Khaimah
and businessmen from the UAE and Kuwait. The business address of each of the directors is RAKBANK
Building, Exit 129, Sheikh Mohammed Bin Zayed Road, Ras Al-Khaimah, P.O. Box 5300, UAE.
One of the directors has a consultancy contract with the Bank. The other directors are remunerated by
means of a fixed fee payable for attendance at each board meeting whilst the EXCO members are paid
a fee based on attendance of the EXCO meetings.
H.E. Shaikh Omar bin Saqr Al-Qasimi Chairman
H.E. Shaikh Omar bin Saqr Al-Qasimi was appointed by the Government of Ras Al-Khaimah to join the
Banks Board of Directors and was elected Chairman on 4 March 2006. He holds a senior position in
the Ras Al-Khaimah Government and is the Chairman of Gulf Cement.
H.E. Engr. Shaikh Salem Bin Sultan Al-Qasimi Director
H.E. Engr. Shaikh Salem Bin Sultan Al-Qasimi is a member of the Government of Ras Al-Khaimah
Executive Council.
He holds positions as Chairman of the RAK Department of Civil Aviation; Member of General Civil
Aviation Authority; Founder and Chairman of RAKABELA Catering Company; Chairman of Ras Al-
Khaimah National Travel Agency (RANTA) and Ras Al-Khaimah Travel Agency (RAKTA); Founder and
Chairman of the UAE Fencing Federation; and Board Member of the UAE National Olympic Committee
and Executive Office.
Mr. Hamad Abdulaziz Al-Sagar Director
Mr. Hamad Al-Sagar is a former member of the Municipality of Kuwait and a former member of the
Kuwait Planning Board. He was also on the board of the Kuwait Investment Authority.
He holds positions as Board Member of the National Bank of Kuwait and Board Member of Shuaa
Capital.
Mr. Yousuf Obaid Bin Essa Al Nuaimi Director
Mr. Yousuf Al Nuaimi has 37 years of banking experience with HSBC Group.
He holds positions as Chairman of the board of RAK Chamber of Commerce and Industry; Board
Member of the Federal Chamber of Commerce; President of the Ras Al-Khaimah Reconciliation and
95
Commercial Arbitration Centre; Member of the Programme Advisory Committee at Higher Colleges of
Technology in Ras Al-Khaimah; Board Member of the Sheikh Saqr Charity; and member of the Human
Resources Development Committee in the Banking and Financial Sector.
Mr. Salem Ali Al Sharhan Director
Mr. Salem Ali Al Sharhan is the former Group Chief Financial Officer of Etisalat.
He holds positions as advisor to His Highness the Ruler of Ras Al-Khaimah; member of the Ras Al-
Khaimah Executive Council; and Board Member of the Dubai International Financial Centre Authority.
Mr. Ahmed Essa Al Naeem Director
Mr. Ahmed Al Naeem has 39 years of work experience with the Government. He is the former General
Manager of RAK Petroleum and RAK Gas. He is also a former member of the Ras Al-Khaimah
Municipal Council and of the Ras Al-Khaimah Chamber of Commerce, Industry, and Agriculture and
has held many ministerial posts.
He holds positions as Director of Gulf Pharmaceutical Industries (Julphar); Chairman of the RAK Trade
Centre; Vice Chairman of the United Insurance Company; Vice Chairman of the RAK National
Insurance Company; Chairman of the Emirates Travel Agency; and Chairman of Al Naeem Mall.
Mr. Abdul Aziz Abdullah Al Zaabi Director
Mr. Abdul Aziz is the former Chief Executive Officer of Real Estate Bank.
He holds positions as Vice Chairman of RAK Properties and Head of the Executive and Investment
Committee; Chairman of Gulf Livestock; and Chairman of RAK Charity.
Mr. John Graham Honeybill Director
Mr. John Honeybill has over 44 years of banking experience in 12 different countries, with 20 years
spent working in various parts of the Gulf region. He was the Banks Chief Executive Officer between
1996 and 2013 for a total of 18 years.
Senior Management
The Management Committee (MANCO) is responsible for ensuring the implementation of the
various initiatives approved by the Board, reviewing the progress of various projects under
implementation and aligning the Banks results with approved budgets and strategic plans. MANCO
meets on a quarterly basis (or more often if required) and is made up of the following divisional heads
of business and support functions:
Mr. Peter England Chief Executive Officer
Mr. Peter England became the Chief Executive Officer of the Bank on 1 November 2013. Prior to that,
Mr. England spent seven years as the Head of Retail Banking at CIMB Bank Berhad, a subsidiary of
CIMB Group and one of the largest banks in ASEAN, where he managed individual and small
enterprise customers in Malaysia, Singapore and Cambodia and worked on developing a wide range of
conventional and Islamic products and services. Mr. England was also a Director of CIMBs Insurance,
Takaful and Asset Management business which were joint ventures with Aviva and The Principal
Group, respectively. Mr. England has over 34 years of working experience in all aspects of retail
banking, SME banking and wealth management and holds a masters degree in Business
Administration from the University of Southern Queensland, Australia.
Mr. K.S.Ramakrishnan Head of Internal Audit
Mr. K.S.Ramakrishnan joined the Bank in April 2009 as Head of Internal Audit, reporting to the Audit
Committee of the Board of Directors. He has over 30 years of banking experience in Operations, Credit
Risk Control, and Audit. Previously, Mr. Ramakrishnan was the Global Head of Credit Risk Control at
Standard Chartered Bank in Singapore and Senior VP of DBS Bank Limited, also in Singapore.
Mr. Ramakrishnan is a fellow of the Institute of Chartered Accountants of India (FCA), graduate of the
Institute of Cost and Works Accountants of India (ICWAI), and Certified Information Systems Auditor
(CISA) of the ISACA, USA.
Mr. Ian Hodges Head of Personal Banking
Mr. Ian Hodges joined the Bank in 2007 as Head of Personal Banking where he oversees the Banks
branches as well as its various business units including Cards, Business Finance, Wealth
96
Management, Mortgages, Bancassurance, Auto Loans, Marketing, and RAKBANK Direct. He is directly
responsible for guiding the heads of the business units in implementing the Banks retail and small
business strategy. Mr. Hodges has over 25 years of experience in banking and formerly served as
Director of the Retail Branch Network at Co-operative Financial Services in London. He also spent 10
years with Lloyds Bank in various positions.
Mr. Raghuveer Mehra Head of Credit and Assets
Mr. Raghuveer Mehra was promoted to RAKBANK Head of Credit and Assets in October 2013 to
oversee the entire Credit, Collections, and Product for the Personal Banking portfolio. Mr. Mehra joined
the Bank in 2005 and has held different positions since including Head of Mortgages and Head of
Retail Credit and Collections. The majority of his 18 years of work experience is in the UAE where he
was responsible for launching Mashreqbanks mortgage product in 2003 and heading Operations and
Product Development at Tamweel Home Finance. Mr. Mehra holds an MBA in Finance, Sales and
Marketing from Trinity College.
Mr. Tim Basford Chief Operating Officer
Mr. Tim Basford was appointed the Banks Chief Operating Officer in December 2010. He is
responsible for ensuring that the Bank continues to lead the market in the use of technology
particularly in respect of its Mobile and Internet Banking platforms. He is also responsible for managing
the Banks Information Security, Business Continuity Approach, and full back office operations
including account opening, payments and treasury. Prior to working at the Bank, Mr. Basford spent 23
years in several positions at HSBC in Hong Kong, Taiwan, Korea and New York, as well as 9 years at
First Direct in the UK, the first no-branch bank.
Mr. Deepak Majithia Head of Finance
Mr. Deepak Majithia joined the Bank in August 2013 as the Head of Finance. Prior to this, he was the
Country Chief Financial Officer at UBS where he was responsible for the Wealth Management and
Investment Banking segments in India, Thailand, Malaysia, Indonesia, and Philippines. Mr. Majithia
has over 16 years of experience in the finance function of the banking industry, covering retail banking,
wholesale banking, investment banking and treasury. Mr. Majithia is a qualified Chartered Accountant
from the Institute of Chartered Accountants of India.
Mr. Rahul Oberoi Head of Commercial Banking
Mr. Rahul Oberoi became the Banks Head of Commercial Banking in May 2012 and has been
responsible, since his appointment, for implementing a growth strategy for the Commercial Banking
and SME business across the UAE. Mr. Oberoi has over 20 years of experience in the banking
industry which includes launching the mid-corporate business at Abu Dhabi Commercial Bank,
developing and launching Small Business Banking (SME) for Barclays Bank Plc in UAE, and managing
the overall functions of the Business Banking Unit at Citibank UAE. Mr. Oberoi holds a masters degree
in Business Administration from Rotterdam School of Management.
Mr. Malcolm DSouza Head of Treasury
Mr. Malcolm DSouza is the Head of Treasury at the Bank. Mr. DSouza is responsible for Investments
in Fixed Income Bonds, Notes, and Foreign Exchange Trading and Customer flows. He also oversees
the Asset Liability Management Money Markets, Nostro Funding, and Liquidity Management bank-
wide. Mr. DSouza has over 35 years of multi-functional experience with many leading banks in India
and the Middle East including Andhra Bank, Banque Indosuez, HSBC, Lloyds, and Standard
Chartered. Mr. DSouza has a Commerce degree from Osmania University and an ACI Diploma from
Association Cambiste Internationale.
Executive Committee
EXCO is made up of three directors and the Chief Executive Officer who acts as Secretary of EXCO.
EXCO is delegated all the powers of the Board of Directors to review and approve the Banks strategy;
support proposals relating to the opening of new branches, relocation of existing branches and closure
of branches; review the annual cost and revenue budget of the Bank; and administer the overall
governance of the Bank including receiving reports from the different committees set up for oversight
and management.
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EXCO meets on a quarterly basis and is comprised of the following members:
Name Position
H.E. Engr Shaikh Salem Bin Sultan Al Qassimi Member of the Board
Yousuf Obaid Bin Essa Al Nuaimi Member of the Board
Salem Ali Al Sharhan Member of the Board
Peter William England Chief Executive Officer
Risk Management Committee
The Risk Management Committee meets on a quarterly basis (or more often if required) and is made
up of the Chief Executive Officer, the Head of Internal Control, the Head of Audit, the Head of Risk,
Mr. Yousuf Obaid Bin Essa Al Nuaimi and Mr. John Graham Honeybill.
The Risk Management Committee is responsible for reviewing and approving the Banks key risk
policies on the establishment of risk limits relating to operational and information security risks and
receives reports on adherence to significant limits; reviewing the Banks regulatory risk capital (credit,
market, liquidity and operational risks), including significant inputs and assumptions; providing
oversight over matters relating to AML, internal controls and procedures, and other legal matters; and
reviewing the periodic reports submitted by the Service Quality and Training department on matters
relating to customer complaints and possible procedural inefficiencies.
Asset and Liability Committee
The Bank has an Asset and Liability Committee (ALCO) at management level which meets on a
monthly or more frequent basis and comprises the Chief Executive Officer, Head of Treasury, Head of
Personal Banking, Head of Corporate Banking and Head of Finance.
At Board level, the ALCO meets on a quarterly basis (or more often if required) and is chaired by the
Chief Executive Officer. The members of the ALCO include the Chief Executive Officer, Mr. John
Graham Honeybill, Mr. Yusuf Obaid Bin Essa Al Nuaimi and the Heads of Finance, Treasury and Risk.
ALCO is responsible for formalising the Banks key financial indicators and ratios, setting the
thresholds for managing and monitoring the Banks liquidity risk and also analysing the sensitivity of
the Banks interest rate and maturity mismatches. ALCO also guides the Banks investment decisions
and provides guidance in terms of interest rate and currency movements.
Audit Committee
The Audit Committee meets at least six times a year and comprises of three directors. The Audit
Committee is responsible for monitoring the appropriateness and integrity of the published financial
statements and annual report of the Bank and its subsidiaries including significant financial reporting
judgments contained in them; having an oversight over the Banks Internal Audit department including
the approval of annual audit plans and various reports and the appointment of the Head of Internal
Audit, in addition to ensuring that the audit function is adequately resourced; approving the terms of
engagement of external auditors, receiving the auditors reports, agreeing on the scope of the external
audit, and ensuring the effectiveness of the audit process; and receiving and reviewing the regulatory
inspection reports from the UAE Central Bank and other regulators.
Credit Committee
The Credit Committee meets on a weekly basis (or more often if required) and is made up of the Chief
Executive Officer, Mr. John Graham Honeybill, Mr. Salem Ali Al Sharan and the Head of Credit. The
Credit Committee is responsible for providing oversight of the risk management framework for
controlling credit risk arising from the businesses undertaken by the Banks Personal Banking, Small
and Medium Enterprises and Commercial Banking units; reviewing and approving credit facilities in
respect of individual and group credits (typically the credits referred are those that are beyond the
credit authorities delegated to senior officers of the Bank); and for receiving and reviewing all the credit
portfolios of the Bank and monitoring the level of delinquent and non-performing assets; approving the
terms of engagement, nature and scope of consultants or professionals appointed to assist in
managing credit portfolios of the Bank; and reviewing and approving the credit grading methodology for
the Bank.
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Other Committees
The Bank has established a number of other committees, which include the following:
Committee Meeting Frequency
ITSC (IT Steering Committee)
Finance Committee
Monthly
Weekly
HRCOM (Human Resource Committee) Quarterly
Personal Banking Committee Weekly
Corporate Banking Management Committee Monthly
Finance
The Finance Division of the Bank assists the Banks Management Committee and Board of Directors in
their strategic planning and decision-making processes by providing vital information and in-depth
analysis of the Banks financial performance. The division also plays a key role in cost management
initiatives with a view to maximising the Banks profits. The Bank is committed to presenting
transparent financial statements and providing adequate and meaningful disclosure to stakeholders. In
line with this approach, the Bank follows best practice in accordance with the disclosure requirements
of the IFRS and relevant regulatory authorities.
Conflicts
As at the date of this Base Prospectus, there are no existing or potential conflicts of interests between
any duties owed to the Bank by its directors and senior management referred to above and the private
interests or external duties of those directors and senior management.
As at the date of this Base Prospectus, there are no existing or potential conflicts of interest between
the Government and the Bank or between members of the ruling family of the Emirate and the Bank
and the private interests or external duties of those members of the ruling family of the Emirate.
Employees
As at 31 December 2013, the Bank had 2400 employees and 2512 outsourced employees. The Bank
has a diversified employee base with representation from more than 30 countries. The majority of
senior management are bankers who joined the Bank with a considerable number of years of
experience and having previously worked for multinational banks.
The Bank considers business continuity planning to be critical and from a human resource perspective
the Bank has taken measures to manage key man risks in all critical functions.
The Bank has arrangements with external service providers who provide the outsourced employees
referred to above whose services are dedicated to the Bank for the purpose of sales and marketing
efforts.
99
OVERVIEW OF THE UNITED ARAB EMIRATES
The information set forth in this section is based on publicly available information. The Issuer accepts
responsibility for accurately reproducing such information and, as far as the Issuer is aware, no facts
have been omitted which would render such information inaccurate or misleading, The Issuer accepts
no responsibility for the accuracy of such information, which may also be approximate or use rounded
numbers.
The UAE is a federation of seven Emirates. Formerly known as the Trucial States, these were British
protectorates until they achieved independence in December 1971 and combined to form the United
Arab Emirates. Each Emirate has a local government headed by the Ruler of the Emirate. There is also
a federal government which is headed by the President. The federal budget is principally funded by
Abu Dhabi. The federation is governed by the Supreme Council of the Rulers which consists of the
Rulers of the seven Emirates. The Supreme Council elects the President and the Vice President from
its own membership (for renewable five year terms). HH Sheikh Zayed bin Sultan Al-Nahyan, the late
Ruler of Abu Dhabi, held the position of President from 1971 until 2004. Following his death, his son
HH Sheikh Khalifa bin Zayed Al-Nahyan took over as Ruler of Abu Dhabi and is elected President of
the UAE. The Ruler of Dubai is Sheikh Mohammed bin Rashid AI Maktoum who is also the Vice
President and Prime Minister of the UAE.
According to data published by the IMF in April 2013, the UAE is the third largest economy in the Gulf
region after the Kingdom of Saudi Arabia and the Islamic Republic of Iran, based on nominal GDP. It
has a more diversified economy than most of the other countries in GCC. According to the Organization
of the Petroleum Exporting Countries (OPEC) data, at 31 December 2012, the UAE had
approximately 6.6 per cent. of the worlds proven global oil reserves (giving it the sixth largest oil
reserves in the world), and export of petroleum products generated U.S.$118.1 billion for the year
ended 31 December 2012 (being 33.7 per cent. of the total value of exports and 30.8 per cent. of the
UAEs GDP at market prices).
The UAE National Bureau of Statistics has estimated on a preliminary basis that real GDP in the UAE for
2012 was AED 1,025.6 billion, reflecting the general economic recovery in the wake of the global economic
crisis in 2013. Based on International Monetary Fund (IMF) data (extracted from the World Economic
Outlook (April 2014)) real GDP growth in the UAE increased by 4.8 per cent. in 2013, 4.4 per cent in 2012,
3.9 per cent. in 2011 and 1.7 per cent. in 2010 after having decreased by 4.8 per cent. in 2009.
The UAE National Bureau of Statistics estimated the population of the UAE to be approximately
8.2 million in 2009 and 8.3 million in 2010 (according to data released on 31 March 2010). A census for
2011 has been undertaken, however, as at the date of this Base Prospectus census records have not
been published.
On 12 December 2013, Moodys Investors Service Singapore Pte. Ltd. (Moodys Singapore)
reaffirmed the UAEs long term credit rating of Aa2 with a Stable outlook. Moodys Singapore is not
established in the European Union and has not applied for registration under Regulation (EC)
No. 1060/2009. However, the Moodys Singapore rating has been endorsed by Moodys, which is
established in the European Union. The principal reason cited for this high investment grade rating is
the assumption that the obligations of the Federal Government will be fully supported by Abu Dhabi.
The UAE is not rated by the other rating agencies.
International Relations
The foreign policy of the UAE is based upon a set of guiding principles, laid down by the countrys first
President, H.H. Sheikh Zayed bin Sultan Al Nahyan.
The UAE participates in a number of multilateral aid-giving institutions, including the International Bank
for Reconstruction and Development, the International Development Agency, the IMF and regional
bodies like the Arab Bank for Economic Development in Africa, the Arab Gulf Fund for the United
Nations, the Abu Dhabi-based Arab Monetary Fund, the Islamic Development Bank and the OPEC
Fund for International Development. In addition, the UAE is a member of various other international
organisations, including, among others, the Asia- Pacific Economic Cooperation, the GCC, the
International Organisation for Industrial Development, the League of Arab States, OPEC, the
Organisation of Arab Petroleum Exporting Countries, the Organisation of Islamic Countries, the United
Nations, the World Health Organisation and the WTO. In December 2009, the UAE entered into a
bilateral agreement with the United States for peaceful nuclear co-operation which establishes the legal
framework for commerce in civilian nuclear energy between the two countries.
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The UAE enjoys good relations with the other states in the GCC. However, the UAE has an ongoing
dispute with the Islamic Republic of Iran and is engaged in discussions with the Kingdom of Saudi
Arabia over border issues. Since 1971, the three Gulf islands of Abu Musa and Greater and Lesser
Tunb have been occupied by the Islamic Republic of Iran. The UAE believes that the islands should be
returned to the Emirate of Sharjah and the Emirate of Ras Al-Khaimah (with the Emirate of Sharjah
claiming sovereignty over Abu Musa and the Emirate of Ras Al-Khaimah claiming sovereignty over
Greater and Lesser Tunb) and is seeking to resolve the dispute through negotiation.
The UAE is also seeking, through negotiation, to resolve issues related to the 1974 provisional and, as
yet, unratified, agreement with the Kingdom of Saudi Arabia on the border between the two countries,
which the UAE believes should be substantially amended. In addition, the UAE is involved in
discussions with the governments of the Kingdom of Saudi Arabia and the State of Qatar relating to a
maritime corridor which the State of Qatar has purported to grant to the Kingdom of Saudi Arabia, from
within the State of Qatars own maritime waters, which crosses part of the route of the gas pipeline
constructed by Dolphin Energy Limited. The UAE believes that this grant is in breach of existing
agreements between the UAE and the State of Qatar and, in June 2009, the UAEs Ministry of Foreign
Affairs stated this position in a letter to the UN Secretary-General.
Ras Al-Khaimah
Ras Al-Khaimah is one of seven emirates which together comprise the Federation of the United Arab Emirates.
Ras Al-Khaimah is the northernmost emirate of the UAE. The Emirate has a logistically advantageous
geographical location as it is located on the Strait of Hormuz and close to the entrance of the Arabian
Gulf and the Gulf of Oman. In common with the other emirates, Ras Al-Khaimahs strategic position at
the crossroads between the East and West has helped establish it as a trading and services hub
between the Far East and Europe.
A creek divides the Emirate into two parts. The western side is known as Ras Al-Khaimah and the
eastern side is known as Al Nakheel. The Emirate has borders with the emirates of Umm Al Quwain,
Fujairah and Sharjah as well as the Sultanate of Oman. The Emirate has a coastline of 64 kilometres
and covers an area of 2,478 square kilometres, which makes it the fourth largest emirate in the UAE.
The capital city of the Emirate is Ras Al-Khaimah City which is located at the foot of the Al Hajar al
Gharbi Mountains.
Although milder than the rest of the UAE, Ras Al-Khaimahs climate is generally hot and dry. The
hottest months are July and August, when average maximum temperatures can reach above 48C on
the coastal plain. In the mountains, temperatures are considerably cooler as a result of the increased
altitude. Average minimum temperatures for the Emirate, which are in January and February, are
between 10C and 14C. The average annual rainfall in the coastal area is fewer than 120 millimetres,
but in some mountainous areas, annual rainfall often reaches 350 millimetres.
The UAE as a whole extends along the west coast of the Arabian Gulf, from the Kingdom of Saudi
Arabia to Ras Al-Khaimah in the North and across parts of the Mussandum peninsula to the Gulf of
Oman in the East. The UAE covers an area of 83,699 square kilometres in total.
Population
The populations of both the UAE and Ras Al-Khaimah have grown significantly since 1975, reflecting
an influx of foreign labour, principally from Asia, as the emirates have developed. The table below
illustrates this growth using official census data since 1975.
Ras Al
Khaimah
population
Total UAE
population
1975 43,845 557,887
1980 73,918 1,042,099
1985 96,578 1,379,303
1995 143,334 2,411,041
2001 181,000 3,500,000
2005 210,063 3,769,080
2006 214,000 4,229,000
2007 222,000 4,488,000
2008 231,000 4,765,000
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Ras Al
Khaimah
population
Total UAE
population
2009 267,000 5,066,413
2010 413,000 8,264,000
2011* 416,600 8,535,000
Source: Official census data for 1975, 1980, 1985, 1995, 2001 and 2005, and figures from the RAK
Statistical Year Book for the years 2006-2012.
* Estimated.
The estimated total population of Ras Al-Khaimah for 2011, as published in the 2012 RAK Statistical
Yearbook was 416,600. According to the latest published data, while UAE nationals officially make up
less than 15 per cent. of the overall population of the UAE, this figure is higher in Ras Al-Khaimah, with
Emiratis comprising approximately 40 per cent. of the Emirates population. In keeping with the rest of
the UAE, expatriates resident in Ras Al-Khaimah are mainly from the Asian subcontinent, other Arab
countries, Europe and North America.
Education and training are an important strategic focus for the Emirate. Based on a census carried out
in 2005, the literacy level for the economically active population in Ras Al-Khaimah was 83 per cent.
Approximately 14 per cent. of the economically active population had university or equivalent level
degrees and a further 35.7 per cent. had completed secondary education. The RAK Government
believes that one of its key future challenges will be the creation of jobs for the local population,
supported by initiatives to educate and motivate young UAE nationals to join the workforce and the
private sector. With a view to achieving this, Ras Al-Khaimah has already put in place certain
initiatives, including:
the Sheikh Saud Young Business Leaders Programme, which is designed to help young
entrepreneurs succeed in their business ventures by providing them with general advice on
business matters and, where appropriate, assisting them in finding finance opportunities; and
the Sheikh Saud RAK Government Award for Creativity and Excellence, which is an annual award
designed to reward gifted students from Ras Al-Khaimah, including, in certain cases, by
sponsoring their education abroad.
The Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research has also been established by His
Highness Sheikh Saud Bin Saqr Al Qasimi to develop and foster research collaboration between the
RAK Government and the international and local research community in order to aid the economic and
social development of Ras Al-Khaimah and the UAE.
Economy of Ras Al-Khaimah
Ras Al-Khaimah does not have the abundant energy resources of some of the other emirates in the
UAE and has consequently concentrated on developing a fully diversified economy. It established the
UAEs first cement company in the early 1970s and is now the UAEs largest producer of cement. In
the 1980s, the Emirate formed RAK Ceramics, which has become the worlds largest ceramics
producer, and Gulf Pharmaceutical Industries LLC (also known as Julphar), the GCCs first
pharmaceuticals and medical supplies company. Julphar has developed into a global brand and now
sells its products in over 50 countries.
The Investment and Development Office (IDO) was established by Emiri decree in 2004, with the
objective of channelling new investment opportunities into the Emirate and managing the
Governments balance sheet. The IDO is involved in managing the credit rating process of the Emirate
and the compilation of consolidated government accounts on a quarterly basis. The IDO also provides
financial advice to the RAK Government and provides treasury management and corporate finance
functions for government-owned companies, investment analysis and due diligence on investment
opportunities, and financial restructuring of government entities.
In 2005, the RAK Investment Authority (RAKIA) was formed as a public authority to support the
economic development of Ras Al-Khaimah.
RAKIA is organised into the following three divisions:
Industrial and Free Zones the Industrial and Free Zones division of RAKIA promotes and
develops its industrial zones and free zones and is responsible for infrastructure development,
investor relations, utilities and facilities management;
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Real Estate the Real Estate division conducts feasibility and market studies for RAKIAs real
estate sector projects and provides advisory services in relation to the establishment and financial
structuring of real estate companies in the Emirate. This division also coordinates the master
planning and sales of RAKIAs projects; and
RAK Offshore in September 2006, RAKIA launched RAK Offshore, a project modelled on the
British Virgin Islands and the Cayman Islands, that offers an offshore facility that generates
revenue through non-resident business registration and advisory services.
Gross Domestic Product
Ras Al-Khaimahs economy has shown a marked improvement since 2010, when the Emirate was
continuing to suffer from effects of the 2008 global financial crisis. In 2011, the Emirates GDP
increased (in nominal terms) to AED 22.86 billion in 2011 as compared with AED 19.10 billion in 2010.
This represented a 19 per cent. increase. Ras Al-Khaimahs economy is led by the manufacturing
sector, which accounted for 26 per cent. of its GDP in 2011, followed by the wholesale and retail trade
sectors, which account for 11.3 per cent.
Data published by the UAE National Bureau of Statistics has estimated that nominal GDP in the UAE
for 2011 was AED 1,243.8 billion, representing an increase of approximately 19.3 per cent. when
compared to 2010, when nominal GDP in the UAE was AED 1,042.7 billion.
Ras Al-Khaimahs GDP accounted for 1.69 per cent. in 2010, and 1.84 per cent. in 2011 of total UAE GDP.
The GDP per capita in Ras Al-Khaimah was AED 68,450 in 2010 and AED 74,126 in 2011. Ras Al-Khaimah
has achieved a compound annual growth rate of 17.61 per cent. in GDP during the years 2007-2011.
Principal Sectors of the Economy
Ras Al-Khaimahs economy is currently led by the manufacturing sector which contributed 26 per cent.
of GDP in 2011, primarily driven by the Industrial and Free Zones at RAKIA. Outside this sector, the
principal contributors to GDP in Ras Al-Khaimah in 2011 were: wholesale and retail trade (11.3 per
cent.); financial institutions and insurance (10.8 per cent.); government services (8.9 per cent.);
construction and building (8.7 per cent.); real estate and business services (6.2 per cent.); transport,
storage and communication (5.7 per cent.) agriculture, livestock and fishing (5.6 per cent.); oil and gas
(5 per cent.); quarrying and other (3.6 per cent.); social and personal (3.1 per cent.); electricity and
water (3 per cent.); and restaurants and hotels (2.1 per cent.).
103
THE UNITED ARAB EMIRATES BANKING SECTOR AND REGULATIONS
The information set forth in this section is based on publicly available information. The Issuer accepts
responsibility for accurately reproducing such information and, as far as the Issuer is aware, no facts
have been omitted which would render such information inaccurate or misleading, The Issuer accepts
no responsibility for the accuracy of such information, which may also be approximate or use rounded
numbers.
Summary
The global financial crisis had an effect on the UAE banking sector and the key concerns facing the
sector included a liquidity shortage and a fall in real estate and equities prices. Although the UAE could
be viewed as an over-banked market, even by regional standards, there has traditionally been little
impetus for consolidation amongst UAE banks. The UAEs membership of the WTO will require greater
economic liberalisation, but it is unclear to what extent this will encourage foreign banks to expand their
presence in the market. In the long term, however, it is likely to lead to increased competition, which
should spur consolidation, both within the UAE and across the region generally.
As a banking regulator, the UAE Central Bank, established in 1980, has grown in stature over the
years and is the governing body that regulates and supervises all banks operating in the UAE. The
UAE Central Bank monitors banks through its Banking Supervision and Examination Department. It
conducts reviews of banks periodically based on the risk profile of each. It also reviews all of the
returns submitted by the banks to the UAE Central Bank. Historically, the UAE Central Bank does not
act as a lender of last resort. Instead this role tends to fall on the individual Rulers of each emirate.
Characteristics of the UAE Banking System
Lack of consolidation
The UAE may be seen as being over-banked with 51 different banks (comprising 23 locally
incorporated banks and 28 foreign banks) licensed to operate inside the UAE as at 31 December 2013
(excluding the Dubai International Finance Centre (DIFC)), serving a population estimated to be in
the region of 8.3 million people. Traditionally there has been little impetus for consolidation. However,
mergers in the past have tended to come as a result of banks facing financial difficulties and some
commentators suggest that the recent financial crisis has created more favourable conditions for
consolidation. The federal structure of the country has, to some extent, encouraged the fragmented
nature of the banking sector, with the individual Emirates wishing to retain their own national banks.
Rivalries between large local business families and a desire not to dilute shareholdings have also
hampered the process of consolidation. However, in October 2007, the UAEs second and fourth
largest banks at the time, Emirates Bank International and National Bank of Dubai, merged to become
Emirates NBD P.J.S.C. and, in October 2011, Dubai Bank was acquired by Emirates NBD P.J.S.C.
pursuant to a decree of the Ruler of Dubai.
The relatively small size of most UAE banks has sometimes hindered them from competing for large
financing deals in the region. The advent of WTO liberalisation should allow greater competition from
foreign banks, both from new entrants to the market and from existing players expanding their
operations, which may eventually result in more mergers, possibly even creating banks with pan-Gulf
franchises.
Domestic focus
The UAE banks are predominantly focused on the domestic market but some have operations
overseas and are showing growing interest in cross border business. With a large number of
organisations pursuing a limited number of wholesale lending opportunities, most banks have been
turning to retail banking, which had previously been seen as a relatively untapped market. However,
increasing competition in this area is gradually eroding margins and encouraging a relaxation of
lending criteria. As the market has been tested only to a limited extent under adverse conditions, it is
difficult to predict the future likelihood of asset quality problems.
Expansion of retail operations has required heavy investment in distribution channels, particularly
branches and ATM networks and telephone and internet banking services. As a consequence, IT costs
have historically been a prominent feature of many banks expenses, although these are now
beginning to reduce. Foreign banks are allowed to operate a maximum of eight branches in UAE. The
credit card market has been an area of recent expansion and there remains further potential for
growth. Credit card use is low by international standards.
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Limited foreign ownership
In 1982, the Central Bank placed a freeze on new foreign banks opening operations in the UAE. At the
same time, existing foreign banks were limited to a maximum of eight branches, which restricted their
ability to develop any retail potential. However, three banks of GCC state origin, the National Bank of
Kuwait, SAMBA and Doha Bank, have in recent years been awarded licenses by the UAE Central
Bank following an agreement to allow market access to banks of GCC state origin on a reciprocal basis
in line with continuing efforts in regional integration. The entry of these banks raised the number of
foreign banks operating in the UAE to 28, and total banks to 51. During 2002, the Government of Dubai
issued a decree establishing the DIFC. The DIFC, located in the Emirate of Dubai, is a free trade zone
and financial services centre focusing on private banking, asset management, investment banking, re-
insurance activities, Islamic finance, securities trading and back office operations. The DIFC has its
own civil and commercial laws and has been granted authority to self-legislate in civil and commercial
cases. The opening of the DIFC as an offshore banking centre has enabled international banks to
establish a presence and contest the wholesale banking market which has seen new entities entering
the market place.
Under UAE law, locally incorporated banks must be majority-owned by UAE nationals.
Exposure to the oil sector
With much of the economy directly or indirectly dependent on the oil sector, the UAE banks are
vulnerable during long periods of low oil prices. In particular, oil revenues tend to drive levels of liquidity
and government infrastructure investment, but gradually the private non-oil sector is gaining ground
and the economy is becoming less susceptible to oil shortages.
Developing capital markets
The absence of mature bond and equity markets in the UAE means that banks have tended to
shoulder the burden of long term financing. This has tended to create a maturity mismatch in their
balance sheets, as most of their liabilities are short-term customer deposits. The two stock markets,
the Dubai Financial Market and the Abu Dhabi Securities Exchange (both of which were established in
2000), have grown rapidly in recent years, although that growth has been affected by the recent global
financial crisis. During 2002, the Government of Dubai established the DIFC, a free trade zone and
financial services centre focusing on private banking, asset management, investment banking, re-
insurance activities, Islamic finance, securities trading and back office operations. The DIFC has its
own civil and commercial laws and has been granted authority to self-legislate in civil and commercial
cases. It is positioned as an offshore banking centre with restrictions on dealings in UAE Dirham and
with UAE businesses.
The DIFC began issuing licences to overseas financial services businesses in September 2004
following the approval of its laws and regulations by both federal and local authorities.
The NASDAQ Dubai (formerly known as the Dubai International Financial Exchange) is a securities
exchange located in the DIFC which commenced operations on 26 September 2005. In December
2009 the Dubai Financial Market announced its intention to acquire the NASDAQ Dubai, with the
acquisition completed in July 2010.
Government involvement
There is a high degree of state involvement in the UAE banking sector. Most of the larger banks have
some degree of government ownership. Privatisation, although advocated in principle, has been slow
to occur in practice. The state is the banking sectors largest customer, in terms of both deposits and
project financing.
Expatriate workforce
The UAE economy is reliant on overseas labour, with expatriates making up approximately 80 per
cent. of the workforce. The banking sector reflects this, with expatriates in senior management roles in
most of the major banks. This has brought expertise from more developed markets to the sector. The
high level of expatriates in the economy has been an increasing concern to the Government and as
part of a policy of Emiratisation banks were instructed, in 1999, to increase UAE nationals on their
payroll to 40 per cent. by 2009, Banks are generally moving closer to this target, providing better
training and compensation for UAE nationals. As at 31 December 2009 the emiratisation ratio in banks
was reported as 34.4 per cent.
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Islamic finance and banking
Islamic (Sharia) law forbids the charging of interest on any financial transaction. A number of banks
have developed in the Islamic world to serve customers who wish to observe this principle. These
institutions offer a range of products, which broadly correspond to conventional banking products and
which are structured in such a way as to avoid the application of interest. Such institutions include
Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates Islamic Bank, Noor Bank, Sharjah Islamic
Bank, Islamic Insurance and Reinsurance Company (AMAN), Islamic Arab Insurance Co. (P.S.C.)
(Salama), Tamweel and Amlak Finance. The number of Islamic banks continues to rise, with both new
entrants to the market and existing conventional banks recasting themselves as Islamic banks. In
addition, conventional financial institutions often offer Sharia-compliant products.
Legal environment
There are three primary sources of law in the UAE: federal laws and decrees; local laws; and Sharia
(i.e., Islamic law). In addition, Emiri decrees can be issued by the Rulers of each of the Emirates which,
when issued, have full legal effect and operation within the Emirate. In the absence of federal
legislation on areas specifically reserved to federal authority, the local government will apply their own
rules, regulations and practices.
Dubai, like the Emirates of Abu Dhabi and Ras Al-Khaimah, has elected to maintain its own court
system, separate from that of the federation and the courts of Dubai have sole jurisdiction to hear
cases brought in the Emirate of Dubai. Although both federal and Dubai courts have a similar three tier
structure (Court of First Instance, Court of Appeal and the Court of Cassation/Supreme Court), Dubai
has retained complete autonomy over its courts in all matters, including the appointment of judges. In
accordance with the Constitution, however, the Dubai courts will first apply federal law where this
exists and in its absence the laws of the Emirate of Dubai.
Supervision of banks
The main piece of legislation covering the banking system is Union Law No. 10 of 1980 (the Union
Law) which established the UAE Central Bank.
The UAE Central Banks primary roles are to formulate and implement banking, credit, monetary and
fiscal policy and be responsible for ensuring price and currency stability with free convertibility to foreign
currencies. It is also the bank for banks within the UAE, although it is not the lender of last resort. In
the event of a bank experiencing financial difficulties or a solvency crisis, rescue funds such as long
term liquidity or equity support have historically come from the Emirate in which the institution is based.
However, in the event of a run on the currency or a major banking crisis, it is likely that the Government
would ultimately stand as de facto defender of the currency and the lender of last resort.
Federal Law No. 10 of 1980 grants the UAE Central Bank powers to:
exercise currency issue, stabilisation, valuation and free convertibility;
direct credit policy for balanced growth of the economy;
organise and promote an effective banking system with private banks and institutions;
advise the Government on financial and monetary issues;
maintain the Governments reserves of gold and foreign currencies;
act as a bank for the Government and other banks operating in the UAE; and
act as the Governments financial agent with the IMF, the World Bank and other international
financial organisations.
Income from overseas investments has been used to fund fiscal deficits, obviating the need for the
UAE Central Bank to issue government debt. However, the UAE Central Bank does issue certificates
of deposit to the banks, denominated in both U.S. dollars and AED, in order to absorb excess liquidity
rather than to meet a specific funding need. There is no secondary market in these securities, but they
can be redeemed at face value at the UAE Central Bank at any time and recently the UAE Central
Bank introduced an auction system and allowed USD drawings against AED holdings.
The AED is linked to the IMFs special drawing right. However, the U.S. dollar is the intervention
currency and in reality the AED is fixed against the U.S. dollar. The fixed exchange rate (at 3.6725
AED: 1 U.S. dollar) has been in place since 22 November 1980 and has proved to be resilient to
political tensions in the region and fluctuations in oil prices.
106
The UAE Central Bank is also responsible for regulating financial institutions in relation to money
laundering controls and enforcing Federal Law No. 4 of 2002 regarding the criminalisation of money
laundering. It has established a Financial Intelligence Unit, issued a number of detailed regulatory
instructions in pursuit of anti-money laundering policies and procedures, and hosted teams from the
Financial Action Task Force (the FATF) and the IMF who reviewed, discussed and tested existing
UAE laws and regulations. This led the FATF to decide in January 2002 that the UAE had put in place
adequate anti-money laundering systems. The UAE has also established a National Anti-Money
Laundering Committee, which is responsible for coordinating anti-money laundering policy.
The UAE further strengthened its legal authority to combat terrorism and terrorist financing, by passing
Federal Law No.1 of 2004 on Combating Terrorism Offences, which provided for the establishment of a
National Anti-Terror Committee (the NATC). The NATC serves as a UAE interagency liaison.
Although the UAE Central Bank is responsible for regulating all banks, exchange houses, investment
companies and other financial institutions in the UAE, all banking and financial services activities in the
DIFC are regulated by the Dubai Financial Services Authority (the DFSA). The UAE Central Bank
has also been growing in stature as a banking supervisor. However, it is constrained in its role by the
level of legal autonomy afforded to the individual Emirates, which can hamper the uniform enforcement
of directives across the banking sector.
Structure of the banking system
Banking institutions in the UAE fall into a number of categories, as defined by the Union Law. Domestic
commercial banks, also known as local banks, of which there are currently 23 as at the date of this
Base Prospectus, are required to be public shareholding companies with a minimum share capital of
AED 40 million and must be majority-owned by UAE nationals.
Licensed foreign banks, of which there are currently 28 as at the date of this Base Prospectus, need to
demonstrate that at least AED 40 million has been allocated as capital funds for their operations in the
UAE. The Union Law also licenses financial institutions (institutions whose principal functions are to
extend credit, carry out financial transactions, invest in moveable property and other activities, but are
not permitted to accept funds in the form of deposits), investment banks (institutions which may not
accept deposits of maturities of less than two years but which may borrow from its head office or other
banks and financial markets) and financial and monetary intermediaries (money and stock brokers).
Recent Trends in Banking
Profitability
The banking sector recovered well since 2012 with nearly all banks reporting growth in profitability,
assets, loans and customer deposits. Growing trade finance and personal and corporate lending levels
resulted in strong credit growth. Liquidity levels in AED remain high and customer deposits increased
despite lower interest rates resulting in increased pressure on interest margins for all the banks. Nearly
all banks have focused on increasing their non-interest revenues. Growing trade finance activities have
improved commissions and foreign exchange earnings, while rising consumer banking activities have
pushed up fee income. Overall, the net profit of the banking sector increased appreciably as banks
grew their loan books and managed efficiency.
As at 31 September 2013, the aggregate balance sheet of banks operating in the UAE reached
U.S.$519 billion, an increase of U.S.$31.56 billion (6.55 per cent.) compared to U.S.$489 billion as at the
end of December 2012.]
The performance of the UAE economy has been heavily influenced by oil prices, which directly affect
fiscal revenues and thereby determine the level of investment in government projects in the country. The
high oil prices and strong economic conditions experienced in the UAE between 2004 and 2008 and
again in 2010 allowed the UAE banks to expand significantly. However, part of this growth focused on the
real estate sector and equity financing which, in the context of the global financial crisis, represented a
risk to the UAE banking system. Equity prices declined generally in the UAE in 2008 but, more recently,
have rebounded with the Abu Dhabi Securities Exchanges General Index declining from 2,719.9 at
31 December 2010 to 2,402.3 at 31 December 2011 before increasing to 2,630.9 at 31 December 2012
and 4,290.3 at 31 December 2013, and the Dubai Financial Market index declining from 1,630.5 at
31 December 2010 to 1,353.4 at 31 December 2011 before increasing to 1,662.5 at 31 December 2012
and 3,472.3 at 31 December 2013.
107
During 2008 to 2010, a number of banks were also affected by the impact of mark to market
accounting rules on their international investment portfolios. However according to the IMF country
report for the UAE in 2013, profitability of UAE banks, in terms of return on assets, remained stable at
around 1.5 per cent. between 2007 and 2012. Whilst the banking sector is on the path to recovery, it
may not see pre-crisis growth rates in the near future.
Accounting standards
Since 1 January 1999 all UAE banks have been required to prepare their financial statements in
accordance with IFRS. This has led to a substantial improvement in disclosure standards. Basel II was
introduced effective as from 17 November 2009.
Lending and asset quality
As provided in the Financial Stability Review Report issued by the UAE Central Bank in December
2013, the UAE banking industry witnessed growth of 7.1 per cent. in loans and advances net of
allowances from AED 1,099.1 billion as at 31 December 2012 to AED 1,177.3 billion as at
31 December 2013.
During this period, non-performing loans (the NPLs) increased by 26.2 per cent. from AED 65 billion as
at 31 December 2010 to AED 82.4 billion as at 31 December 2011. The overall loan loss coverage ratio
of the banking sector was 87 per cent. and the NPL ratio was 7.2 per cent. as at 31 December 2011.
Credit bureaus
In the UAE, there is little public information or financial data available regarding the debtors credit and
payment histories, primarily due to borrowers limited credit histories and the fact that credit bureaus in
the UAE are underdeveloped.
It is anticipated, however, that the creation of the new federal level credit bureau, Al Etihad Credit
Bureau, which is expected to be operational in the second half of 2014, will improve the flow and
quality of credit information available to UAE banks.
Position of depositors
There is no formal deposit protection scheme in the UAE. No national bank has, so far, been permitted
to fail. In October 2008, in response to the global financial crisis, the UAE government announced that
it intended to guarantee the deposits of all UAE banks and foreign banks with core operations in the
UAE. In May 2009 the UAEs National Federal Council approved a draft law guaranteeing federal
deposits. However, until such time as the law is passed, there is no guaranteed government support.
Prudential regulations
The UAE Central Bank has supervisory responsibility for all banking institutions in the UAE. Supervision
is carried out through on-site inspections and review of periodic submissions from the banks. The
frequency of inspection depends on the perceived risk of the bank, but inspections are carried out in all
banks at least once every 18 months. Prudential returns are made weekly, monthly, quarterly, semi-
annually or annually, depending on the nature of the information they contain. An improved risk
management framework has been implemented, aimed at providing the UAE Central Bank with more up
to date information on credit, market and operational risks within the banking sector.
Capital adequacy
All banks are required to follow the principles of the Basel Accord in calculating their capital adequacy ratios.
Basel II was introduced effective 17 November 2009. Since 1993, the UAE Central Bank has imposed a
10 per cent. minimum total capital ratio. In a circular dated 30 August 2009, the UAE Central Bank
announced amendments to their capital adequacy requirements stating that UAE banks were required to
have total capital adequacy ratios of at least 11 per cent., with a Tier I ratio of not less than 7 per cent., by
30 September 2009. Furthermore, the UAE Central Bank required banks operating in the UAE to increase
their Tier 1 capital adequacy ratio to at least 8 per cent., with a minimum total capital adequacy ratio of at
least 12 per cent. with a Tier 1 ratio of not less than 8 per cent. by 30 June 2010. Thereafter through its
circular dated 17 November 2009, the UAE Central Bank stated that it was expected that the main banks in
the UAE would move to the Foundation Internal Ratings Based approach of Basel II in due course. Through
this circular, the UAE Central Bank reiterated that all banks operating in the UAE were required to maintain
a capital adequacy ratio at a minimum of 11 per cent. at all times, increasing to 12 per cent. by 30 June
2010 and also laid out its expectations in relation to Pillar II and Pillar III of the Basel II framework. Profits for
the current period, goodwill, other intangibles, unrealised gains on investments and any shortfall in loan loss
provisions are deducted from regulatory capital.
108
Whilst the calculation of capital adequacy ratios in the UAE follows the Bank of International
Settlements guidelines, claims on or guaranteed by GCC central governments and central banks are
risk-weighted at zero per cent. and claims on GCC government non-commercial public sector entities
are risk-weighted at 50 per cent. Under the Union Law, banks are required to transfer 10 per cent. of
profit each year into a statutory reserve until this reaches 50 per cent. of capital. Distributions cannot
be made from this reserve, except in special legally defined circumstances. All dividends paid by UAE
banks have to be authorised in advance by the UAE Central Bank.
The Basel Committee has put forward a number of fundamental reforms to the regulatory capital
framework for internationally active banks. On 16 December 2010 and on 13 January 2011, the Basel
Committee issued guidance on the eligibility criteria for Tier 1 and Tier 2 capital instruments as part of
a package of new capital and liquidity requirements intended to reinforce capital standards and to
establish minimum liquidity standards for credit institutions (Basel III).
Liquidity
The UAE Central Bank closely monitors the level of liquidity in the banking system. It also requires that
banks have adequate systems and controls to manage their liquidity positions, as well as contingency
plans to cope with periods of liquidity stress.
Banks must also adhere to a maximum loan to deposit ratio of 100 per cent. set by the UAE Central
Bank. In this context, loans comprise loans and advances to customers and interbank assets maturing
after three months.
UAE banks are mostly funded through on demand or time-based customer deposits made by private
individuals or private sector companies. According to the data made available by the UAE Central
Bank, together, these deposits constituted approximately 60 per cent. of total deposits of the UAE
banking sector as at 30 November 2013. The UAE government and the public sector contributed
approximately 25 per cent. as at 30 November 2013. Non-resident and other sources contributed
approximately 15 per cent. as at the same date.
In response to the global financial crisis, the UAE Central Bank announced a number of measures
aimed at ensuring that adequate liquidity is available to banks operating in the UAE. In September
2008, the UAE Central Bank established an AED 50 billion liquidity facility which banks can draw upon
subject to posting eligible debt securities as collateral. The liquidity facility is available only for the
purpose of funding existing commitments. New lending is required to be based on growth in the
customer deposit base. The UAE Central Bank also established a certificate of deposit (the CD) repo
facility under which banks can use CDs as collateral for UAE Dirham or U.S. dollar funding from the
UAE Central Bank.
In addition to these measures, the UAE government also provided AED 50 billion in deposits to UAE
banks (as part of a larger AED 70 billion package) which, at the option of the banks, can be converted
into Tier II capital in order to enhance capital adequacy ratios. A number of banks in the UAE have
converted the UAE government deposits made with them into Tier II capital.
During 2008, Abu Dhabi government-owned institutions assisted certain Abu Dhabi banks in
strengthening their capital base through the subscription of mandatory convertible securities and, in
February 2009, the Abu Dhabi government (acting through the Department of Finance) subscribed for,
in aggregate, a sum of AED 16 billion in subordinated Tier I capital notes issued by the five largest Abu
Dhabi banks: National Bank of Abu Dhabi, ADCB, First Gulf Bank, Union National Bank and Abu Dhabi
Islamic Bank.
In line with Basel III requirements, the UAE Central Bank issued Circular 30/2012 (Circular 30/2012)
dated 12 July 2012 entitled Liquidity Regulations at Banks, which include a set of qualitative and
quantitative liquidity requirements for UAE banks. The qualitative requirements set out in Circular
30/2012 (which, as at the date of this Base Prospectus, has not come into effect) elaborate on the
responsibilities of a UAE banks board of directors and senior management as well as the overall
liquidity risk framework. The new regulations are intended to ensure that liquidity risks are well
managed at banks operating in the UAE and are in line with the Basel Committee recommendations
and international best practices. These requirements (which, as at the date of this Base Prospectus,
have not come into effect) include the following:
Responsibilities of the board of directors:
to bear ultimate responsibility for liquidity risk management within the relevant UAE bank;
109
to be familiar with liquidity risk management with at least one board member having detailed
understanding of liquidity risk management; and
to ensure the clear articulation of liquidity risk tolerance in line with the relevant UAE
banks objectives, strategy and risk appetite.
Responsibilities of senior management:
to bear ultimate responsibility for liquidity risk management within the relevant UAE bank;
to be familiar with liquidity risk management with at least one board member having detailed
understanding of liquidity risk management; and
to ensure the clear articulation of liquidity risk tolerance in line with the relevant UAE
banks objectives, strategy and risk appetite.
Liquidity risk framework:
Circular 30/2012 requires each UAE bank to have a robust liquidity risk framework which comprises
the following elements:
sound processes and systems to identify, measure, monitor and control liquidity risk in a
timely and accurate manner;
a robust liquidity risk management framework (which must be shared with the UAE Central
Bank upon request) with limits, warning indicators, communication and escalation procedures;
regular stress testing of the portfolio for a variety of scenarios; results being communicated to
the board of directors and the UAE Central Bank on request;
incorporation of liquidity costs, benefits and risks into product pricing and approval processes;
establishment of a forward-looking funding strategy with effective diversification of funding
sources and tenors;
setting of formal contingency funding plans;
establishment of an adequate cushion of unencumbered, highly liquid assets as insurance
against a range of liquidity stress scenarios; and
a transfer pricing framework developed to reflect the actual cost of funding.
The quantitative requirements set out in Circular 30/2012 are intended to ensure that each UAE bank
holds a minimum level of liquid assets which allow it to sustain a short-term liquidity stress (in
circumstances both specific to that bank and market wide). In particular, the requirements include two
interim ratios which are intended to apply until the Basel III Liquidity Coverage Ratio and Net Stable
Funding Ratio (NSFR) come into effect.
These include the following:
Interim ratios: Liquid Assets Ratio (LAR>10%) 1 January 2013 December 2014
Uses to Stable Resources Ratio
(USRR<100%)
1 June 2013 December 2017
Basel III ratios: Liquidity Coverage Ratio (LCR>100%) January 2015 onwards (LCR>100%)
Net Stable Funding Ratio (NSFR>100%) January 2018 onwards (NSFR>100%)
The Liquid Assets Ratio (the LAR) is an interim ratio designed to apply until the LCR comes into
effect (as described below). Under the LAR, UAE banks are required to hold an amount equivalent to
10 per cent. of their liabilities in high quality liquid assets (including cash held with the UAE Central
Bank, the UAE Central Bank CDs and certain UAE local government and public sector entity publicly
traded instruments). The Uses (of funds) to Stable Resources Ratio (the USRR) is an interim ratio
designed to prepare UAE banks for the implementation on NSFR as described below). The USRR
identifies key uses of funds as well as different types of funding sources used by banks. It assigns
stability factors to sources of funds and required stable funding (usage) factors to asset classes.
110
The LCR represents a 30 days stress scenario with combined assumptions covering both bank specific
and market wide stresses. These assumptions are applied to contractual data representing the main
liquidity risk drivers at banks to determine cash outflows within the 30 days stress scenario. The LCR
requires that UAE banks should always be able to cover the net cash outflow with eligible liquid assets
at the minimum LCR determined by the UAE Central Bank. Basel III requires that this minimum is
100 per cent. Circular 30/2012 describes in detail eligible liquid assets for this purpose.
The NSFR is a structural ratio that aims to ensure that banks have adequate stable funding to fund the
assets on their balance sheets. It also requires an amount of stable funding to cover a portion of the
relevant UAE banks contingent liabilities. The NSFR mirrors the Basel III NSFR standard. The NSFR
identifies the key uses of funds and the different types of funding sources used by the UAE banks. It
assigns available stable funding (the ASF) factors to the sources of funds and required stable
funding (the RSF) (usage) factors to asset classes and off balance sheet contingent exposures. The
assigned ASF factor depends on the terms of funding and the perceived stability of the funding
sources. The assigned ASF factor will depend on the liquidity of the asset being funded under a
market-wide stress. Both RSF and ASF will follow the Basel III NSFR standard.
As at the date of this Base Prospectus, the implementation of Circular 30/2012 has currently been
suspended by the UAE Central Bank.
Reserve requirements
Reserve requirements are used by the UAE Central Bank as a means of prudential supervision and to
control credit expansion. The reserve requirements are 1 per cent. for term deposits and 14 per cent.
for all other customer balances.
Credit controls
Banks are required to establish credit policies and procedures commensurate with their size and
activities. They must also have a proper credit assessment and approval process and adequate controls
in place to monitor credit concentrations to individual borrowers, economic sectors and foreign countries.
The UAE Central Banks Retail Circular introduced regulations regarding bank loans and other services
offered to individual customers. These regulations, among other things, impose maximum loan/income
and loan to value ratios for retail products. For example, the regulations require that the amount of any
personal consumer loan shall not exceed 20 times the salary or total income of the borrower with the
repayment period not exceeding 48 months. These regulations may be amended in the future in
accordance with the Mortgage Regulations (which were published in the Official Gazette on
28 November 2013 and entered into force on 28 December 2013, superseding notice no. 3871/2012
dated 30 December 2012), which specifies that the amount of mortgage loans for non-nationals should
not exceed 75 per cent. of the property value for a first purchase of a home (with a value of less than
AED 5 million), 65 per cent. of the property value for a first purchase of a home (with a value greater
than AED 5 million) and 60 per cent. of the property value (irrespective of the value of the property) for
second and subsequent homes. For UAE nationals, the corresponding limits are set at 80 per cent. in
respect of a first purchase of a home with a value less than or equal to AED 5 million, 70 per cent. for a
first home with a value greater than AED 5 million and 65 per cent. of the property value for a second
or subsequent purchase (irrespective of the value of the property).
Large exposures
The UAE Central Bank defines large exposures as any funded or unfunded exposures (less provisions,
cash collaterals and deposits under lien) to a single borrower or group of related borrowers exceeding
a prescribed set of limits. Exposures above these limits are subject to UAE Central Bank approval.
The following lending limits also apply:
to a single borrower or group of borrowers 7 per cent.;
to a shareholder of the bank holding more than 5 per cent. of the banks capital 7 per cent.;
overseas interbank exposures 30 per cent. (UAE interbank exposures are subject to a
25 per cent. limit if their maturity is over one year, otherwise they are exempt from the
regulations);
to the banks parent company, subsidiaries or affiliates 20 per cent. (60 per cent. for all such
exposures in aggregate); and
to board members 5 per cent. (25 per cent. for all such exposures in aggregate).
111
On 11 November 2013, the UAE Central Bank issued a circular (the 2013 Large Exposures Limits
Circular) amending certain of the large exposure limits (defined as a percentage of the banks capital
base). The 2013 Large Exposure Limits Circular entered into force on 30 January 2014. UAE banks have
until 10 December 2018 to meet the revised limits set out therein. The 2013 Large Exposure Limits
Circular maintained limits introduced by a UAE Central Bank circular published on 4 April 2012 (the
2012 Central Bank Circular) of 100 per cent. of the banks capital base for all lending to UAE local
governments and their non-commercial entities, together with a 25 per cent. limit to any single such
borrower. The 2013 Large Exposures Circular introduced limits on lending by banks to their employees
and introduced a prohibition on lending to a banks professional advisers. Set out below is a table
showing a comparison between the exposure limits stipulated in the 2013 Large Exposure Limits Circular
and those in place following the 2012 Central Bank Circular before the 2013 Large Exposure Limits
Circular came into force (defined as a percentage of the banks capital base calculated under Basel II):
Exposure
New Limit Old Limit
Individual Aggregate Individual Aggregate
Federal Government
and their non-
commercial entities
Exempt Exempt Exempt Exempt
UAE local
governments and
their non-commercial
entities
No limit for local
government, 25 per
cent. for each of their
non-commercial
entity
100 per cent. 25 per cent. 100 per cent.
Commercial entities
of the Federal
Government and
UAE local
government
25 per cent. 100 per cent. 25 per cent. max
15 per cent. funded
100 per cent.
A commercial or
other (non
commercial) private
sector entities and
individuals or a group
of related entities
25 per cent. None 25 per cent. max
10 per cent. funded
None
Shareholders who
own 5 per cent. or
more of the banks
capital and related
entities
20 per cent. 50 per cent. 20 per cent. max
10 per cent. funded
50 per cent. max
25 per cent. funded
Inter-bank exposures
of over one year
30 per cent. None - -
Banks subsidiaries
and affiliates
10 per cent. 25 per cent. 30 per cent. 25 per cent.
Board members 5 per cent. 25 per cent. 5 per cent. 25 per cent.
Bank employees Maximum of 20
months salary
3 per cent. Maximum of 20
months salary
20 per cent.
Banks external
auditors, consultants
and lawyers
Not allowed Not allowed Not allowed Not allowed
Provisions for Loan Losses
The UAE Central Bank stipulates that non-performing credits should be classified as either
substandard, doubtful or loss depending on the likelihood of recovery, with provisions charged at a
minimum of 25 per cent., 50 per cent. and 100 per cent., on the relevant amount (net of any eligible
credit protection) respectively. Any retail and consumer loans with either interest or principal in arrears
by more than 90 days must be placed on a non-accrual basis and classified as non-performing. In
addition, pursuant to Circular 28/2010 concerning regulations for classification of loans and their
provisions issued by the UAE Central Bank on 11 November 2010, all banks in the UAE are required to
make general provisions for unclassified loans and advances equal to 1.5 per cent. of their risk-
weighted assets by 2014. In practice, several banks operate more stringent policies and place loans on
a non-accrual basis as soon as their recovery is in doubt.
112
Banks in the UAE generally do not write off non-performing loans from their books until all legal
avenues of recovery have been exhausted. This factor tends to inflate the level of impaired loans
carried on the balance sheet of UAE banks when compared to banks operating in other countries.
Financial Statements
The UAE Central Bank has required all UAE banks to prepare their financial statements in accordance
with IFRS since 1999.
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TAXATION
The following summary of certain Cayman Islands, United Arab Emirates and European Union
Savings Tax Directive tax consequences of ownership of Notes is based upon laws, regulations,
decrees, rulings, income tax conventions, administrative practice and judicial decisions in effect at
the date of this Base Prospectus. Legislative, judicial or administrative changes or interpretations
may, however, be forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may be retroactive and could affect the tax
consequences to holders of the Notes. This summary does not purport to be a legal opinion or to
address all tax aspects that may be relevant to a holder of Notes. Each prospective holder is
urged to consult its own tax adviser as to the particular tax consequences to such holder of the
acquisition, ownership and disposition of Notes, including the applicability and effect of any other
tax laws or tax treaties, and of pending or proposed changes in applicable tax laws as of the date
of this Base Prospectus, and of any actual changes in applicable tax laws after such date.
Cayman Islands
Payments of interest and principal on the Notes will not be subject to taxation in the Cayman Islands
and no withholding will be required on the payment of interest and principal to any Noteholder, nor will
gains derived from the disposal of the Notes be subject to Cayman Islands income or corporation tax.
The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty,
inheritance tax or gift tax.
No stamp duty is payable in respect of the issue of the Notes. The Notes themselves may be
stampable if they are executed in or brought into the Cayman Islands. An instrument of transfer in
respect of a Note may be stampable if executed in or brought into the Cayman Islands.
EU Savings Directive
Under the Directive, each Member State is required to provide to the tax authorities of another Member
State details of payments of interest or other similar income paid or secured by a person established in
a Member State to or for the benefit of an individual resident or certain limited types of entity
established in another Member State; however, for a transitional period, Austria and Luxembourg may
instead apply a withholding system in relation to such payments, deducting tax at a rate of 35 per cent.
The transitional period is to terminate at the end of the first full fiscal year following agreement by
certain non-EU countries to the exchange of information relating to such payments. Luxembourg has
announced that it will no longer apply the withholding tax system as from 1 January 2015 and will
provide details of payments of interest (or similar income) as from this date.
A number of non-EU countries and certain dependent or associated territories of certain Member
States including Switzerland, have adopted similar measures (either provision of information or
transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected
by such a person for, an individual resident or certain limited types of entity established in a Member
State. In addition, the Member States have entered into provision of information or transitional
withholding arrangements with certain of those dependent or associated territories in relation to
payments made by a person in a Member State to, or collected by such a person for, an individual
resident or certain limited types of entity established in one of those territories. The European Council
formally adopted the Amending Directive on 24 March 2014. The Amending Directive broadens the
scope of the requirements described above. Member States have until 1 January 2016 to adopt the
national legislation (which national legislation must apply from 1 January 2017) necessary to comply
with the Amending Directive. The changes made under the Amending Directive include extending the
scope of the Directive to payments made to, or collected for, certain other entities and legal
arrangements. They also broaden the definition of interest payment to cover income that is equivalent
to interest.
If a payment were to be made or collected through a Member State (or, in certain cases, through a
relevant non-EU country or territory) which has opted for a withholding system and an amount of, or an
amount in respect of, tax were to be withheld from that payment, none of the Issuer, the Guarantor nor
any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any
Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment
made by a Paying Agent, the Issuer will be required to maintain a Paying Agent in a Member State that
will not be obliged to withhold or deduct tax pursuant to the Directive.
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United Arab Emirates
The following summary of the anticipated tax treatment in the UAE in relation to the payments on
the Notes is based on the taxation law and practice in force at the date of this Base Prospectus,
and does not constitute legal or tax advice and prospective investors should be aware that the
relevant fiscal rules and practice and their interpretation may change. Prospective investors
should consult their own professional advisers on the implications of subscribing for, buying,
holding, selling, redeeming or disposing of Notes and the receipt of any payments with respect to
such Notes under the laws of the jurisdictions in which they may be liable to taxation.
There is currently in force in the Emirates of Abu Dhabi and Dubai legislation establishing a general
corporate taxation regime (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai
Income Tax Decree 1969 (as amended)). The regime is however not enforced save in respect of
companies active in the hydrocarbon industry, some related service industries and branches of foreign
banks operating in the UAE It is not known whether the legislation will or will not be enforced more
generally or within other industry sectors in the future. Under current legislation, there is no
requirement for withholding or deduction for or on account of UAE, Abu Dhabi or Dubai taxation in
respect of payments of interest or principal on debt securities (including the Notes). In the event of the
imposition of any such withholding, the Issuer has undertaken to gross-up any payments subject to
such withholding as described under Terms and Conditions of the NotesTaxation.
The Constitution of the UAE specifically reserves to the Federal Government the right to raise taxes on
a federal basis for purposes of funding its budget. It is not known whether this right will be exercised in
the future.
The UAE has entered into Double Taxation Arrangements with certain other countries, but these are
not extensive in number.
U.S. Foreign Account Tax Compliance Withholding
In certain circumstances payments made on or with respect to the Notes after 31 December 2016 may
be subject to U.S. withholding tax under Sections 1471 through 1474 of the U.S. Internal Revenue
Code (commonly referred to as FATCA). As a general matter, the FATCA rules are designed to require
U.S. persons direct and indirect ownership of non-U.S. accounts and non- U.S. entities to be reported
to the IRS. The 30 per cent. withholding tax regime applies if there is a failure to provide required
information regarding U.S. ownership or otherwise establish an exemption from the withholding. This
withholding does not apply to payments on Notes that are issued prior to 1 July 2014 (or, if later, the
date that is six months after the date on which the final regulations that define foreign passthru
payments are published) unless the Notes are materially modified after that date or are
characterised as equity for U.S. federal income tax purposes.
The Cayman Islands entered into a Model 1 IGA with the United States on 29 November 2013. The
terms of the IGA are broadly similar to those agreed with the United Kingdom and the Republic of
Ireland. Under the terms of the IGA (which, although signed, still needs to be approved by both
jurisdictions as at the date of this Base prospectus) the Issuer will not be required to enter an
agreement with the IRS, but may instead be required to register with the IRS to obtain a GIIN and then
comply with Cayman Islands legislation that is to be implemented to give effect to the IGA. The terms
of such legislation are at this stage still uncertain and it is not yet clear whether the Issuer will be a
certified deemed compliant entity with no reporting required or a registered deemed compliant entity
which would require the Issuer to report to the Cayman Islands Tax Information Authority, which will
exchange such information with the IRS under the terms of the IGA. To the extent the Issuer cannot be
treated as certified deemed compliant entities, each Issuer would be a Reporting Cayman Islands
Financial Institution (as defined in the IGA). Under the terms of the IGA, withholding will not be
imposed on payments made to the Issuer, or on payments made by the Issuer to the Noteholders
(other than perhaps certain passthru withholding), unless the IRS has specifically listed the Issuer as a
non-participating financial institution, or the Issuer has otherwise assumed responsibility for withholding
under United States tax law.
Whilst the Notes are in global form and held within ICSDs, it is expected that FATCA will not affect the
amount of any payments made under, or in respect of, the Notes by the Issuer, the Guarantor, any
Paying Agent and the Common Depositary, given that each of the entities in the payment chain
between the Issuer and the participants in the ICSDs is a major financial institution whose business is
dependent on compliance with FATCA and that any alternative approach introduced under an
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intergovernmental agreement will be unlikely to affect the Notes. The documentation expressly
contemplates the possibility that the Notes may go into definitive form and therefore that they may be
taken out of the ICSDs. If this were to happen, then a non-FATCA compliant holder could be subject to
withholding. However, Definitive Notes will only be printed in remote circumstances.
FATCA is particularly complex and its application is uncertain at this time. The above
description is based in part on regulations, official guidance and model IGAs, all of which are
subject to change or may be implemented in a materially different form. Prospective investors
should consult their tax advisers on how these rules may apply to the Issuer and to payments
they may receive in connection with the Notes.
TO ENSURE COMPLIANCE WITH IRS CIRCULAR 230, EACH TAXPAYER IS HEREBY NOTIFIED
THAT: (A) ANY TAX DISCUSSION HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND
CANNOT BE USED BY THE TAXPAYER FOR THE PURPOSE OF AVOIDING U.S. FEDERAL
INCOME TAX PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER; (B) ANY SUCH TAX
DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE
TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) THE TAXPAYER SHOULD SEEK
ADVICE BASED ON THE TAXPAYERS PARTICULAR CIRCUMSTANCES FROM AN
INDEPENDENT TAX ADVISER.
The Proposed Financial Transactions Tax
The European Commission has published a proposal for a Directive for a common financial
transactions tax (FTT) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal,
Slovenia and Slovakia (the participating Member States).
The proposed FTT has very broad scope and could, if introduced in its current form, apply to certain
dealings in Notes (including secondary market transactions) in certain circumstances. The issuance
and subscription of Notes should, however, be exempt.
Under current proposals the FTT could apply in certain circumstances to persons both within and
outside of the participating Member States. Generally, it would apply to certain dealings in Notes where
at least one party is a financial institution, and at least one party is established in a participating
Member State. A financial institution may be, or be deemed to be, established in a participating
Member State in a broad range of circumstances, including (a) by transacting with a person
established in a participating Member State or (b) where the financial instrument which is subject to the
dealings is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States and is the
subject of legal challenge. It may therefore be altered prior to any implementation, the timing of which
remains unclear. Additional EU Member States may decide to participate. Prospective holders of Notes
are advised to seek their own professional advice in relation to the FTT.
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SUBSCRIPTION AND SALE
Notes may be sold from time to time by the Issuer to Standard Chartered Bank, National Bank of Abu
Dhabi PJSC and any other Dealer appointed from time to time by the Issuer either generally in respect
of the Programme or in relation to a particular Tranche of Notes. The arrangements under which Notes
may from time to time be agreed to be sold by the Issuer to, and purchased by, Dealers are set out in a
Dealer Agreement dated 12 June 2014 (the Dealer Agreement) and made between the Issuer, the
Guarantor, the Arrangers and the Dealers. Any such agreement will, inter alia, make provision for the
form and terms and conditions of the relevant Notes, the price at which such Notes will be purchased
by the Dealers and the commissions or other agreed deductibles (if any) payable or allowable by the
Issuer in respect of such purchase. The Dealer Agreement makes provision for the resignation or
termination of appointment of existing Dealers and for the appointment of additional or other Dealers
either generally in respect of the Programme or in relation to a particular Tranche of Notes.
United States of America
The Notes and the Guarantee have not been and will not be registered under the Securities Act and
may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons
except in certain transactions exempt from the registration requirements of the Securities Act. Terms
used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the
United States or its possessions or to a United States person, except in certain transactions permitted by
U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States
Internal Revenue Code and regulations thereunder. The relevant Final Terms will identify whether
TEFRA C or TEFRA D rules apply or whether TEFRA is not applicable.
Each Dealer has represented and agreed that and each further Dealer appointed under the
Programme will be required to represent and agree that, except as permitted by the Dealer Agreement,
it will not offer, sell or deliver Notes, (i) as part of their distribution at any time or (ii) otherwise until 40
days after the completion of the distribution of the Notes comprising the relevant Tranche, as certified
to the Fiscal Agent or the Issuer by such Dealer (or, in the case of a sale of a Tranche of Notes to or
through more than one Dealer, by each of such Dealers as to the Notes of such Tranche purchased by
or through it, in which case the Fiscal Agent or the Issuer shall notify each such Dealer when all such
Dealers have so certified) within the United States or to, or for the account or benefit of, U.S. persons,
and such Dealer will have sent to each dealer to which it sells Notes during the distribution compliance
period relating thereto a confirmation or other notice setting forth the restrictions on offers and sales of
the Notes within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering of Notes comprising any Tranche,
any offer or sale of Notes within the United States by any dealer (whether or not participating in the
offering) may violate the registration requirements of the Securities Act.
Public Offer Selling Restrictions under the Prospectus Directive
In relation to each Member State of the European Economic Area which has implemented the
Prospectus Directive (each, a Relevant Member State), each Dealer has represented and agreed,
and each further Dealer appointed under the Programme will be required to represent and agree, that
with effect from and including the date on which the Prospectus Directive is implemented in that
Relevant Member State (the Relevant Implementation Date) it has not made and will not make an
offer of Notes which are subject to the offering contemplated by this Base Prospectus as completed by
the final terms in relation thereto to the public in that Relevant Member State, except that it may, with
effect from and including the Relevant Implementation Date, make an offer of such Notes to the public
in that Relevant Member State:
(i) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
or
(ii) at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant
provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the
relevant Dealer or Dealers nominated by the relevant Obligors for any such offer; or
(iii) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,
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provided that no such offer of Notes referred to in (i) to (iii) above shall require the Issuer or any Dealer
to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus
pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of Notes to the public in relation to any
Notes in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor
to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any
measure implementing the Prospectus Directive in that Member State; the expression Prospectus
Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member State), and includes any relevant
implementing measure in the Relevant Member State; and the expression 2010 PD Amending
Directive means Directive 2010/73/EU.
United Kingdom
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will
be required to represent and agree that:
(i) in relation to any Notes which have a maturity of less than one year, (a) it is a person whose
ordinary activities involve it in acquiring, holding, managing or disposing of investments (as
principal or as agent) for the purposes of its business and (b) it has not offered or sold and will not
offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or as agent) for the purposes of their
businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments
(as principal or agent) for the purposes of their businesses where the issue of the Notes would
otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000
(the FSMA) by the Issuer;
(ii) it has only communicated or caused to be communicated and will only communicate or cause to
be communicated any invitation or inducement to engage in investment activity (within the
meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any
Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Cayman Islands
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to agree, that no offer or invitation to subscribe for the Notes has been or will be made
to the public of the Cayman Islands.
Hong Kong
Each Dealer has represented and agreed, and each further Dealer under the Programme will be
required to represent and agree that:
(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any
Notes other than (i) to persons whose ordinary business is to buy or sell shares or debentures
(whether as principal or agent); (ii) to professional investors as defined in the Securities and
Futures Ordinance (Cap. 571) of Hong Kong and rules made under that Ordinance; or (iii) in other
circumstances which do not result in the document being a prospectus as defined in the
Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public
within the meaning of that Ordinance; and
(ii) it has not issued or had in its possession for the purposes of the issue, and will not issue or have
in its possession for purposes of issue, whether in Hong Kong or elsewhere, any advertisement,
invitation or document relating to the Notes, which is directed at, or the contents of which are likely
to be accessed or read by, the public of Hong Kong (except if permitted to do so under the
securities laws of Hong Kong) other than with respect to Notes which are or are intended to be
disposed of only to persons outside Hong Kong or only to professional investors as defined in the
Securities and Futures Ordinance (Cap. 571) and any rules made under that Ordinance.
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Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act
of Japan (Act No. 25 of 1948, as amended) (the Financial Instruments and Exchange Act).
Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the
Programme will be required to represent and agree, that it has not, directly or indirectly, offered or sold
and will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any
resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and
Foreign Trade Act (Act No. 228 of 1949, as amended)) or to others for re-offering or re-sale, directly or
indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption
from the registration requirements of, and otherwise in compliance with, the Financial Instruments and
Exchange Act and other relevant laws, regulations and ministerial guidelines of Japan.
Malaysia
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to represent and agree, that:
(i) this Base Prospectus has not been registered as a prospectus with the Securities Commission of
Malaysia under the Capital Markets and Services Act 2007 of Malaysia (CMSA); and
(ii) accordingly, the Notes have not been and will not be offered, sold or delivered, directly or
indirectly, nor may any document or other material in connection therewith be distributed in
Malaysia, other than to persons falling within any one of the categories of persons specified under:
(i) paragraphs 9, 10 or 11 of Schedule 6 (or paragraphs 9, 10 or 11 of Section 229(1)(b)) or
Schedule 7 (or Section 230(1)(b)); and (ii) Schedule 9 (or Section 257(2)) of the CMSA, subject to
any law, order, regulation or official directive of the Central Bank of Malaysia, the Securities
Commission of Malaysia and/or any other regulatory authority from time to time.
Residents of Malaysia may be required to obtain relevant regulatory approvals including approval from
the Controller of Foreign Exchange to purchase the Notes. The onus is on the Malaysian residents
concerned to obtain such regulatory approvals and none of the Dealers is responsible for any invitation,
offer, sale or purchase of the Notes as aforesaid without the necessary approvals being in place.
Singapore
This Base Prospectus has not been registered as a prospectus with the Monetary Authority of
Singapore. Accordingly each Dealer has represented and agreed, and each further Dealer appointed
under the Programme will be required to represent and agree, that it has not offered or sold and that it
will not offer or sell any Notes or cause such Notes to be made the subject of an invitation for
subscription or purchase, nor will it circulate or distribute this Base Prospectus or any other document
or material in connection with the offer or sale or invitation for subscription or purchase of the Notes,
whether directly or indirectly, to any person in Singapore other than: (i) to an institutional investor
pursuant to Section 274 of the Securities and Futures Act Chapter 289, of Singapore (the Securities
and Futures Act); (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to
Section 275(1A) of the Securities and Futures Act and in accordance with the conditions specified in
Section 275 of the Securities and Futures Act; or (iii) pursuant to, and in accordance with the
conditions of, any other applicable provisions of the Securities and Futures Act.
Where Notes are subscribed or purchased under Section 275 of the Securities and Futures Act by a
relevant person which is:
(i) a corporation (which is not an accredited investor (as defined in Section 4A of the Securities and
Futures Act)) the sole business of which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an accredited investor; or
(ii) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments
and each beneficiary of the trust is an individual who is an accredited investor,
securities (as defined in Section 239(1) of the Securities and Futures Act) of that corporation or the
beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six
months after that corporation or that trust has acquired the Notes pursuant to an offer made under
Section 275 of the Securities and Futures Act except:
(i) to an institutional investor or to a relevant person defined in Section 275(2) of the Securities and
Futures Act, or to any person arising from an offer referred to in Section 275(1A) or
Section 276(4)(i)(B) of the Securities and Futures Act;
119
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) as specified in Section 276(7) of the Securities and Futures Act; or
(v) as specified in Regulation 32 of the Securities and Futures (Offer of Investments) (Shares and
Debentures) Regulations 2005 of Singapore.
The United Arab Emirates (excluding the Dubai International Financial Centre)
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to represent and agree, that the Notes to be issued under the Programme have not
been and will not be offered, sold or publicly promoted or advertised by it in the United Arab Emirates
other than in compliance with any laws applicable in the United Arab Emirates governing the issue,
offering and sale of securities.
Dubai International Financial Centre
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to represent and agree, that it has not offered and will not offer the Notes to be issued
under the Programme to any person in the Dubai International Financial Centre unless such offer is:
(i) an Exempt Offer in accordance with the Markets Rules 2012 of the DFSA; and
(ii) made only to persons who meet the Professional Client criteria set out in Rule 2.3.2 of the DFSA
Conduct of Business Module.
State of Kuwait
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to represent and agree, that the Notes have not been and will not be offered, sold,
promoted or advertised by it in the State of Kuwait other than in compliance with Decree Law No. 31 of
1990 and the implementing regulations thereto, as amended, and Law No.7 of 2010 and the bylaws
thereto, as amended governing the issue, offering and sale of securities. No private or public offering of
the Notes is being made in the State of Kuwait, and no agreement relating to the sale of the Notes will
be concluded in the State of Kuwait. No marketing or solicitation or inducement activities are being
used to offer or market the Notes in the State of Kuwait.
Kingdom of Bahrain
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme
will be required to represent and agree, that it has not offered or sold, and will not offer or sell, any
Notes, except on a private placement basis to persons in the Kingdom of Bahrain who are accredited
investors.
For this purpose, an accredited investor means:
(i) an individual holding financial assets (either singly or jointly with a spouse) of U.S.$1,000,000 or
more;
(ii) a company, partnership, trust or other commercial undertaking which has financial assets
available for investment of not less than U.S.$1,000,000; or
(iii) a government, supranational organisation, central bank or other national monetary authority or a
state organisation whose main activity is to invest in financial instruments (such as a state pension
fund).
Kingdom of Saudi Arabia
No action has been or will be taken in the Kingdom of Saudi Arabia that would permit a public offering
of the Notes. Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a Saudi
Investor) who acquires any Notes pursuant to an offering should note that the offer of Notes is a
private placement under Article 10 or Article 11 of the Offer of Securities Regulations as issued by the
Board of the Capital Market Authority resolution number 2-11-2004 dated 4 October 2004 and
amended by the Board of the Capital Market Authority resolution number 1-28-2008 dated 18 August
2008 (the KSA Regulations) through a person authorised by the Capital Market Authority (the
CMA) to carry on the securities activity of arranging and following a notification to the CMA under the
KSA Regulations.
120
The Notes may thus not be advertised, offered or sold to any person in the Kingdom of Saudi Arabia
other than to sophisticated investors under Article 10 of the KSA Regulations or by way of a limited
offer under Article 11 of the KSA Regulations. Each Dealer has represented and agreed, and each
further Dealer appointed under the Programme will be required to represent and agree, that any offer
of Notes to a Saudi Investor will comply with the KSA Regulations.
Investors are informed that Article 17 of the KSA Regulations places restrictions on secondary market
activity with respect to the Notes, including as follows:
(i) a Saudi Investor (referred to as a transferor) who has acquired Notes pursuant to a private
placement may not offer or sell those Notes to any person (referred to as a transferee) unless
the offer or sale is made through an authorised person unless the offer or sale is made through an
authorised person where one of the following requirements is met:
(a) the price to be paid for the Notes in any one transaction is equal to or exceeds SAR
1,000,000 or an equivalent amount;
(b) the Notes are offered or sold to a sophisticated investor; or
(c) the Notes are being offered or sold in such other circumstances as the CMA may prescribe for
these purposes;
(ii) if the requirement of paragraph (i)(a) above cannot be fulfilled because the price of the Notes
being offered or sold to the transferee has declined since the date of the original private
placement, the transferor may offer or sell the Notes to the transferee if their purchase price during
the period of the original private placement was equal to or exceeded SAR 1,000,000 or an
equivalent amount;
(iii) if the requirement in paragraph (ii) above cannot be fulfilled, the transferor may offer or sell Notes
if he/she sells his entire holding of Notes to one transferee; and
(iv) the provisions of paragraphs (i), (ii) and (iii) above shall apply to all subsequent transferees of the
Notes.
General
Each Dealer has agreed and each further Dealer appointed under the Programme will be required to
agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and
regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses
or distributes this Base Prospectus, any other offering material or any Final Terms and will obtain any
consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes
under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes
such purchases, offers, sales or deliveries.
The Dealer Agreement provides that the Dealer shall not be bound by any of the restrictions relating to
any specific jurisdiction (set out above) to the extent that such restrictions shall, as a result of
change(s) or change(s) in official interpretation, after the date hereof, of applicable laws and
regulations, no longer be applicable but without prejudice to the obligations of the Dealers described in
the paragraph entitled General above.
With regard to each Tranche, the relevant Dealer(s) will be required to comply with such other
restrictions as the Issuer, the Guarantor and the relevant Dealer(s) shall agree and as shall be set out
in the relevant subscription agreement.
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GENERAL INFORMATION
Authorisation
The establishment of the Programme and the issue of Notes thereunder has been duly authorised by a
resolution of the board of directors of the Issuer dated 9 June 2014 and the giving of the Guarantee
has been duly authorised by a resolution of an Executive Committee of the Board of Directors of the
Guarantor dated 12 May 2014 and further by a resolution of the Board of Directors of the Guarantor
dated 19 May 2014.
Listing
This Base Prospectus has been approved by the Central Bank as competent authority under the
Prospectus Directive. The Central Bank only approves this Base Prospectus as meeting the
requirements imposed under Irish and EU law pursuant to the Prospectus Directive. It is expected that
each Tranche of Notes that is to be admitted to the Official List and to trading on the Main Securities
Market will be admitted separately as and when issued, subject only to the issue of one or more Notes
initially representing the Notes of such Tranche. Application has been made to the Irish Stock
Exchange for Notes issued under the Programme during the period of 12 months from the date of this
Base Prospectus to be admitted to the Official List and trading on the Main Securities Market.
Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in
connection with the Notes and is not itself seeking admission of the Notes to the Official List of the Irish
Stock Exchange or to trading on the Main Securities Market for the purposes of the Prospectus
Directive.
Clearing of the Notes
The Notes have been accepted for clearance through Euroclear and/or Clearstream, Luxembourg. The
appropriate common code and the International Securities Identification Number in relation to the
Notes of each Series will be specified in the Final Terms relating thereto. The relevant Final Terms
shall specify any other clearing system as shall have accepted the relevant Notes for clearance
together with any further appropriate information. The address of Euroclear is Euroclear Bank
S.A./N.V., 1 Boulevard du Roi Albert II, B-1210 Brussels. The address of Clearstream, Luxembourg is
Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg.
Bearer Notes
Each Bearer Note having a maturity of more than one year, Coupon and Talon will bear the following
legend: Any United States person who holds this obligation will be subject to limitations under the
United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code.
Conditions for Determining Price
The price and amount of Notes to be issued under the Programme will be determined by the Issuer
and the relevant Dealer(s) at the time of issue in accordance with prevailing market conditions.
Litigation
There are no governmental, legal or arbitration proceedings (including any such proceedings that are
pending or threatened of which the Issuer is aware) that may have, or have had, since its incorporation
on 20 May 2014, a significant effect on the financial position or profitability of the Issuer.
There are no governmental, legal or arbitration proceedings (including any such proceedings that are
pending or threatened of which the Guarantor is aware) that may have, or have had, during the
12 months prior to the date of this Base Prospectus, a significant effect on the financial position or
profitability of the Guarantor or the Group.
No Significant Change
There has been no significant change in the financial or trading position of the Issuer since its
incorporation on 20 May 2014 and there has been no material adverse change in the prospects of the
Issuer since its incorporation on 20 May 2014.
There has been no significant change in the financial or trading position of the Guarantor or the Group
since 31 March 2014 and there has been no material adverse change in the prospects of the
Guarantor or of the Group since 31 December 2013.
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Auditors
The Guarantors 2012 Annual Financial Statements and 2013 Annual Financial Statements are
appended hereto have been audited by PricewaterhouseCoopers, independent external auditors of the
Guarantor, and unqualified opinions have been reported thereon. The auditors of the Guarantor are
registered as practising auditors at the UAE Ministry of Economy as required by the UAE Federal Law
No. 22 for the year 1995.
Since the date of its incorporation, no financial statements of the Issuer have been prepared and the
Issuer is not required by Cayman Islands law to do so.
Documents Available for Inspection
For the period of 12 months following the date of this Base Prospectus, copies of the following
documents (in physical form) may be inspected during normal business hours at the specified office of
the Fiscal Agent and from the registered office of the Guarantor, namely:
(i) the constitutive documents of the Issuer;
(ii) the constitutive documents of the Guarantor (with an English translation thereof);
(iii) the Agency Agreement;
(iv) the Deed of Covenant;
(v) the Deed of Guarantee;
(vi) the most recent publicly available audited consolidated annual financial statements of the
Guarantor beginning with the 2012 Annual Financial Statements and the 2013 Annual Financial
Statements and the most recent publicly available condensed consolidated interim financial
statements of the Guarantor beginning with the 2014 Interim Financial Information;
(vii) this Base Prospectus; and
(viii) any future base prospectuses, supplements and relevant Final Terms (save that the relevant
Final Terms relating to a Note which is neither admitted to trading on a regulated market in the
European Economic Area nor offered in the European Economic Area in circumstances where a
Base Prospectus is required to be published under the Prospectus Directive will only be available
for inspection by a holder of such Note and such holder must produce evidence satisfactory to
the Guarantor and the Fiscal Agent as to its holding of Notes and identity) to this Base
Prospectus.
Dealers and Arrangers Transacting with the Issuer and the Guarantor
In the ordinary course of their business activities, the Arrangers, the Dealers and their affiliates may
make or hold a broad array of investments and actively trade debt and equity securities (or related
derivative securities) and financial instruments (including bank loans) for their own account and for the
accounts of their customers. Such investments and securities activities may involve securities and/ or
instruments of the Issuer, the Guarantor or their respective affiliates. Certain of the Dealers, the
Arrangers or their respective affiliates that have a lending relationship with the Issuer and the
Guarantor routinely hedge their credit exposure to the Issuer and the Guarantor consistent with their
customary risk management policies. Typically, such Dealers, Arrangers and their respective affiliates
would hedge such exposure by entering into transactions which consist of either the purchase of credit
default swaps or the creation of short positions in securities, including potentially the Notes issued
under the Programme. Any such short positions could adversely affect future trading prices of Notes
issued under the Programme. The Dealers, the Arrangers and their respective affiliates may also make
investment recommendations and/or publish or express independent research views in respect of such
securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or
short positions in such securities and instruments.
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INDEX TO GUARANTORS FINANCIAL STATEMENTS
Audited Consolidated Annual Financial Statements of the Guarantor as at and for the year ended
31 December 2012
Auditors Report F-2
Consolidated Statement of Financial Position F-4
Consolidated Income Statement F-5
Consolidated Statement of Comprehensive Income F-6
Consolidated Statement of Changes in Equity F-7
Consolidated Statement of Cash Flows F-8
Notes to the Consolidated Financial Statements F-9
Audited Consolidated Annual Financial Statements of the Guarantor as at and for the year ended
31 December 2013
Auditors Report F-56
Consolidated Statement of Financial Position F-58
Consolidated Income Statement F-59
Consolidated Statement of Comprehensive Income F-60
Consolidated Statement of Changes in Equity F-61
Consolidated Statement of Cash Flows F-62
Notes to the Consolidated Financial Statements F-63
Condensed Consolidated Interim Financial Statements of the Guarantor as at and for the three months
ended 31 March 2014
Auditors Review Report F-110
Consolidated Statement of Financial Position F-111
Consolidated Income Statement F-112
Consolidated Statement of Comprehensive Income F-113
Consolidated Statement of Changes in Equity F-114
Consolidated Statement of Cash Flows F-115
Notes to the Consolidated Financial Statements F-116
F-1
Independent auditors report to the shareholders of
The National Bank of Ras Al-Khaimah (P.S.C.)
Report on the financial statements
We have audited the accompanying financial statements of The National Bank of Ras Al- Khaimah
(P.S.C.) (the bank), which comprise the balance sheet as of 31 December 2012 and the statements
of income, comprehensive income, changes in shareholders equity and cash flows for the year then
ended, and a summary of significant accounting policies and other explanatory notes.
Managements responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with International Financial Reporting Standards and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the bank as at 31 December 2012 and its financial performance and its cash flows
for the year then ended in accordance with International Financial Reporting Standards.
Report on other legal and regulatory requirements
As required by the UAE Federal Law No (8) of 1984, as amended, we report that:
(i) we have obtained all the information we considered necessary for the purpose of our audit;
(ii) the financial statements comply, in all material respects, with the applicable provisions of the UAE
Federal Law No. (8) of 1984, as amended and the Articles of Association of the bank;
F-2
Independent auditors report to the shareholders of
The National Bank of Ras Al-Khaimah (P.S.C.) (continued)
(iii) the bank has maintained proper books of account and the financial statements are in agreement
therewith;
(iv) the financial information included in the Directors report is consistent with the books of account of
the bank; and
(v) nothing has come to our attention, which causes us to believe that the bank has breached any of
the applicable provisions of the UAE Federal Law No (8) of 1984, as amended, or of its Articles of
Association which would materially affect its activities or its financial position as at 31 December
2012.
Further, as required by the UAE Union Law No (10) of 1980, as amended, we report that we have
obtained all the information and explanations we considered necessary for the purpose of our audit.
PricewaterhouseCoopers
27 January 2013
Paul Suddaby
Registered Auditor Number 309
Dubai, United Arab Emirates
F-3
The National Bank of Ras Al-Khaimah (P.S.C.)
Balance sheet
At 31 December
Note 2012
AED000
2011
AED000
ASSETS
Cash and balances with the UAE Central Bank 5 2,904,054 1,844,193
Due from other banks 6 1,195,831 1,972,251
Loans and advances 7 20,283,427 18,368,470
Investment securities 8 1,586,878 1,163,813
Property and equipment 9 1,035,773 952,167
Other assets 10 244,174 201,643
Total assets 27,250,137 24,502,537
LIABILITIES
Due to other banks 11 233,841 334,471
Due to customers 12 20,719,725 18,290,165
Subordinated debt 13 - 684,467
Other liabilities 14 539,914 443,495
Provision for employees end of service benefits 15 61,442 53,067
Total liabilities 21,554,922 19,805,665
SHAREHOLDERS EQUITY
Share capital 16 1,523,859 1,385,327
Share premium 17 110,350 110,350
Retained earnings 1,183,109 1,157,426
Other reserves 18 2,877,897 2,043,769
Total shareholders equity 5,695,215 4,696,872
Total liabilities and shareholders equity 27,250,137 24,502,537
These financial statements were authorised for issue by the Board of Directors on 27 January 2013
and were signed on its behalf by:
H.E. Sheikh Omar Bin Saqr Al-Qasimi
Chairman
Graham Honeybill
Chief Executive Officer
The notes on pages 13 to 67 form an integral part of these financial statements
F-4
The National Bank of Ras Al-Khaimah (P.S.C.)
Statement of income
Year ended 31 December
Note 2012
AED000
2011
AED000
Interest income 21 2,583,850 2,365,550
Interest expense 21 (350,562) (381,039)
Net interest income 2,233,288 1,984,511
Fee and commission income 22 488,174 522,754
Foreign exchange income 67,634 57,771
Income from investment securities 8(c) 71,541 49,315
Other operating income 32,527 23,104
Operating income 2,893,164 2,637,455
Operating expenses 23 (1,281,250) (1,132,897)
Impairment charge on loans and advances net of write
backs 7(d) (209,115) (301,018)
Net profit for the year 1,402,799 1,203,540
Earnings per share
Basic 25 AED 0.92 AED 0.79
The notes on pages 13 to 67 form an integral part of these financial statements
F-5
The National Bank of Ras Al-Khaimah (P.S.C.)
Statement of comprehensive income
Year ended 31 December
2012 2011
Note AED000 AED000
Net profit for the year 1,402,799 1,203,540
Other comprehensive income:
Net changes in fair value of available-for-sale
investment securities 8(b), 18 9,627 7,862
Release of fair value loss to income statement on
disposal of available-for-sale investment
securities 8(c) 1,515 -
Total other comprehensive income 11,142 7,862
Total comprehensive income for the year 1,413,941 1,211,402
The notes on pages 13 to 67 form an integral part of these financial statements
F-6
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F-7
The National Bank of Ras Al-Khaimah (P.S.C.)
Statement of cash flows
Year ended 31 December
2012 2011
Note AED000 AED000
Operating activities
Net profit for the year 1,402,799 1,203,540
Adjustments:
Net charge for impairment of loans and advances 7(d) 209,115 301,018
Depreciation 23 99,860 78,056
Provision for employees end of service benefits 15 15,797 11,776
Gain on disposal of property and equipment (502) (579)
Amortisation of discount relating to investment securities held for
maturity 8(b) (1,334) (645)
Amortisation of cost relating to debt security in issue - -
Release of fair value loss to income statement on redemption of
available-for-sale investment securities 8(c) 1,515 -
Operating cash flows before payment of employees end of service
benefits and changes in assets and liabilities 1,727,250 1,593,166
Payment of employees end of service benefits 15 (7,422) (4,317)
Changes in assets and liabilities:
Statutory deposits with the UAE Central Bank 5 (260,131) (479,535)
Certificate of deposits with the UAE Central Bank with original
maturities of over 3 months 5 (650,000) 390,000
Due from other banks with original maturities of three months or
over 28 (206,952)
Loans and advances net of charge for impairment and amounts
written off/(back) 7 (2,124,072) (2,267,747)
Other assets 10 (42,531) (1,630)
Due to other banks (net of amounts due to Central Bank) 11 (136,607) 136,603
Due to customers 12 2,429,560 1,920,036
Other liabilities 14 96,419 (19,425)
Net cash generated from operating activities 825,514 1,267,151
Investing activities
Purchase of investment securities 8(b) (641,074) (460,783)
Purchase of property and equipment 9 (184,161) (262,016)
Proceeds from maturity of investment securities 8(b) 228,970 73,460
Proceeds from sale of property and equipment 1,197 4,320
Net cash used in investing activities (595,068) (645,019)
Financing activities
Subordinated debt repayment 13 (684,467) -
Dividend paid 26 (415,598) (230,888)
Net cash used in financing activities (1,100,065) (230,888)
Net (decrease)/lncrease in cash and cash equivalents (869,619) 391,244
Cash and cash equivalents, beginning of the year 2,233,818 1,842,574
Cash and cash equivalents, end of the year 28 1,364,199 2,233,818
The notes on pages 13 to 67 form an integral part of these financial statements
F-8
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
1 Incorporation and principal activities
The National Bank of Ras Al-Khaimah (the bank) is a public shareholding company incorporated in
the Emirate of Ras Al-Khaimah in the United Arab Emirates (UAE). The head office of the bank is
located at the National Bank of Ras Al-Khaimah building, Al Rifa area, Exit No. 129, Sheikh
Mohammed Bin Zayed road, Ras Al-Khaimah.
The bank is engaged in providing retail and commercial banking services through a network of thirty
three branches in the UAE.
The Bank incorporated two subsidiaries during the year. These subsidiaries are RAK Islamic Finance
Pvt. J.S.C in which the Bank owns 99.9% and BOSS FZCO in which the Bank owns 80%. RAK Islamic
Finance Pvt. J.S.C has an authorised and issued capital of AED 100 million, and was incorporated to
enable the Bank to launch its Islamic operations and sell sharia compliant financial products. BOSS
FZCO has been incorporated to provide back office support services to the Bank. BOSS FZCO has an
authorised and issued share capital of AED 500,000 and was formed under the Dubai Silicon Oasis
Authority guidelines. The Bank has not commenced significant operations in the above subsidiaries as
at the balance sheet date.
2 Significant accounting policies
The significant accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise
stated.
(a) Basis of preparation
The financial statements have been prepared in accordance with and comply with International
Financial Reporting Standards, (IFRS). The financial statements are prepared under the historical cost
convention except for available-for-sale financial assets and derivative financial instruments which
have been measured at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgment in the process of applying
the banks accounting policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to the financial statements are disclosed in
Note 4.
Standards, amendments to published standards or IFRIC interpretations effective for the banks
accounting period beginning on 1 January 2012
There are no new standards, amendments to published standards or IFRIC interpretations that are
effective for the first time for the banks financial year beginning on or after 1 January 2012 that have
had a material impact on the financial statements of the bank.
The following applicable new standards and amendments to published standards have been issued but
are not effective for the banks accounting period beginning 1 January 2012 and have not been early
adopted by the bank:
IFRS 9, Financial instruments (effective 1 January 2015), addresses the classification,
measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in
November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and
measurement of financial instruments. IFRS 9 requires financial assets to be classified into two
measurement categories: those measured as at fair value and those measured at amortised cost. The
determination is made at initial recognition. The classification depends on the entitys business model
F-9
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(a) Basis of preparation (continued)
for managing its financial instruments and the contractual cash flow characteristics of the instrument.
For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that,
in cases where the fair value option is taken for financial liabilities, the part of a fair value change due
to an entitys own credit risk is recorded in other comprehensive income rather than the statement of
income, unless this creates an accounting mismatch.
Amendment to IAS 1, Financial statement presentation regarding other comprehensive
income (effective 1 July 2012). These amendments require entities to group items presented in other
comprehensive income (OCI) on the basis of whether they are potentially re-classifiable to profit or loss
subsequently (reclassification adjustments). The amendments do not address which items are
presented in OCI.
IFRS 10, Consolidated financial statements (effective 1 January 2013). This standard builds
on existing principles by identifying the concept of control as the determining factor in whether an entity
should be included within the consolidated financial statements. The standard provides additional
guidance to assist in determining control where this is difficult to assess.
IAS 27, (revised 2011) Separate financial statements (effective 1 January 2013). This
standard includes the provision on separate financial statements that are left after the control
provisions of IAS 27 have been included in the new IFRS 10.
IFRS 13, Fair value measurement (effective 1 January 2013). This standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single source of
fair value measurement and disclosure requirements for use across IFRSs. The requirements, which
are largely aligned between IFRS and US GAAP, do not extend the use of fair value accounting but
provide guidance on how it should be applied where its use is already required or permitted by other
standards within IFRS or US GAAP.
The bank has assessed the impact of the above new standards and amendments to published
standards and has concluded that they will not have a significant impact on the banks financial
statements.
(b) Loans and advances and provision for impairment
Loans and advances are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and advances are initially recognized at fair value, which is the
cash consideration to originate or purchase a loan including any transaction costs, and measured
subsequently at amortised cost using the effective interest method.
The bank assesses at each balance sheet date whether there is objective evidence that loans and
advances are impaired. Loans and advances are impaired and impairment losses are incurred only if
there is objective evidence that the bank will not be able to collect all amounts due.
The criteria that the bank uses to determine that there is objective evidence of an impairment loss
include:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrowers competitive position;
F-10
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(b) Loans and advances and provision for impairment (continued)
Deterioration in the value of collateral; and
Observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of financial assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
Where such an event has had an impact on the estimated future cash flows of the financial asset or
group of financial assets, an impairment allowance is recognised. The amount of the loss is measured
as the difference between the assets carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial assets
original effective interest rate. The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the income statement. If a loan has a
variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract.
Impairment allowances are assessed individually for financial assets that are individually significant.
Such individual assessment is used primarily for the banks corporate lending portfolios. Impairment
allowances for portfolios of smaller balance homogenous loans such as most residential mortgages,
personal loans and credit card balances in the Banks retail portfolios that are below the individual
assessment thresholds, and for loan losses that have been incurred but not separately identified at the
balance sheet date, are determined on a collective basis.
In respect of portfolios of smaller balance, homogenous loans, the asset is included in a group of
financial assets with similar risk characteristics and collectively assessed for impairment. Segmentation
takes into account factors such as the type of asset, industry sector, geographical location, collateral
type, past-due status and other relevant factors. These characteristics are relevant to the estimation of
future cash flows for groups of such assets as they are indicative of the borrowers ability to pay all
amounts due according to the contractual terms of the assets being evaluated. Generally, the
impairment trigger used within the impairment calculation for a loan, or group of loans, is when they
reach a pre-defined level of delinquency or where the customer is bankrupt.
In respect of the Banks secured mortgage portfolios, the impairment allowance is calculated based on
a definition of impaired loans which are those three months or more in arrears (or certain cases where
the borrower is bankrupt). The estimated cash flows are calculated based on historical experience and
are dependent on estimates of the expected value of collateral which takes into account expected
future movements in house prices, less costs to sell.
For unsecured personal lending portfolios, the impairment trigger is generally when the balance is
three or more installments in arrears or where the customer has exhibited one or more of the
impairment characteristics set out above. While the trigger is based on the payment performance or
circumstances of each individual asset, the assessment of future cash flows uses historical experience
of banks own loan portfolios such that the assessment is considered to be collective. Future cash flows
are estimated on the basis of the contractual cash flows of the assets in the banks portfolio and
historical loss and recoveries. Historical loss experience is adjusted on the basis of current observable
data about economic and credit conditions (for example, changes in unemployment rates, property
prices, payment status, or other factors indicative of changes in the probability of losses and their
magnitude) to reflect the effects of current conditions that did not affect the period on which the
historical loss experience is based and to remove the effects of conditions in the historical period that
do not exist currently. The methodology and assumptions used for estimating future cash flows are
reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss
experience.
F-11
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(b) Loans and advances and provision for impairment (continued)
In certain circumstances, the bank will renegotiate the original terms of a customers loan, either as
part of an ongoing customer relationship, aligning to current market interest rates or in response to
adverse changes in the circumstances of the borrower. There are a number of different types of loan
renegotiation, including the capitalisation of arrears, interest rate adjustments and extensions of the
due date of payment. Renegotiation may lead to the loan and associated provision being derecognised
and a new loan being recognised initially at fair value. The renegotiated loans are no longer considered
to be past due but are treated as new loans. The bank monitors the performance of renegotiated loans
continuously and the loans which are performing continuously for a period of 12 months are classified
as normal loans.
When a loan is uncollectable, it is written off against the related provision for impairment. If no related
provision exists, it is written off to the income statement. Subsequent recoveries are credited to the
income statement. If the amount of impairment subsequently decreases due to an event occurring after
the write down, the release of the provision is credited to the income statement.
(c) Investment securities
The bank classifies its investment securities in the following categories: Held at fair value through profit
and loss, held-to-maturity and available-for-sale. Management determines the classification of its
investments at initial recognition. The bank currently does not have any assets classified as Held at fair
value through profit and loss.
Held at fair value: Investment securities held at fair value through profit and loss are those which are
acquired principally for the purpose of trading with the objective of generating profit.
Held-to-maturity: Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the banks management has the positive intention and
ability to hold to maturity. If the bank were to sell other than an insignificant amount of held-to-maturity
assets, the entire category would be reclassified as available for sale.
Available-for-sale: Available-for-sale investments are those non-derivative financial assets that are
designated as available-for-sale or are not classified as (a) loans and advances, (b) held-to-maturity
investments or (c) available-for-sale investments.
Regular purchases and sales of financial assets at fair value through profit or loss, held to maturity and
available for sale are recognised on trade-date the date on which the bank commits to purchase or
sell the asset.
All Financial assets, except assets that are held for trading are initially recognised at fair value plus
transaction costs. For financial assets acquired for trading, transaction costs are charged to profit and
loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or where the bank has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets are subsequently carried at fair value. Held-to-maturity investments
are carried at amortised cost using the effective interest method. Gains and losses arising from
changes in the fair value of available-for-sale financial assets are recognised directly in statement of
comprehensive income, until the financial asset is derecognised or impaired. At this time, the
cumulative gain or loss previously recognised through the statement of comprehensive income is
recognised in the income statement.
Foreign currency gains and losses arising on available-for-sale monetary financial assets are directly
recognised in the income statement.
F-12
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(c) Investment securities (continued)
The fair values of quoted investments in active markets are based on current bid prices. If the market
for a financial asset is not active (and for unlisted securities), the bank establishes fair value by using
valuation techniques.
Interest earned whilst holding investment securities is reported as income from investment securities in
the income statement.
Dividends on available-for-sale equity instruments are recognised in the income statement when the
Banks right to receive payment is established.
The bank assesses at each balance sheet date whether there is objective evidence that a financial
asset is impaired. In the case of equity investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost is considered in determining whether
the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative
loss measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in profit or loss is removed from equity
and recognised in the income statement. Impairment losses recognised in the income statement on
available-for-sale equity instruments are not reversed through the income statement. Impairment on
debt securities classified as available-for-sale and those held to maturity is assessed as outlined in the
accounting policy of impairment of loans and advances (Note 2(b)).
(d) Due from banks
Amounts due from banks are initially recognized at fair value and measured subsequently at amortised
cost using the effective interest method. Impairment of amount due from banks is assessed as outlined
in the accounting policy of loans and advances (Note 2(b)).
(e) Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents include cash on hand, money
in current and call accounts and placements with original maturity of less than three months excluding
the statutory deposit required to be maintained with the UAE Central Bank.
(f) Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered
into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market
prices in active markets, including recent market transactions, and valuation techniques, including
discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as
assets when fair value is positive and as liabilities when fair value is negative.
(g) Property and equipment
Land and buildings comprise mainly branches and offices. Property and equipment is stated at cost
less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition
of the items.
Subsequent expenditures are included in the assets carrying amount or are recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item
will flow to the bank and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repair and maintenance costs are charged to the income
statement during the financial period in which they are incurred.
F-13
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(g) Property and equipment (continued)
Land is not depreciated as it is deemed to have an infinite life. Depreciation on other assets is
calculated using the straight-line method to write down the cost of assets to their estimated residual
values over their expected useful economic lives as follows:
Years
Buildings 15-30
Computer equipment and software 4-15
Furniture, fixtures and equipment 4-6
Leasehold improvements 2-6
Motor vehicles 2-4
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period.
Capital work in progress is stated at cost and is transferred to the appropriate asset category when it is
brought into use and is depreciated in accordance with the banks accounting policy.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written
down immediately to its recoverable amount.
Gains and losses on disposal of property and equipment are determined by comparing the sales
proceeds to the carrying value of the asset disposed and are taken into account in determining
operating income.
(h) Fiduciary assets
Assets and the income arising on the banks fiduciary activities, where it acts in a fiduciary capacity
such as nominee, trustee or agent, are excluded from these financial statements. Income earned by
the bank from its fiduciary services is recognised in accordance with the accounting policy on fees and
commission income (Note 2(o)).
(i) Employee benefits
Pension contributions are made in respect of UAE national employees to the UAE General Pension
and Social Security Authority in accordance with the UAE Federal Law No (7), 1999 for Pension and
Social Security.
A provision is made for the estimated liability for employees entitlements to annual leave and leave
passage as a result of services rendered by the employees up to balance sheet date. This provision is
included in other liabilities. Provision is also made for the end of service benefits due to non-UAE
nationals in accordance with the UAE Labour Law for their periods of service up to the balance sheet
date and the provision arising is disclosed as provision for employees end of service benefits in the
balance sheet.
(j) Share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction
from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the
banks shareholders.
F-14
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(k) Provisions
Provisions are recognised when the bank has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount of the obligation can be made.
(I) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost using the effective interest method. Any difference between the
proceeds (net of transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowing, using the effective interest method.
(m) Foreign currencies
Items included in the financial statements of the bank are measured using UAE Dirhams which is the
currency of the primary economic environment in which the bank operates (functional currency). The
financial statements are presented in UAE Dirhams. Foreign currency transactions are translated into
the UAE Dirham at the rate ruling on the transaction date. Monetary assets and liabilities denominated
in foreign currencies are translated into UAE Dirhams at the rates ruling at the balance sheet date.
Any resultant gains or losses are accounted for in the income statement other than for items presented
in other comprehensive income. Foreign exchange gains and losses on other comprehensive income
items are presented in other comprehensive income within the corresponding item.
(n) Interest income and expense
Interest income and expense are recognised in the income statement for all instruments measured at
amortised cost using the effective interest method. Interest earned whilst holding investment securities
is reported as income from investment securities in the income statement.
The effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss.
(o) Fee and commission income
Fees and commissions, other than loan arrangement fees, are generally recognised when the service
has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred and
recognised as an adjustment to the effective interest rate on the loan. Portfolio and other management
advisory and service fees are recognised based on the, applicable service contracts, usually on a time-
proportionate basis. Fees earned on the banks fiduciary activities are recognised over the period in
which the service is provided. The same principle is applied to custody services that are continuously
provided over an extended period of time.
F-15
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
2 Significant accounting policies (continued)
(p) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a
net basis, or realise the asset and settle the liability simultaneously.
(q) Comparatives
Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or
disclosed with comparative information.
Where IAS 8 applies, comparative figures have been adjusted to conform with changes in presentation
in the current year.
(r) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker is the person or group that
allocates resources to and assesses the performance of the operating segments of an entity. The bank
has determined the banks Executive Committee as its chief operating decision maker. All transactions
between business segments are conducted on an arms length basis, with intra-segment revenue and
costs being eliminated. Income and expenses directly associated with each segment are included in
determining business segment performance.
In accordance with IFRS 8, the bank has the following business segments: retail banking, corporate
banking and treasury.
3 Financial risk management
3.1 Risk management review
The banks activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is
core to the financial services business. The banks aim is therefore to achieve an appropriate balance
between risk and return and minimise potential adverse effects on the banks financial performance.
The banks risk management policies are designed to identify and analyse these risks, to set
appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of
reliable and up-to-date information systems. The bank regularly reviews its risk management policies
and systems to reflect changes in markets, products and emerging best practice.
3.2 Credit risk
Credit risk is defined as the risk that the banks customers, clients or counter parties fail to perform or
are unwilling to pay interest, repay the principal or otherwise to fulfil their contractual obligations under
loan agreements or other credit facilities, thus causing the bank to suffer a financial loss.
Credit risk also arises through the downgrading of counter parties, whose credit instruments are held
by the bank, thereby resulting in the value of the assets to fall. As credit risk is the banks most
significant risk, considerable resources, expertise and controls are devoted to managing this risk within
the core departments of the bank.
F-16
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
The banks credit policy provides for the development of a systematic and consistent approach to
identifying and managing borrower and counter party risks contained in all retail, corporate and SME
assets.
The Head of Credit and his team including Collections are responsible for recognition and
management of credit risk both at transaction and portfolio levels and to ensure that risk procedures
are adhered to in a manner consistent with the framework set out in the Policy, Product Programs,
Credit circulars and comply with regulatory norms.
The bank manages, limits and controls concentration of credit risk wherever it is identified in
particular, to individual counterparties and groups, and to industries and countries. The bank has a
Product Program Guide that sets limits of exposure and lending criteria. The bank also has credit limits
that set out the lending and borrowing limits to/from other banks.
The bank stratifies the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on an ongoing basis. Limits on the level of credit risk by product,
industry sector and by country are approved by the Executive Committee and the Board of Directors.
The exposure to any one borrower, including banks, is further restricted by sub-limits covering on-and
off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward
foreign exchange contracts. Actual exposures against limits are monitored on an ongoing basis.
3.2.1 Maximum exposure to credit risk before collateral held or other credit enhancements
Maximum exposure
31 December
2012
31 December
2011
AED000 AED000
Credit risk exposures relating to on-balance sheet assets are as
follows:
Due from banks 1,195,831 1,972,251
Loans and advances:
Loans to retail customers 19,790,501 18,040,411
Loans to corporate customers 492,926 328,059
Investment securities 1,586,878 1,163,813
Other assets 187,372 148,535
Credit risk exposures relating to off-balance sheet items are as
follows:
Loan commitments and other off balance sheet items 6,615,636 5,858,454
29,869,144 27,511,523
The above table represents a worse case scenario of credit risk exposure to the bank at 31 December
2012 and 2011 without taking account of any collateral held or other credit enhancements attached.
For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as
reported in the balance sheet.
As can be seen above exposure arising other than from loans and advances to customers and due
from banks are insignificant.
F-17
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.1 Maximum exposure to credit risk before collateral held or other credit enhancements
(continued)
Management is confident in its ability to continue to control and minimise the loss arising from its
exposure to credit risk resulting from its loans and advances portfolio, investment securities porffolio
and amounts due from banks based on the following:
92% (2011: 92%) of the loans and advances are categorised in the top grades of the banks
internal grading system.
Mortgage loans and auto loans, which together represent a significant portion (2012: 24%,
2011: 25%) of loans and advances, are backed by collateral.
10% (2011: 8%) of the loans comprise of renegotiated loans, where the Bank has mainly
aligned its lending rates to current prevailing market lending rates to manage credit risk.
The bank continuously reviews its credit and credit underwriting policies and changes are
made based on the Management Information System (MIS) reports and the patterns that
emerge from these reports.
A significant portion of investments securities comprise debt instruments that are issued by
government and reputable quasi government organisation (Note 8).
3.2.2 Loans and advances to customers and amounts due from banks
Loans and advances to customers and amounts due from banks are summarised as follows:
31 December 2012 31 December 2011
Loans and
advances to
customers
Amounts
due from
banks
Loans and
advances to
customers
Amounts
due from
banks
AED000 AED000 AED000 AED000
Neither past due nor impaired 18,878,453 1,195,831 17,119,026 1,972,251
Past due but not impaired 1,212,575 - 1,113,306 -
Individually Impaired 516,509 - 474,116 -
Gross 20,607,537 1,195,831 18,706,448 1,972,251
Less: allowance for impairment (324,110) - (337,978) -
Net 20,283,427 1,195,831 18,368,470 1,972,251
Neither past due not impaired
31 December 2012 31 December 2011
Loans and
advances to
customers
Amounts
due from
banks
Loans and
advances to
customers
Amounts
due from
banks
AED000 AED000 AED000 AED000
Loans and advances
- Retails loans 18,398,325 - 16,796,980 -
- Corporate loans 480,128 - 322,136 -
Due from banks - 1,195,831 - 1,972,251
Gross 18,878,453 1,195,831 17,119,026 1,972,251
F-18
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.2 Loans and advances to customers and amounts due from banks (continued)
Loans and advances
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be
assessed by reference to the internal rating system adopted by the bank.
Retail banking loans are graded into buckets according to the number of installments past due. All
loans that are not in default of interest payment and installment are graded as bucket 0, while loans
and advances that are in default of interest payment and installments are graded upwards from bucket
1 onwards, depending on the number of days past due. The corporate banking and SME credit matrix
is used to rate corporate and SME loans under various characteristics. There are six categories of
performing loans and three categories of non-performing loans. These ratings are reviewed at least
once a year, or more frequently as required. Loans and advances are classified as delinquent after 90
days of non-payment of interest and installments. The credit policy has set internal lending limits for
various industry exposures. The corporate loan portfolio is reviewed on a quarterly basis. Further,
mortgage loans and auto loans, which together represent a significant portion of loans and advances,
are backed by collateral. The bank uses the grading of loans into different buckets in assessing the
impairment loss in the banks loan portfolio.
Amounts due from banks
The bank held amounts due from banks of AED 1,196 million (2011: 1,972 million) which represents its
maximum credit exposure on these assets. The balance due from banks includes AED 665 million
(2011: AED 1,640 million) placements with banks which enjoy a credit rating of at least BBB+.
Remaining balances due from banks and other financial institutions are held with reputable
organisations within and outside UAE, where the risk of default is considered low.
Past due but not impaired
Loans and advances less than 90 days past due are not considered impaired, unless other information
is available to indicate the contrary. Gross amount of loans and advances by class of customers that
were past due but not impaired are as follows:
31 December 2012 31 December 2011
Retail
loans
Corporate
loans Total
Retail
loans
Corporate
loans Total
AED000 AED000 AED000 AED000 AED000 AED000
Past due up to 30 days 731,915 - 731,915 725,216 - 725,216
Past due 30-60 days 329,986 - 329,986 252,206 - 252,206
Past due 60-90 days 150,674 - 150,674 135,884 - 135,884
Total 1,212,575 - 1,212,575 1,113,306 - 1,113,306
Fair value of collateral 465,461 - 465,461 397,818 - 397,818
F-19
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.2 Loans and advances to customers and amounts due from banks (continued)
Individually Impaired
The breakdown of the gross amount of individually impaired loans and advances, along with the fair
value of related collateral held by the bank as security, are as follows:
31 December 2012 31 December 2011
Retail
loans
Corporate
loans Total
Retail
loans
Corporate
loans Total
AED000 AED000 AED000 AED000 AED000 AED000
Individually impaired loans 471,804 44,705 516,509 435,566 38,550 474,116
Fair value of collateral (259,839) (9,570) (269,409) (237,492) (9,595) (247,087)
Net 211,965 35,135 247,100 198,074 28,955 227,029
The total impairment provision for loans and advances is AED 324.11 million
(2011: AED 337.98 million) of which AED 271.94 million (2011: AED 254.33 million) represents
provision in respect of the individually impaired loans and advances and the remaining amount of
AED 52.17 million (2011: AED 83.65 million) represents the portfolio provision to reflect the risk
inherent in banks loan portfolio.
Loans and advances renegotiated
Restructuring activities include interest rate adjustments, extended payment arrangements and
modification of payments. The majority of restructuring activity is under taken to improve cash flow and
is within the terms and conditions of the banks product programme guideline. These policies are kept
under continuous review. Once a loan is renegotiated, it is no longer considered past due but is treated
as a new loan. The table below presents the loans restructured during the year 2012 and 2011.
Restructured Loans - Retail banking
2012 2011
Product
No of
Accounts
Loan
Amount
No of
Accounts
Loan
Amount
AED000 AED000
Retail Loans 776 556,478 1,034 486,760
Small Commercial Loans 417 317,717 363 244,037
Mortgage Loans 28 60,445 137 365,669
Total 1,221 934,640 1,534 1,096,466
During the year AED 934.6 million (2011: AED 1,096.5 million) of loans to customers, mostly to UAE
Nationals, were restructured. The aggregate amount of restructured loans at 31 December 2012 is
AED 1,962 million (2011: AED 1,490 million). The majority of these restructured loans have performed
satisfactorily after restructuring and are neither past due nor impaired. The Bank as a policy does not
restructure loans more than once, unless on an exceptional basis.
3.2.3 Investment securities
Investment securities comprise debt securities issued by the Government, organisations which are
quasi governmental and local and foreign reputable organisations.
F-20
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.3 Investment securities (continued)
The table below presents an analysis of debt securities by rating agency designation at 31 December
2012 and 31 December 2011, based on externals ratings or their equivalent. A detailed list of
investment securities are provided under note 8(d).
31 December
2012
31 December
2011
AED000 AED000
A+ to A- 778,470 446,223
Ba1 to Baa2 412,008 375,595
Unrated 396,400 341,995
Total 1,586,878 1,163,813
3.2.4 Repossessed collateral
During 2012 and 2011, the bank has, except for retail auto loans, not taken possession of any
collateral held as security other than bank deposits which may have been utilised in settlement of credit
facilities. In the case of retail auto loans where the underlying asset is repossessed as a part of
recovery process, these are disposed off in an auction by authorised third parties and the bank does
not carry any such assets in its books.
3.2.5 Concentration of risks of financial assets with credit risk exposure
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or other
conditions. Concentrations indicate the relative sensitivity of the banks performance to developments
affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the banks policies and procedures include specific
guidelines to limit concentrations of exposures to counterparties, geographies and industries. Identified
concentration of credit risk is controlled and managed accordingly.
F-21
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.5 Concentration of risks of financial assets with credit risk exposure (continued)
Geographical risk concentration
The following table breaks down the banks credit exposures at their carrying amounts, categorised by
geographical region as of 31 December 2012 and 31 December 2011.
For this table, the bank has allocated exposures to regions based on the country of domicile of its
counterparties:
On balance sheet items
31 December 2012
UAE OECD Others Total
AED000 AED000 AED000 AED000
Due from banks 782,095 405,975 7,761 1,195,831
Loans and advances
- Retail loans 19,652,388 41,112 97,001 19,790,501
- Corporate loans 491,549 - 1,377 492,926
Investment securities
- Held-to-maturity 1,429,407 18,538 96,245 1,544,190
- Available-for-sale 42,688 - - 42,688
Other assets 187,372 - - 187,372
Total 22,585,499 465,625 202,384 23,253,508
31 December 2011
AED000 AED000 AED000 AED000
Due from banks 1,632,715 249,839 89,697 1,972,251
Loans and advances:
- Retail loans 17,953,985 19,588 66,838 18,040,411
- Corporate loans 328,059 328,059
Investment securities
- Held-to-maturity 975,367 - 37,020 1,012,387
- Available-for-sale 151,426 - - 151,426
Other assets 148,535 - - 148,535
Total 21,190,087 269,427 193,555 21,653,069
Off balance sheet items
UAE OECD Others Total
AED000 AED000 AED000 AED000
31 December 2012
Credit commitments 5,979,668 268 436 5,980,372
Guarantees, acceptances and other exposures 619,359 6,355 9,550 635,264
6,599,027 6,623 9,986 6,615,636
31 December 2011
Credit commitments 5,455,865 431 435 5,456,731
Guarantees, acceptances and other exposures 386,079 6,094 9,550 401,723
5,841,944 6,525 9,985 5,858,454
F-22
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.6 Concentration of credit risk by industry
The following table breaks down the banks credit exposures on loans and advances, debt securities
and off balance sheet items categorised by industry as of 31 December 2012 and 31 December 2011.
On balance sheet items
Loans and
advances
Debt
securities
Due from
banks
Total
funded
Off
balance
sheet
Items Total
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2012
Agriculture, fishing &
related activities 18,300 - - 18,300 629 18,929
Crude oil, gas, mining &
quarrying 390 - - 390 112,720 113,110
Manufacturing 205,298 - - 205,298 173,003 378,301
Electricity & water 15,131 - - 15,131 735 15,866
Construction 760,245 - - 760,245 104,464 864,709
Trading 2,714,892 - - 2,714,892 500,882 3,215,774
Transport, storage &
communication 778,468 73,460 - 851,928 43,079 895,007
Financial Institutions 27,279 888,510 1,195,831 2,111,620 166,722 2,278,342
Services 596,393 - - 596,393 195,234 791,627
Government - 624,908 - 624,908 118,685 743,593
Retail and consumer
banking 15,360,330 - - 15,360,330 5,197,846 20,558,176
Others 226,131 - - 226,131 1,637 227,768
Total exposures 20,702,857 1,586,878 1,195,831 23,485,566 6,615,636 30,101,202
Less: Interest in
suspense (95,320) - - (95,320) - (95,320)
20,607,537 1,586,878 1,195,831 23,390,246 6,615,636 30,005,882
F-23
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.6 Concentration of credit risk by industry (continued)
On balance sheet Items
Loans and
advances
Debt
Securities
Due from
banks
Total
funded
Off
balance
sheet
Items Total
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2011
Agriculture, fishing &
related activities 26,179 - - 26,179 208 26,387
Crude oil, gas, mining &
quarrying 87,010 87,010
Manufacturing 179,496 - - 179,496 162,771 342,267
Electricity & water 8,088 - - 8,088 91 8,179
Construction 516,560 - - 516,560 73,431 589,991
Trading 1,828,829 - - 1,828,829 425,948 2,254,777
Transport, storage &
communication 909,723 73,460 983,183 31,953 1,015,136
Financial Institution 15,213 464,321 1,972,251 2,451,785 48,421 2,500,206
Services 340,627 - - 340,627 145,946 486,573
Government 510,190 - 510,190 86,616 596,806
Retail and consumer
banking 14,802,114 - - 14,802,114 4,787,448 19,589,562
Others 159,151 115,842 274,993 8,611 283,604
Total exposures 18,785,980 1,163,813 1,972,251 21,922,044 5,858,454 27,780,498
Less: Interest in
suspense (79,532) - - (79,532) - (79,532)
18,706,448 1,163,813 1,972,251 21,842,512 5,858,454 27,700,966
F-24
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.7 Individually impaired loans by industry
The breakdown of the gross amount of individually impaired loans and advances by industry are as
follows:
Less than 90
days
Overdue
above 90
Days Total
Specific
Provision
AED000 AED000 AED000 AED000
31 December 2012
Agriculture, fishing & related activities
Crude oil, gas, mining & quarrying
Manufacturing 10 2,439 2,449 2,223
Electricity & wafer Construction 3 72,412 72,415 37,494
Trading 177 32,142 32,319 23,462
Transport, storage & communication 1,720 7,747 9,467 8,826
Financial institution
Services 10 5,126 5,136 4,715
Government
Retail and consumer banking 12,159 477,884 490,043 195,222
Total impaired loans 14,079 597,750 611,829 271,942
Less: Interest in suspense (95,320) -
516,509 271,942
less than 90
days
Overdue
above 90
Days Total
Specific
Provision
AED000 AED000 AED000 AED000
31 December 2011
Agriculture, fishing & related activities - - - -
Crude oil, gas, mining & quarrying - - - -
Manufacturing 307 521 828 768
Electricity & water - - - -
Construction 616 64,411 65,027 34,933
Trading 2,978 15,916 18,894 17,332
Transport, storage & communication 313 6,331 6,644 5,999
Financial institution - - - -
Services 505 2,815 3,320 3,094
Government - - - -
Retail and consumer banking 8,166 450,769 458,935 192,203
Total impaired loans 12,885 540,763 553,648 254,329
Less: Interest in suspense (79,532) -
474,116 254,329
3.3 Market risk
The bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market prices. Market risks arise from open
positions in interest rate, currency and equity instruments, all of which are exposed to general and
F-25
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
specific market movements and changes in the level of volatility of market rates or prices such as
interest rates, credit spreads, foreign exchange rates and equity prices.
The Asset and Liability Committee (ALCO) is chaired by the Chief Executive Officer and comprises of
the Heads of Finance, Treasury, Credit, Corporate Banking and Personal Banking. It meets on a
regular basis to monitor and manage market risk.
ALCO is responsible for formalising the banks key financial indicators and ratios, set the thresholds to
manage and monitor the market risk and also analyse the sensitivity of the banks interest rate and
maturity mis-matches. ALCO also guides the banks investment decisions and provides guidance in
terms of interest rate and currency movements.
Further the bank does not enter in derivative trades for speculative or hedging purposes. The only
exposure to derivatives is in respect of forward exchange contracts which are entered into on behalf of
the banks customers (Note 20).
3.3.1 Price risk
The bank is exposed to price risk as a result of its holdings in debt securities classified as available-for-
sale investment securities. The fair values of investments quoted in active markets are based on
current bid prices and for unlisted securities the bank establishes fair value by using valuation
techniques. Senior management meets regularly to discuss the return on investment and concentration
across the banks investment portfolio.
The sensitivity analysis for price risk illustrates how changes in the fair value of securities held by the
bank will fluctuate because of changes to market prices or changes in key variables used in valuation
techniques, whether those changes are caused by factors specific to the individual issuer, or factors
affecting all similar securities traded in the market. At 31 December 2012, if market prices had
increased/decreased by 5%, with all other variables held constant, the fair value reserve in equity
would have increased/decreased by AED 2.1 million (2011: AED 7.6 million).
3.3.2 Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a
financial instrument will fluctuate because of changes in market interest rates. The bank takes on
exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair
value and cash flow risks. Interest margins may increase as a result of such changes but may reduce
losses in the event that unexpected movements arise. The bank monitors interest rate risk through the
use of a detailed gap report and stress tests to analyse the impact of anticipated movements in interest
rates.
The bank is exposed to various risks associated with the effects of fluctuations in the prevailing levels
of market interest rates on its financial position and cash flows. The table below sets out the banks
assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity
dates.
F-26
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F-27
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8
,
7
3
6
,
4
3
4
)
(
1
,
9
7
6
,
7
5
8
)
1
6
,
1
5
7
,
8
6
2
-
(
5
,
4
4
4
,
6
7
0
)
F-28
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
3.3.2 Interest rate risk (continued)
Interest rate risk is assessed by measuring the impact of reasonable possible change in interest rate
movements. The bank assumes a fluctuation in interest rates of 25 basis points (bps) and estimates
the following impact on the net profit for the year and net assets at that date:
2012 2011
AED000 AED000
Fluctuation in interest rates by 25 bps 29,418 26,783
The interest rate sensitivities set out above are worst case scenarios and employ simplified
calculations. They are based on the gap between AED 5,164 million (2011: AED 5,115 million) of
interest bearing assets with maturities within one year and AED 16,931 million (2011: AED 15,828
million) of interest bearing liabilities with maturities within one year. The sensitivity does not incorporate
actions that could be taken by management to mitigate the effect of interest rate movements.
3.3.3 Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates and arises from financial instruments denominated in a foreign currency. Positions are
closely monitored and strategies are used to ensure positions are maintained within established limits.
The banks assets are typically funded in the same currency as that of the business transacted in order
to eliminate foreign exchange exposure. However, the bank does maintain a US dollar open position
within limits approved by the banks ALCO.
F-29
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
3.3.3 Currency risk (continued)
At 31 December 2012 and 31 December 2011, bank had the following net exposures denominated in
foreign currencies:
On balance sheet items
At 31 December 2012 AED USD Others Total
AED000 AED000 AED000 AED000
Assets
Cash and balances with the UAE Central Bank 2,661,589 242,465 - 2,904,054
Due from other banks 405,517 434,112 356,202 1,195,831
Loans and advances 19,812,575 458,826 12,026 20,283,427
Investment securities 593,096 993,782 - 1,586,878
Other assets 171,827 15,207 338 187,372
Total assets 23,644,604 2,144,392 368,566 26,157,562
Liabilities
Due to other banks 233,766 - 75 233,841
Due to customers 18,623,274 1,675,905 420,546 20,719,725
Subordinated debt - - - -
Other liabilities 536,595 2,120 1,199 539,914
Total liabilities 19,393,635 1,678,025 421,820 21,493,480
Net balance sheet position 4,250,969 466,367 (53,254) 4,664,082
At 31 December 2011
Total assets 21,608,137 1,421,663 467,462 23,497,262
Total liabilities 17,896,412 1,467,900 330,508 19,694,820
Net balance sheet position 3,711,725 (46,237) 136,954 3,802,442
The bank has no significant exposure to foreign currency risk as its functional currency is pegged to
the USD, the currency in which the bank has the largest net open position at 31 December 2012 and
31 December 2011. All currency positions are within limits laid down by ALCO.
Off-balance sheet items
At 31 December 2012 AED USD Others Total
AED000 AED000 AED000 AED000
Credit commitments 5,956,983 23,389 - 5,980,372
Guarantees, acceptances and other exposures 396,016 122,940 116,308 635,264
Total 6,352,999 146,329 116,308 6,615,636
At 31 December 2011
Credit commitments 5,419,989 36,349 393 5,456,731
Guarantees, acceptances and other exposures 270,138 113,494 18,091 401,723
5,690,127 149,843 18,484 5,858,454
F-30
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.4 Liquidity risk
Liquidity risk is the risk that the bank is unable to meet its obligations when they fall due as a result of
customer deposits being withdrawn, cash requirements from contractual commitments, or other cash
outflows, such as debt maturities. Such outflows would deplete available cash resources for customer
lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in
reductions in the balance sheet and sales of assets, or potentially an inability to fulfil lending
commitments. The risk that the bank will be unable to do so is inherent in all banking operations and
can be affected by a range of institution-specific and market-wide events including, but not limited to,
credit events, systemic shocks and natural disasters.
3.4.1 Liquidity risk management process
The bank manages its liquidity in accordance with Central Bank of the U.A.E. requirements and the
banks internal guidelines mandated by ALCO. The Central Bank of the U.A.E. has prescribed reserve
requirements on deposits ranging between 1% and 14% on demand and time deposits. The Central
Bank of the U.A.E. also imposes mandatory 1:1 advances to deposit ratio whereby loans and
advances (combined with inter-bank placements having a remaining term of greater than three
months) should not exceed stable funds as defined by the Central Bank of the U.A.E. ALCO monitors
advances to deposits ratios on a regular basis. The bank relies on deposits from customers and banks
as its primary source of funding. Deposits from customers and banks generally have shorter maturities
and a large portion of them are repayable on demand as is endemic to these markets. The short term
nature of these deposits increases the banks liquidity risk and the bank manages this risk through
maintaining competitive pricing and constant monitoring of market trends. The bank also maintains a
portfolio of short term highly liquid assets largely made up of balances with the UAE Central Bank,
inter-bank facilities and investment securities to ensure that sufficient liquidity is maintained. At
31 December 2012, 20% (31 December 2011 19%) of the banks total assets was in liquid assets.
3.4.2 Non-derivative cash flows
The fable below presents the cash flows payable by the bank under non-derivative financial liabilities
by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are
the contractual undiscounted cash flows.
Up to 3
months
3 12
months
1 5
years
Over 5
years Total
AED000 AED000 AED000 AED000 AED000
At 31 December 2012
Due to other banks 233,842 - - - 233,842
Due to customers 17,584,434 3,152,310 23 - 20,736,767
Subordinated debt - - - - -
Other liabilities 539,914 - - - 539,914
Total 18,358,190 3,152,310 23 - 21,510,523
At 31 December 2011
Due to other banks 334,475 - - - 334,475
Due to customers 15,608,749 2,739,199 - - 18,347,948
Subordinated debt 7,829 23,486 828,466 - 859,781
Other liabilities 443,495 - - - 443,495
Total 16,394,548 2,762,685 828,466 - 19,985,699
F-31
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.4 Liquidity risk (continued)
3.4.3 Derivative cash flows
The banks derivatives that will be settled on a gross basis comprise foreign exchange contracts.
The table below analyses the banks derivative financial instruments that will be settled on a gross basis
into relevant maturity groupings based on the remaining period at the balance sheet to the contractual
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Up to 1
month
1 3
months
3 12
months
1 5
years
Over 5
years Total
AED000 AED000 AED000 AED000 AED000 AED000
At 31 December 2012
Foreign exchange contracts
Outflow 51,017 - - - - 51,017
Inflow 50,371 - - - - 50,371
At 31 December 2011
Foreign exchange contracts:
Outflow 208,220 725 - - - 208,945
Inflow 207,431 742 - - - 208,173
3.4.4 Off-balance sheet items
At 31 December 2012
No later
than 1 year 1-5 years
Over 5
years Total
AED000 AED000 AED000 AED000
Credit commitments 5,980,372 - - 5,980,372
Guarantees, acceptances and other financial
facilities 634,219 1,045 - 635,264
Total 6,614,591 1,045 - 6,615,636
At 31 December 2011
Credit commitments 5,456,731 - - 5,456,731
Guarantees, acceptances and other financial
facilities 328,128 73,595 - 401,723
Total 5,784,859 73,595 - 5,858,454
F-32
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.5 Fair values of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged or a liability settled between
knowledgeable, willing parties in an arms length transaction. Consequently, differences can arise
between the carrying values and fair value estimates of financial assets and liabilities. At 31 December
2012, the carrying value of the banks financial assets and liabilities approximate their fair values,
except for the below mentioned financial asset and liability:
Fair value Carrying value
2012 2011 2012 2011
AED000 AED000 AED000 AED000
Financial assets
Investment securities 1,659,443 1,178,168 1,586,878 1,163,813
Financial liabilities
Subordinated debt - 764,296 - 684,467
(i) Investment securities
Investment securities comprise interest-bearing debt instruments that are held-to-maturity or classified
as available-for-sale financial assets and measured at fair value. The fair value of the debt instruments
is based on quoted market prices.
(ii) Subordinated debt
Subordinated debt represents an interest bearing loan from Ministry of Finance (Note 13) carried at
amortized cost in the financial statements. The fair value of financial liabilities for disclosure purposes
is estimated by discounting the future contractual cash flows at the current market interest rate
available for similar financial instruments. During the year the subordinated debt of AED 684.47 million
that was outstanding as at 31 December 2011 was settled in full by the Bank.
3.6 Fair value hierarchy
IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from
independent sources; unobservable inputs reflect the banks market assumptions. These two types of
inputs have created the following fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes debt instruments on stock exchanges.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The
sources of input parameters like LIBOR yield curve or counterparty credit risk are Bloomberg and
Reuters.
Level 3 inputs for the asset or liability that are not based on observable market data
(unobservable inputs). This level includes equity investments and debt instruments with
significant unobservable components. This hierarchy requires the use of observable market data
when available. The bank considers relevant and observable market prices in its valuations
where possible.
F-33
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.6 Fair value hierarchy (continued)
The assets measured at fair value as per the hierarchy are disclosed in the table below:
31 December 2012 Level 1 Level 2 Level 3
AED 000 AED 000 AED 000
Available for sale financial assets
- Investment securities debt 42,688 - -
Foreign currency forwards - 35 -
42,688 35 -
31 December 2011
Available for sale financial assets
- Investment securities - debt 151,426 - -
Foreign currency forwards - 74 -
151,426 74 -
3.7 Capital management
For assessment of current capital requirements, set at a minimum of 12% by the Central Bank of the
UAE, the bank calculates its risk asset ratio in accordance with guidelines established by the UAE
Central Bank prescribing the ratio of total capital to total risk-weighted assets. This is also in line with
the assessment of capital adequacy ratio in accordance with the Basel I Accord and is analysed as
follows:
2012 2011
AED000 AED000
Tier 1 capital
Ordinary share capital 1,523,859 1,385,327
Share premium 110,350 110,350
Statutory and other reserves 2,294,911 1,677,237
Retained earnings 363,296 320,418
Total 4,292,416 3,493,332
Tier 2 capital
Subordinated debt - 684,467
Total capital base 4,292,416 4,177,799
Risk weighted assets
On balance sheet 21,933,967 20,044,588
Off balance sheet 214,431 276,944
Total risk weighted assets 22,148,398 20,321,532
Risk asset ratio on total capital base (%) 19.38% 20.56%
Risk asset ratio on tier 1 capital base (%) 19.38% 17.19%
Minimum risk asset ratio required by the UAE Central Bank 12.00% 12.00%
F-34
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.7 Capital management (continued)
The above ratios are computed without considering the current year profits and proposed cash
dividends. On approval of the Financial statements by Central Bank of UAE and thereafter by the
shareholders, the capital position and risk assets ratio will be as follows:
Total Tier 1 capital 5,085,671 4,281,274
Total Tier 2 capital - 684,467
Total capital base 5,085,671 4,965,741
Risk asset ratio on total capital base (%) 22.96% 24.44%
Risk asset ratio on tier 1 capital base (%) 22.96% 21.07%
Subordinated debt represents the funds from the Ministry of Finance of the U.A.E. (Note 13).
3.7.1 Capital structure and capital adequacy as per Basel II requirement as at 31 December
2012
The bank is required to report capital resources and risk-weighted assets under the Basel II Pillar 1
framework, as shown in the following table. The bank has adopted standardised approach for
calculation of credit risk and market risk capital charge. On operational risk, alternative standardized
approach is followed for capital charge calculation under pillar1.
2012 2011
AED000 AED000
Tier 1 capital
Ordinary share capital 1,523,859 1,385,327
Share premium 110,350 110,350
Statutory and other reserves 2,294,911 1,677,237
Retained earnings 363,296 320,418
Total 4,292,416 3,493,332
Tier 2 capital
Subordinated debt - 684,467
Total regulatory capital 4,292,416 4,177,799
Risk weighted assets
Credit risk 16,951,305 15,230,739
Market risk 3,633 7,761
Operation risk 714,989 608,086
Total risk weighted assets 17,669,927 15,846,586
Capital adequacy ratio on regulatory capital 24.29% 26.36%
Capital adequacy ratio on Tier 1 capital 24.29% 22.04%
F-35
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.7 Capital management (continued)
3.7.1 Capital structure and capital adequacy as per Basel II requirement as at 31 December
2012 (continued)
The above ratios are computed without considering the current year profits and proposed cash
dividends. On approval of the Financial statements by Central Bank of UAE and thereafter by the
shareholders, the capital position and risk assets ratio will be as follows:
Total Tier 1 capital 5,085,671 4,281,274
Total Tier 2 capital - 684,467
Total capital base 5,085,671 4,965,741
Risk asset ratio on total capital base (%) 28.78% 31.34%
Risk asset ratio on tier 1 capital base (%) 28.78% 27.02%
Subordinated debt represents the debt from the Ministry of Finance of the U.A.E. (Note 13). Minimum
risk asset ratio required by the UAE Central Bank is 12%.
3.7.2 Analysis of banks exposure based on Basel II standardised approach
On balance
sheet
gross
outstanding
Off balance
sheet
net
exposure
after credit
conversion
Credit Risk Mitigation (CRM)
Exposure
before CRM CRM After CRM
Risk
weighted
Assets
AED 000 AED 000 AED 000 AED 000 AED 000 AED 000
31 December 2012
Claims on sovereigns 2,755,627 - 2,755,627 - 2,755,627 -
Claims on PSEs 264,639 - 264,639 - 264,639 -
Claims on multi lateral
development banks - - - - - -
Claims on banks 1,966,876 1,966,876 1,966,876 651,759
Claims on securities firms - - - - - -
Claims on corporates 604,689 466,000 1,070,689 161,029 909,660 909,660
Claims included in the
regulatory retail portfolio 16,147,797 29,988 16,165,746 89,693 16,076,053 12,163,873
Claims secured by
residential property 3,377,306 - 3,377,069 - 3,377,069 1,518,297
Claims secured by
commercial real estate 27,750 27,750 27,750 27,750
Past due loans 618,775 263,788 - 263,788 376,527
Higher-risk categories - - - - - -
Other assets 1,906,108 - 1,906,108 - 1,906,108 1,303,439
Total claims 27,669,567 495,988 27,798,292 250,722 27,547,570 16,951,305
Of which :
Rated exposure 2,231,515
Unrated exposure 25,566,777
Total exposure 27,798,292
F-36
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.7 Capital management (continued)
3.7.2 Analysis of banks exposure based on Basel II standardised approach (continued)
On balance
sheet
gross
outstanding
Off
balance
sheet
net
exposure
after credit
conversion
Credit Risk Mitigation (CRM)
Exposure
before CRM CRM After CRM
Risk
weighted
Assets
AED 000 AED 000 AED 000 AED 000 AED 000 AED 000
31 December 2011
Claims on sovereigns 1,485,227 - 1,485,227 - 1,485,227 -
Claims on PSEs 510,190 - 510,190 - 510,190 -
Claims on multi lateral
development banks - - - - - -
Claims on banks 2,359,332 2,361 2,361,693 - 2,361,693 617,055
Claims on securities
firms - - - - -
Claims on corporates 511,433 308,599 820,032 101,756 718,276 718,276
Claims included in the
regulatory retail
portfolio 14,292,713 27,468 14,312,590 135,661 14,176,929 10,688,633
Claims secured by
residential property 3,609,221 - 3,606,037 - 3,606,037 1,697,225
Claims secured by
commercial real estate - - - - - -
Past due loans 561,916 - 238,831 - 238,831 343,710
Higher-risk categories - - - - - -
Other assets 1,586,598 - 1,586,598 - 1,586,598 1,165,840
Total claims 24,916,630 338,428 24,921,198 237,417 24,683,781 15,230,739
Of which :
Rated exposure 2,871,883
Unrated exposure 22,049,315
Total exposure 24,921,198
3.7.3 Capital requirement for market risk under standardised approach as at 31 December
Market Risk
Risk Weighted Assets Capital Charge
2012 2011 2012 2011
AED 000 AED 000 AED 000 AED 000
Foreign exchange risk 3,633 7,761 436 931
Capital charge for year ended 31 December 2012 has been calculated at 12% (2011: 12%)
F-37
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
3 Financial risk management (continued)
3.7 Capital management (continued)
3.7.4 Gross exposures and credit risk mitigation
Exposures Risk Weighted Assets
2012 2011 2012 2011
AED 000 AED 000 AED 000 AED 000
Gross exposure prior to Credit Risk Mitigation 27,798,292 24,921,198 17,192,835 15,435,143
Less: Exposures covered by eligible financial
collateral (250,722) (237,417) (241,530) (204,404)
Net Exposures after Credit Risk Mitigation 27,547,570 24,683,781 16,951,305 15,230,739
4 Critical accounting estimates, and judgements in applying accounting
policies
The banks financial statements and its financial results are influenced by accounting policies,
assumptions, estimates and management judgement, which necessarily have to be made in the course
of preparation of the financial statements. The bank makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next financial year. All estimates and assumptions
required in conformity with IFRS are best estimates undertaken in accordance with applicable
standards. Estimates and judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. Accounting policies and management judgement for certain items are especially critical
for the banks results and financial situation due to their materiality.
(a) Impairment losses on loans and advances
The bank reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining
whether an impairment loss should be recorded in the income statement, the bank makes judgements
as to whether there is any observable data indicating that there is a measurable decrease in the
estimated future cash flows from a portfolio of loans before the decrease can be identified with an
individual loan in that portfolio. This evidence may include observable data indicating that there has
been an adverse change in the payment status of borrowers in a group, or national or local economic
conditions that correlate with defaults on assets in the group. Management takes into account the
historical loss experience in estimating future cash flows in assessing the loan portfolio for impairment.
The methodology and assumptions used for estimating both the amount and timing of future cash flows
are reviewed regularly to reduce any differences between loss estimates and actual loss experience. A
+/-5% change in the provision would increase/decrease the profit by AED 16 million (2011: AED 17
million).
(b) Available for sale debt instruments
The bank reviews its available for sale debt instruments to assess impairment at least on a quarterly
basis. In determining whether an impairment loss should be recorded in the income statement, the
bank makes judgements as to whether there is any observable data indicating that there is a
measurable decrease in the estimated future cash flows from a available for sale debt instrument
before the decrease can be identified with that instrument. This evidence may include observable data
indicating that there has been an adverse change in the payment status of counterparties.
Management uses estimates based on estimated future cash flows from these debt instruments. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are
reviewed regularly to reduce any differences between loss estimates and actual loss experience. For
F-38
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
4 Critical accounting estimates, and judgements in applying accounting
policies (continued)
(b) Available for sale debt instruments (continued)
equity instruments designated as available for sale the extent of market value decline or the period
over which the decline is seen are seen as impairment indicators.
(c) Held-to-maturlty investments
The bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant
judgement. In making this judgement, the bank evaluates its intention and ability to hold such
investments to maturity. If the bank fails to hold these investments to maturity other than in specific
circumstances for example, selling an insignificant amount close to maturity it will be required to
reclassify the entire class as available-for-sa!e. The investments would therefore be measured at fair
value not amortised cost.
5 Cash and balances with the UAE Central Bank
2012 2011
AED000 AED000
Cash in hand (Note 28) 508,696 358,966
Statutory deposit with the UAE Central Bank 1,645,358 1,385,227
Certificates of deposit with the UAE Central Bank 750,000 100,000
2,904,054 1,844,193
The statutory deposit with the UAE Central Bank is not available to finance the day to day operations of
the bank. Cash in hand, balances and statutory deposit with the UAE Central Bank are non-interest
bearing. Certificates of deposit carry an interest rate 0.50 % (2011: 0.55%) per annum.
6 Due from other banks
2012 2011
AED000 AED000
Placements with other banks 664,580 1,640,467
Demand deposits 413,786 254,544
Clearing account balances 117,465 77,240
1,195,831 1,972,251
Placements with other banks carry an interest rate in the range of 0.12% to 0.53% (2011: 0.12% to
1.28%) per annum.
The above represents deposits and balances due from:
Banks in UAE 782,095 1,632,715
Banks outside UAE 413,736 339,536
1,195,831 1,972,251
F-39
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
7 Loans and advances
2012 2011
AED000 AED000
7(a) Loans and advances
Retail loans 20,082,704 18,345,762
Corporate loans 524,833 360,686
Total loans and advances 7(b) 20,607,537 18,706,448
Provision for impairment 7(c) (324,110) (337,978)
Net loans and advances 20,283,427 18,368,470
7(b) Analysis of loans and advances
Commercial loans and overdrafts 9,404,824 8,634,535
Retail Loans 7,051,179 6,640,467
Credit Cards 2,713,784 2,533,155
Auto loans 1,241,890 816,065
Others 195,860 82,226
Total loans and advances 20,607,537 18,706,448
7(c) Provision for impairment
Retail loans
Corporate
loans Total
31 December 2012 AED000 AED000 AED000
Balance brought forward 305,351 32,627 337,978
Impairment charge/ (release) (Note 7(d)) 250,751 (302) 250,449
Written off during the year (263,899) (418) (264,317)
Balance carried forward 292,203 31,907 324,110
31 December 2011
Balance brought forward 269,034 38,860 307,894
Impairment charge/ (release) (Note 7(d)) 344,753 (4,668) 340,085
Written off during the year (308,436) (1,565) (310,001)
Balance carried forward 305,351 32,627 337,978
F-40
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
7 Loans and advances (continued)
7(d) Impairment charge/ (release) on loans and advances net of write (back)/off
Retail
loans
Corporate
loans Total
31 December 2012 AED000 AED000 AED000
Impairment charge / (release) 250,751 (302) 250,449
Net recovery during the year (41,334) - (41,334)
209,417 (302) 209,115
31 December 2011
Impairment charge 344,753 (4,668) 340,085
Net recovery during the year (39,073) 6 (39,067)
305,680 (4,662) 301,018
Net recovery mainly represents amounts recovered from fully written off loans.
7(e) Impaired loans and provision coverage
31 December 2012 31 December 2011
AED000 AED000
Aggregate impaired loans 516,509 474,116
Provision held 324,110 337,978
Coverage ratio 62.75% 71.29%
The ratio of provisions held to aggregate impaired loans (coverage ratio) is an indicator of the Banks
achievements in managing lower default rates and improving recovery rates. It does not take into
account collateral available, including cash, property and other realizable assets. For computation of
the above ratio, the bank has considered total impairment provision including the portfolio provision for
the risk inherent in the banks portfolio (Note 3.2.2).
8 Investment securities
8(a) Total investment securities
2012 2011
AED000 AED000
Available-for-sale securities
Quoted debt securities 42,688 151,426
Held-to-maturity securities
Quoted debt securities 1,544,190 1,012,387
Total 1,586,878 1,163,813
F-41
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
8 Investment securities (continued)
8(b) Movement in investment securities
Available-for-
sale
securities
Held-to-
maturity
securities Total
AED000 AED000 AED000
At 1 January 2011 124,916 643,067 767,983
Purchases 37,013 423,770 460,783
Maturity (18,365) (55,095) (73,460)
Net changes in fair value (Note 18) 7,862 - 7,862
Amortisation of discount - 645 645
At 31 December 2011 151,426 1,012,387 1,163,813
Purchases - 641,074 641,074
Maturity (118,365) (110,605) (228,970)
Net changes in fair value (Note 18) 9,627 - 9,627
Amortisation of discount - 1,334 1,334
At 31 December 2012 42,688 1,544,190 1,586,878
8(c) Income from investment securities
2012 2011
AED000 AED000
Interest income on debt securities 71,543 48,641
Release of fair value loss to income statement on maturity of available-
for-sale investment securities (Note 18) (1,515) -
Other investment income 1,513 674
71,541 49,315
F-42
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
8 Investment securities (continued)
8 (d) Investment position as at 31 December 2011
As at 31 December 2012
Maturity
date
Purchase
cost
Carrying
value
AED000 AED000
Counter party
Held to maturity investments
Dubai Govt Intl Bonds 23-Apr-13 190,657 198,764
HSBC Bonds 30-Apr-13 42,334 42,911
DEWA Sukuk 16-Jun-13 50,000 50,000
ADCB Bonds 21-Nov-13 258,798 251,422
Dubai DOF Sukuk 3-Nov-14 50,025 50,000
DEWA Bonds 22-Apr-15 77,881 75,796
ADIB Sukuk 4-Nov-15 37,648 37,342
QNB Finance Ltd Bonds 16-Nov-15 37,051 36,944
Emirates Airlines Bonds 8-Jun-16 73,297 73,460
Canara Bank London Bonds 9-Sep-16 18,582 18,538
DEWA Bonds 21-Oct-16 134,032 134,687
FGB Sukuk 18-Jan-17 110,167 110,172
Tamweel Funding Ltd Bonds 18-Jan-17 55,095 55,095
EIB Sukuk 18-Jan-17 91,872 91,862
QNB Finance Ltd Bonds 22-Feb-17 21,957 21,971
NBAD Bonds 27-Mar-17 36,639 36,653
Emirates NBD Bonds 28-Mar-17 73,308 73,332
Dubai DOF Sukuk 2-May-17 74,286 74,176
DIB Sukuk 30-May-17 73,772 73,736
State of Qatar Bonds 20-Jan-22 37,396 37,329
1,544,797 1,544,190
Fair value
reserve
AED000
Available-for-sale Investments
DEWA FRN 22-Apr-15 3,673 4,156 483
FGB Sukuk 2-Aug-16 37,013 38,532 1,519
40,686 42,688 2,002
Total 1,585,483 1,586,878 2,002
F-43
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
8 Investment securities (continued)
8 (d) Investment position as at 31 December 2011 (continued)
As at 31 December 2011
Maturity
date
Purchase
cost
Carrying
value
Counter party
AED000 AED000
Held to maturity investments
Dubai Govt Intl Bonds 23-Apr-13 190,657 195,055
DEWA Sukuk 16-Jun-13 50,000 50,000
Emirates Bank Bonds 30-Apr-12 36,877 36,765
HSBC Bonds 30-Apr-13 42,334 42,644
ADCB Bonds 21-Nov-13 258,798 255,240
Dubai DOF Sukuk 03-Nov-l 4 50,025 50,000
Dewa Bonds 22-Apr-15 77,881 76,797
Dewa Bonds 21-Oct-16 134,032 134,367
Wings FZCO Bonds 15-Jun-12 22,621 23,481
Emirates Airlines Bonds 08-Jun-16 73,297 73,460
ADIB Sukuk 04-Nov-15 37,648 37,558
QNB Finance Ltd Bonds 16-Nov-15 37,051 37,020
1,011,221 1,012,387
Fair value
reserve
AED000
Available-for-sale investments
Dubai Islamic Bank Sukuk 22-Mar-12 18,365 18,098 (267)
JAFZA Sukuk 27-Nov-12 101,515 92,362 (9,153)
Dewa Bonds 22-Apr-15 3,673 3,971 298
First Gulf Bank Sukuk 02-Aug-16 37,013 36,995 (18)
160,566 151,426 (9,140)
Total 1,171,787 1,163,813 (9,140)
F-44
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
9 Property and equipment
Land and
Buildings
Leasehold
Improvements
Other fixed
assets
Capital work
in progress Total
AED000 AED000 AED000 AED000 AED000
Cost
1 January 2011 469,811 62,796 255,923 201,443 989,973
Additions 6,570 717 24,098 230,631 262,016
Transfers 26,916 30,826 99,551 (157,293) -
Disposals/write off - - (10,960) (3,104) (14,064)
31 December 2011 503,297 94,339 368,612 271,677 1,237,925
Additions 9,363 463 14,126 160,209 184,161
Transfers 6,813 11,490 292,043 (310,346) -
Disposals/write off - (1,064) (1,791) - (2,855)
31 December 2012 519,473 105,228 672,990 121,540 1,419,231
Depreciation
1 January 2011 17,389 36,293 164,343 - 218,025
Charge for the year 14,676 10,815 52,565 78,056
Disposals/write off - - (10,323) - (10,323)
31 December 2011 32,065 47,108 206,585 - 285,758
Charge for the year 16,009 13,130 70,721 99,860
Disposals/write off - (813) (1,347) - (2,160)
31 December 2012 48,074 59,425 275,959 - 383,458
Net book amounts
31 December 2012 471,399 45,803 397,031 121,540 1,035,773
31 December 2011 471,232 47,231 162,027 271,677 952,167
Other assets include computer equipment, furniture and fixtures, office equipment and motor vehicles.
During the year ended 31 December 2012, the Bank has capitalized the costs pertaining to the core
banking system. The balance of capital work in progress mainly comprises of the costs pertaining to
the development of systems for Islamic banking and improvement and set up costs for branches.
2012 2011
AED000 AED000
10 Other assets
Interest receivable 164,794 144,957
Prepayments and deposits 61,324 46,996
Others 18,056 9,690
244,174 201,643
F-45
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
11 Due to other banks
Term deposits 100,000 236,000
Current account balance with UAE Central Bank (Note 28) 133,376 97,399
Demand deposits 465 1,072
233,841 334,471
12 Due to customers
Time deposits 9,249,064 9,333,198
Current accounts 7,817,296 6,326,947
Savings deposits 2,749,198 1,912,133
Call deposits 904,167 717,887
20,719,725 18,290,165
Time deposits include AED 280 million (2011: AED 213 million) held by the bank as cash collateral for
loans and advances granted to customers.
13 Subordinated debt
In 2009 the Bank received funds from the Ministry of Finance as per an agreement dated 31 December
2009 as part of a facility set up by the UAE Central Bank to provide liquidity support to banks operating
in the UAE and for stimulating and maintaining economic activity in the Country. During the year the
subordinated debt of AED 684.47 million that was outstanding as at 31 December 2011 was settled in
full by the Bank.
14 Other liabilities
2012 2011
AED000 AED000
Interest payable 94,931 102,359
Accrued expenses 175,797 145,345
Managers cheques issued 151,215 62,800
Others 117,971 132,991
539,914 443,495
15 Provision for employees end of service benefits
2012 2011
AED000 AED000
At 1 January 53,067 45,608
Charge for the year (Note 24) 15,797 11,776
Payment during the year (7,422) (4,317)
At 31 December 61,442 53,067
In accordance with the provisions of IAS 19, management has carried out an exercise to assess the
present value of its obligations as at 31 December 2012, using the projected unit credit method, in
respect of employees end of service benefits payable under the UAE Labour Law. The expected
liability at the date of leaving the service has been discounted to net present value using a discount
F-46
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
15 Provision for employees end of service benefits (continued)
rate of 3% (2011: 4.25%). Under this method an assessment has been made of an employees
expected service life with the bank and the expected basic salary at the date of leaving the service.
Management has assumed average increment/promotion costs of 5% (2011: 4.8%).
16 Share capital
The authorised, issued and fully paid share capital of the bank comprises 1,523.86 million shares of
AED 1 each (2011: 1,385.33 million shares of AED 1 each).
At the meeting of the shareholders held on 22 April 2012, the shareholders of the Bank approved a
stock dividend (issue of bonus shares) in respect of 2011 at 10% of the issued and paid up capital
amounting to AED 138.53 million (2010: AED 230.88 million) and cash dividend at 30% of issued and
paid up capital amounting to AED 415.6 million (2010: AED 230.88 million) and accordingly, the
authorised and issued share capital was increased by the amount of stock dividend.
17 Share premium
Share premium represents amounts received from shareholders in excess of the nominal value of the
shares allotted to them. In accordance with the Articles of Association of the bank, share premium is
not available for distribution.
18 Other reserves
Legal
reserve
Voluntary
reserve
General
banking
risk
reserve
Credit
risk reserve
Regulatory
credit risk
reserve
Fair value
reserve Total
AED000 AED000 AED000 AED000 AED000 AED000 AED000
At 1 January 2011 405,488 230,889 350,000 700,000 - (17,002) 1,669,375
Changes during the
year
120,354 46,178 150,000 50,000 - 7,862 374,394
At 31 December
2011 525,842 277,067 500,000 750,000 - (9,140) 2,043,769
Release of fair
value loss to
income statement
on disposal of
available-for-sale
investment
securities (Note
8(c)) 1,515 1.515
Changes during the
year 140,280 27,706 200,000 200,000 255,000 9,627 832.613
At 31 December
2012 666,122 304,773 700,000 950,000 255,000 2.002 2,877,897
In accordance with the UAE Federal Law No (8) of 1984 as amended, and the UAE Union Law No. 10
of 1980, as amended, 10% of the net profit for the year is transferred to a legal reserve, until such time
as the balance in the reserve equals 50% of the issued share capital. This reserve is not available for
distribution.
F-47
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
18 Other reserves (continued)
In accordance with the Articles of Association of the bank, 10% of the net profit for the year is
transferred to a voluntary reserve until such time as the balance in the resen/e equals 20% of the
issued share capital. This reserve is available for distribution.
The bank maintains a general banking risk reserve to address the risks inherent in the banks operating
environment. Contributions to this reserve are made at the discretion of the Directors.
The bank has also established a special reserve for credit risk. Contributions to this reserve are
voluntary and made at the discretion of the Directors.
The bank has created a non-distributable special resen/e titled Reserve - Regulatory Credit risk and
appropriated AED 255 million into this reserve account as instructed by the Central Bank of UAE.
19 Contingencies and commitments
2012 2011
AED000 AED000
Commitments to extend credit 5,980,372 5,456,731
Guarantees 492,854 346,037
Letters of credit 111,708 34,529
Acceptances 30,702 21,157
Capital commitments 37,324 34,267
6,652,960 5,892,721
Letters of credit are written undertakings by the bank on behalf of a customer authorising a third party
to draw drafts on the bank, up to a stipulated amount, under specific terms and conditions. These
letters of credit are collateralised by the underlying shipments of goods to which they relate and
therefore have significantly less risk.
Cash requirements under guarantees and standby letters of credit are considerably less than the
amount of the commitment because the bank does not generally expect the third party to draw funds
under the agreement.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form
of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the
bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss, though not easy to quantify, is considerably less than the total unused
commitments since most commitments to extend credit are contingent upon customers maintaining
specific credit standards. While there is some risk associated with the remainder of commitments, the
risk is viewed as modest, since if results firstly from the possibility of the unused portion of loan
authorisations being drawn by the customer, and second, from these drawings subsequently not being
repaid as due. The bank monitors the term to maturity of credit commitments because longer term
commitments generally have a greater degree of risk than shorter term commitments. The total
outstanding contractual amount of commitments to extend credit does not necessarily represent future
cash requirements, since many of these commitments will expire or terminate without being funded.
The commitments to extend credit amounting to AED 5,855 million are revocable at the option of the
bank.
20 Forward foreign exchange contracts
Forward foreign exchange contracts comprise commitments to purchase foreign and domestic
currencies on behalf of customers and in respect of the banks undelivered spot transactions.
F-48
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
20 Forward foreign exchange contracts (continued)
The bank had the following forward exchange transactions outstanding.
Contract amount Fair value
AED000 AED000
31 December 2012 51,017 35
31 December 2011 208,173 74
The positive fair value of the outstanding foreign exchange forward contracts are recorded in other
assets.
21 Interest income and expense
2012 2011
AED000 AED000
Interest income
Commercial loans and overdrafts 1,296,681 1,125,781
Retail loans 562,103 555,323
Credit cards 617,069 606,611
Auto loans 88,034 61,018
Other banks 4,099 5,324
Deposits with the UAE Central Bank 1,848 3,047
Others 14,016 8,446
2,583,850 2,365,550
Interest expense
Due to customers 330,477 353,124
Subordinated debt 19,993 27,759
Borrowings from other banks 92 156
350,562 381,039
22 Fee and commission income
2012 2011
AED000 AED000
Credit Cards 187,870 188,650
Commercial loans 70,612 143,758
Retail loans 13,074 29,754
Mortgage Loans 24,174 20,874
Auto Loans 18,123 13,251
Trade Finance 13,191 10,539
Investments 72,847 43,471
Others 88,283 72,457
488,174 522,754
F-49
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
23 Operating expenses
2012 2011
AED000 AED000
Staff costs (Note 24) 610,342 544,116
Occupancy costs 94,968 85,420
Marketing expenses 31,600 42,500
Depreciation (Note 9) 99,860 78,056
Services 46,104 46,641
Legal and consultancy fees 45,979 46,583
Computer expenses 55,193 39,762
Outsourced staff costs 247,108 198,921
Others 50,096 50,898
1,281,250 1,132,897
24 Staff costs
2012 2011
AED000 AED000
Salaries and allowances 567,309 494,566
Pension 9,633 9,344
End of service benefits (Note 15) 15,797 11,776
Staff training 1,128 2,840
Others 16,475 25,590
610,342 544,116
25 Earnings per share
The basic earnings per share is calculated by dividing the net profit attributable to shareholders by the
weighted average number of ordinary shares in issue during the period. In accordance with IAS 33
Earnings Per Share, the impact of bonus shares issued has been considered retrospectively while
computing the weighted average number of ordinary shares during all periods presented.
2012 2011
Net profit for the year in AED 1,402,798,602 1,203,540,353
Weighted average number of shares in issue 1,523,859,480 1,523,859,480
Basic earnings per share in AED 0.92 0.79
There were no potentially dilutive shares as at 31 December 2012 and 31 December 2011.
26 Dividends
At the meeting held on 27 January 2013, the Board of Directors proposed a stock dividend (issue of
bonus shares) of 10% amounting to AED 152.39 million and a cash dividend of 40% amounting to
AED 609.54 million of the issued and paid up capital in respect of the year ended 31 December 2012
(2011: 10% stock dividend amounting to AED 138.53 million and 30% cash dividend amounting to
AED 415.6 million).
F-50
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
26 Dividends (continued)
Dividends are not accounted for until they have been approved at the Annual General Meeting and,
accordingly, the proposed dividend will be accounted for as an appropriation of retained earnings of the
year ending 31 December 2012 after it has been approved by the shareholders.
27 Related party transactions and balances
Related parties comprise shareholders, key management, businesses controlled by shareholders and
directors as well as businesses over which they exercise significant influence. During the year, the
bank entered into significant transactions with related parties in the ordinary course of business. The
transactions and balances arising from these transactions are as follows:
2012 2011
AED000 AED000
Transactions during the year
Interest income 1,333 1,456
Interest expense 19,528 19,606
Commission income 777 637
Directors remuneration 5,212 8,147
Remuneration payable to key management personnel 40,374 33,416
Balances at 31 December:
Loans and advances:
- Shareholders and their related companies 107 -
- Directors and their related companies 231 2,235
- Key management personnel 20,018 38,778
20,356 41,013
Due to customers:
- Shareholders and their related companies 642,582 934,513
- Directors and their related companies 42,194 36,733
- Key management personnel 22,924 20,339
707,700 991,585
Irrevocable commitments, contingent liabilities and forward contracts
- Shareholders and their related companies 118,752 51,920
- Directors and their related companies 445 478
119,197 52,398
28 Cash and cash equivalents
2012 2011
AED000 AED000
Cash in hand (Note 5) 508,696 358,966
Current account balance with UAE Central Bank (note 11) (133,376) (97,399)
Due from other banks (Note 6) 1,195,831 1,972,251
1,571,151 2,233,818
Less : Due from other banks with original maturity of 3 months or more (206,952) -
1,364,199 2,233,818
F-51
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
29 Segments analysis
Following the management approach of IFRS 8, operating segments are reported in accordance with
the internal reporting provided to the Executive Committee (the chief operating decision-maker), which
is responsible for allocating resources to the reportable segments and assesses its performance. All
operating segments used by the Bank meet the definition of a reportable segment under IFRS 8.
The bank has three main business segments:
Retail banking incorporating private customer current accounts, savings accounts, deposits,
credit and debit cards, customer loans and mortgages;
Corporate banking incorporating transactions with corporate bodies including government and
public bodies, small and medium entities; and comprising of loans, advances, deposits and trade
finance transactions; and
Treasury incorporating activities of the dealing room, related money market, foreign exchange
transactions with other banks and financial institutions including the UAE Central Bank, none of
which constitute a separately reportable segment.
As the banks segment operations are all financial with a majority of revenues deriving from interest
and fees and commission income, the Executive Committee relies primarily on revenue and segmental
results to assess the performance of the segment.
Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-
segment revenue. Interest charged for these funds is based on the banks cost of funds policy. There
are no other material items of income or expense between the business segments.
The banks management reporting is based on a measure of operating profit comprising net interest
income, loan impairment charges, net fee and commission income, other income and non-interest
expenses.
Segment assets and liabilities comprise operating assets and liabilities, being the majority of the
balance sheet items.
F-52
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
29 Segments analysis (continued)
The segment information provided to the Executive Committee for the reportable segments for the year
ended 31 December 2012 is as follows:
Retail
banking
Corporate
banking
Treasury
and
others Unallocated Total
AED000 AED000 AED000 AED000 AED000
31 December 2012
External interest income 2,543,417 34,486 5,947 - 2,583,850
External interest expense (215,334) (91,381) (43,847) - (350,562)
Interest revenues from other
segments (102,136) 67,298 34,838 - -
Net Interest Income 2,225,947 10,403 (3,062) - 2,233,288
Non interest income 512,913 41,833 105,130 - 659,876
Operating income 2,738,860 52,236 102,068 - 2,893,164
Operating expense excluding
depreciation (860,082) (69,036) (5,414) (246,858) (1,181,390)
Depreciation (50,974) (1,994) (77) (46,815) (99,860)
Total Operating expense (911,056) (71,030) (5,491) (293,673) (1,281,250)
Impairment charge net of write off /
recovery (209,417) 302 - - (209,115)
Net profit / (loss) 1,618,387 (18,492) 96,577 (293,673) 1,402,799
Segment assets 20,571,820 493,955 5,078,492 - 26,144,267
Unallocated assets 1,105,870 1,105,870
Total assets 20,571,820 493,955 5,078,492 1,105,870 27,250,137
Segment liabilities 12,737,106 6,835,888 1,548,501 - 21,121,495
Unallocated liabilities 433,427 433,427
Total liabilities 12,737,106 6,835,888 1,548,501 433,427 21,554,922
F-53
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
29 Segments analysis (continued)
Retail
banking
Corporate
banking
Treasury
and
others Unallocated Total
AED000 AED000 AED000 AED000 AED000
31 December 2011
External interest income 2,327,391 29,788 8,371 - 2,365,550
External interest expense (234,027) (94,753) (52,259) - (381,039)
Interest revenues from other
segments (114,829) 73,103 41,726 - -
Net Interest income 1,978,535 8,138 (2,162) - 1,984511
Non interest income 551,843 21,558 79,543 - 652,944
Operating income 2,530,378 29,696 77,381 - 2,637,455
Operating expense excluding
depreciation (790,373) (53,437) (5,259) (205,772) (1,054,841)
Depreciation (41,548) (1,445) (65) (34,998) (78,056)
Total Operating expense (831,921) (54,882) (5,324) (240,770) (1,132,897)
Impairment charge net of write off /
recovery (305,680) 4,662 - - (301,018)
Net profit / (loss) 1,392,777 (20,524) 72,057 (240,770) 1,203,540
Segment assets 18,545,904 328,201 4,552,347 - 23,426,452
Unallocated assets 1,076,085 1,076,085
Total assets 18,545,904 328,201 4,552,347 1,076,085 24,502,537
Segment liabilities 11,588,574 5,784,399 2,187,229 - 19,560,202
Unallocated liabilities 245,463 245,463
Total liabilities 11,588,574 5,784,399 2,187,229 245,463 19,805,665
30 Fiduciary activities
The bank holds assets in a fiduciary capacity for its customers without recourse to itself. At
31 December 2012, such assets amounted to AED 1,109.14 million (2011: AED 554.21 million) and
are excluded from these financial statements of the bank.
31 Assets and liabilities maturity profile
The table below analyses assets and liabilities of the bank into relevant maturity groupings based on
the remaining years from the balance sheet date to the contractual maturity date.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing
liabilities as they mature, are important factors in assessing the liquidity of the bank and its exposure to
changes in interest rates and exchange rates.
F-54
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the financial statements for the year ended 31 December 2012
(continued)
31 Assets and liabilities maturity profile (continued)
Up to 3
months
3 12
months
1 5
years
Over 5
years Total
At 31 December 2012 AED000 AED000 AED000 AED000 AED000
Assets
Cash and balances with the UAE
Central Bank 2,154,054 750,000 - - 2,904,054
Due from other banks 1,195,831 - - - 1,195,831
Loans and advances 2,834,064 321,830 6,475,494 10,652,039 20,283,427
Investment securities 42,688 543,096 963,765 37,329 1,586,878
Property and equipment, and other
assets 198,796 33,642 11,736 1,035,773 1,279,947
Total 6,425,433 1,648,568 7,450,995 11,725,141 27,250,137
Liabilities and shareholders
equity
Due to other banks 233,841 - - - 233,841
Due to customers 17,581,559 3,138,143 23 - 20,719,725
Other liabilities and provision for
employees end of service
benefits 539,914 - - 61,442 601,356
Shareholders equity - - - 5,695,215 5,695,215
Total 18,355,314 3,138,143 23 5,756,657 27,250,137
Net liquidity gap (11,929,881) (1,489,575) 7,450,972 5,968,484 -
At 31 December 2011
Total assets 6,496,146 596,763 5,408,393 12,001,235 24,502,537
Total liabilities and equity 16,366,938 2,701,193 684,467 4,749,939 24,502,537
Net liquidity gap (9,870,792) (2,104,430) 4,723,926 7,251,296 -
F-55
Independent auditors report to the shareholders of
The National Bank of Ras Al-Khaimah (P.S.C.)
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of The National Bank of Ras
Al-Khaimah (P.S.C.) (the Bank) and its subsidiaries (together referred to as Group), which comprise
the consolidated statements of financial position as of 31 December 2013 and the consolidated
statement of income, comprehensive income, changes in equity and cash flows for the year then
ended, and a summary of significant accounting policies and other explanatory notes.
Managements responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards 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.
Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors judgement,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of the Group as at 31 December 2013 and its financial performance and
its cash flows for the year then ended in accordance with International Financial Reporting Standards.
F-56
Independent auditors report to the shareholders of
The National Bank of Ras Al-Khaimah (P.S.C.) (continued)
Report on other legal and regulatory requirements
As required by the UAE Federal Law No (8) of 1984, as amended, we report that:
(i) we have obtained all the information we considered necessary for the purpose of our audit;
(ii) the consolidated financial statements of the Bank comply, in all material respects, with the
applicable provisions of the UAE Federal Law No. (8) of 1984, as amended and the Articles of
Association of the Bank;
(iii) the Bank has maintained proper books of account and the cosolidated financial statements are in
agreement therewith;
(iv) the financial information included in the Directors report is consistent with the books of account of
the Bank; and
(v) nothing has come to our attention, which causes us to believe that the bank has breached any of
the applicable provisions of the UAE Federal Law No (8) of 1984, as amended, or of its Articles of
Association which would materially affect its activities or its financial position as at 31 December
2013.
Further, as required by the UAE Union Law No (10) of 1980, as amended, we report that we have
obtained all the information and explanations we considered necessary for the purpose of our audit.
PricewaterhouseCoopers
29 January 2014
Amin H Nasser
Registered Auditor Number 307
Dubai, United Arab Emirates
F-57
Consolidated statement of financial position
At 31 December
Note 2013 2012
AED000 AED000
ASSETS
Cash and balances with the
UAE Central Bank 5 3,622,262 2,904,054
Due from other banks 6 543,899 1,195,831
Loans and advances 7,8 21,959,245 20,283,427
Investment securities 9 2,695,952 1,586,878
Property and equipment 10 1,028,873 1,035,773
Other assets 11 276,538 244,174
Total assets 30,126,769 27,250,137
LIABILITIES
Due to other banks 12 3,357 233,841
Due to customers 13,14 23,069,147 20,719,725
Other liabilities 15 472,745 539,914
Provision for employees end of service benefits 16 65,450 61,442
Total liabilities 23,610,699 21,554,922
SHAREHOLDERS EQUITY
Share capital 17 1,676,245 1,523,859
Share premium 18 110,350 110,350
Retained earnings 1,452,439 1,183,109
Other reserves 19 3,277,036 2,877,897
Equity attributable to equity holders of the Bank 6,516,070 5,695,215
Non-controlling interests - -
Total shareholders equity 6,516,070 5,695,215
Total liabilities and shareholders equity 30,126,769 27,250,137
These consolidated financial statements were authorised for issue by the Board of Directors on
29 January 2014 and were signed on its behalf by:
H.E. Sheikh Omar Bin Saqr Al-Qasimi Peter William England
Chairman Chief Executive Officer
F-58
Consolidated income statement
Year ended 31 December
Note 2013 2012
AED000 AED000
Interest income 22 2,570,422 2,583,850
Interest expense 22 (247,505) (350,562)
Net interest income 2,322,917 2,233,288
Income from Islamic financing 23 45,639 -
Islamic profit distribution 23 (11,584) -
Net income from Islamic financing 34,055 -
Net interest income and income from Islamic financing 2,356,972 2,233,288
Net fee and commission income 24 528,863 488,174
Foreign exchange income 74,800 67,634
Income from investment securities 9(c) 149,843 71,541
Other operating income 39,849 32,527
Operating income 3,150,327 2,893,164
Operating expenses 25 (1,378,886) (1,281,250)
Provision for impairment of loans and advances net of write
backs 7(d) (340,623) (209,115)
Net profit for the year 1,430,818 1,402,799
Attributed to:
Equity holders of the Bank 1,430,818 1,402,799
Non-controlling interests - -
Net profit for the year 1,430,818 1,402,799
Earnings per share
Basic and Diluted 27 AED 0.85 AED 0.84
F-59
Consolidated statement of comprehensive income
Year ended 31 December
2013 2012
Note AED000 AED000
Net profit for the year 1,430,818 1,402,799
Items that may be re-classified subsequently to the
income statement
Changes in fair value of available-for-sale investment
securities 9(b) (26,996) 9,627
Release of fair value to income statement on disposal of
available-for-sale investment securities 9(c) 26,576 1,515
Total other comprehensive income (420) 11,142
Total comprehensive income for the year 1,430,398 1,413,941
Attributed to:
Equity holders of the Bank 1,430,398 1,413,941
Non-controlling interests - -
Total comprehensive income for the year 1,430,398 1,413,941
F-60
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F-61
Consolidated statement of cash flows
Year ended 31 December
2013 2012
Note AED000 AED000
Operating activities
Net profit for the year 1,430,818 1,402,799
Adjustments:
Provision for impairment of loans and advances net of
write backs 7(d) 340,623 209,115
Depreciation 10,25 126,908 99,860
Provision for employees end of service benefits 16 13,776 15,797
Gain on disposal of property and equipment (465) (502)
Amortisation of premium / (discount) relating to
securities held to maturity 9(b) 13,399 (1,334)
(Gain) / loss on sale investment securities 9(c) (34,986) -
Release of fair value loss to income statement on
redemption of available-for-sale investment
securities 9(c) - 1,515
Operating cash flows before payment of employees end
of service benefits and changes in assets and liabilities 1,890,073 1,727,250
Payment of employees end of service benefits 16 (9,768) (7,422)
Changes in assets and liabilities:
Statutory deposits with the UAE Central Bank 5 (460,456) (260,131)
Certificate of deposits with the UAE Central Bank with
original maturities of over 3 months 5 - (650,000)
Due from other banks with original maturities of three
months or over 30 206,952 (206,952)
Loans and advances (net of charge for impairment and
amortization and amount written off / back) 7 (2,016,441) (2,124,072)
Other assets 11 (32,364) (42,531)
Due to other banks (net of amounts due to Central
Bank) 12 (97,108) (136,607)
Due to customers 13 2,349,422 2,429,560
Other liabilities 15 (67,169) 96,419
Net cash generated from operating activities 1,763,141 825,514
Investing activities
Purchase of investment securities 9(b) (1,935,575) (641,074)
Purchase of property and equipment 10 (120,343) (184,161)
Proceeds from maturity / disposal of investment securities 9(b,c) 847,668 228,970
Proceeds from disposal of property and equipment 800 1,197
Net cash used in investing activities (1,207,450) (595,068)
Financing activities
Subordinated debt repayment 34 - (684,467)
Dividend paid to equity holders of the Bank 28 (609,543) (415,598)
Dividend paid to non-controlling interests 28 - -
Net cash used in financing activities (609,543) (1,100,065)
Net decrease in cash and cash equivalents (53,852) (869,619)
Cash and cash equivalents at the beginning of the year 1,364,199 2,233,818
Cash and cash equivalents at the end of the year 30 1,310,347 1,364,199
F-62
Notes to the consolidated financial statements for the year ended 31 December
2013
1 Incorporation and principal activities
The National Bank of Ras Al-Khaimah (the Bank) is a public shareholding company incorporated in
the Emirate of Ras Al-Khaimah in the United Arab Emirates (UAE) in accordance with the UAE
Federal law No. 8 of 1984 (as amended). The head office of the Bank is located at the National Bank of
Ras Al-Khaimah building, Al Rifa area, Exit No. 129, Sheikh Mohammed Bin Zayed road, Ras
Al-Khaimah.
The Bank is engaged in providing retail banking, commercial banking, Islamic financing and provision
of other banking services through a network of thirty four branches in the UAE.
The National Bank of Ras Al-Khaimah (P.S.C) comprises the Bank and three subsidiaries (together the
Group). These subsidiaries are RAK Islamic Finance Pvt. J.S.C in which the Bank owns 99.9%,
BOSS FZCO and RAK Technologies FZCO in which the Bank owns 80%. RAK Islamic Finance Pvt.
J.S.C has an authorised and issued capital of AED 100 million, and was incorporated to enable the
Bank to sell Shariah compliant financial products. BOSS FZCO and RAK Technologies FZCO have
been incorporated to provide back office support services to the Bank. Both BOSS FZCO and RAK
Technologies FZCO have an authorised and issued share capital of AED 500,000 each and were
formed under the Dubai Silicon Oasis Authority guidelines.
The consolidated financial statements comprises the Bank and its subsidiaries (together referred to as
the Group)
2 Significant accounting policies
The significant accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
(a) Basis of preparation
The consolidated financial statements have been prepared on a going concern basis in accordance
with International Financial Reporting Standards (IFRS). The consolidated financial statements are
prepared under the historical cost convention except for available-for-sale financial assets and
derivative financial instruments which have been measured at fair value.
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process of
applying the Groups accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in Note 4.
Standards and amendments to published standards effective for the Groups accounting period
beginning on 1 January 2013
IFRS 10 Consolidated Financial Statements, outlines the requirements for the preparation and
presentation of consolidated financial statements, requiring entities to consolidate entities it controls.
Control requires exposure or rights to variable returns and the ability to affect those returns through
power over an investee. IFRS 12, Disclosures of interests in other entities is a consolidated disclosure
standard requiring a wide range of disclosures about an entitys interests in subsidiaries, joint
arrangements, associates and unconsolidated structured entities. Disclosures are presented as a
series of objectives, with detailed guidance on satisfying those objectives, and other related Standards
and amendments effective from January 1, 2013.
F-63
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(a) Basis of preparation (continued)
With effect from January 1, 2013, the Bank has adopted IFRS 13, Fair value Measurement which
aims to improve consistency and reduce complexity by providing a precise definition of fair value and
improving disclosure requirements for use across IFRSs. It applies to both financial and non-financial
instruments carried at fair value and requires additional disclosures in the financial statements. The
disclosure note requirements are set out in Note 3.7.
Other than the above, there are no other IFRSs or IFRIC interpretations that were effective for the first
time for the financial year beginning January 1, 2013 that have had a material impact on the Banks
consolidated financial statements.
Standards and amendments to published standards effective for the Groups accounting period
beginning from 1 January 2014 and subsequently
The following applicable new standards and amendments have been issued but are not effective for
the Groups accounting period beginning 1 January 2013 and have not been early adopted by the
Group:
Amendments to IAS 32 Financial Instruments (effective 1 January 2014) require presentation to
clarify certain aspects because of diversity in application of the requirements on offsetting,
focused on four main areas:
the meaning of currently has a legally enforceable right of set-off
the application of simultaneous realisation and settlement
the offsetting of collateral amounts
the unit of account for applying the offsetting requirements
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in
Other Entities and IAS 27 Separate Financial Statements (effective 1 January, 2014) relate only
to investment entities, therefore will not apply to the Bank.
Amendment to IAS 36 Impairment of Assets (effective 1 January 2014) to reduce the
circumstances in which the recoverable amount of assets or cash-generating units is required to
be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose
the discount rate used in determining impairment (or reversals) where recoverable amount
(based on fair value less costs of disposal) is determined using a present value technique.
Amendment to IAS 19, Employee benefits (effective 1 July 2014) clarify the requirements that
relate to how contributions from employees or third parties that are linked to service should be
attributed to periods of service. In addition, it permits a practical expedient if the amount of the
contributions is independent of the number of years of service.
IFRS 9 - Financial Instruments: Classification and Measurement (intended as complete
replacement for IAS 39).
Key requirements of IFRS 9 are described as follows:
IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial
Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair
value. Specifically, debt investments that are held within a business model whose objective is to collect
the contractual cash flows, and that have contractual cash flows that are solely payments of principal
and interest on the principal outstanding are generally measured at amortised cost at the end of
subsequent accounting periods. All other debt investments and equity investments are measured at
their fair values at the end of subsequent accounting periods.
F-64
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(a) Basis of preparation (continued)
An effective date for IFRS 9 will be announced once the standard is complete with a new impairment
model and finalisation of any limited amendments to classification and measurement. The Bank is yet
to assess IFRS 9s full impact, particularly to the hedging and impairment aspects of IFRS 9.
Except for IFRS 9, the Management anticipates that these amendments are not expected to have a
material impact on the Banks consolidated financial statements and will be adopted in the
consolidated financial statements in the initial period when they become mandatorily effective.
(b) Basis of consolidation
The consolidated financial statements incorporate the consolidated financial statements of National
Bank of Ras Al-Khaimah (P.S.C.) and its subsidiaries (collectively referred to as Group) as set in
Note 33 below.
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group.
Transactions eliminated on consolidation
Intra-group balances and income and expenses (except for foreign currency transaction gains or
losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial
statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
(c) Loans and advances and provision for impairment
Loans and advances are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and advances are initially recognized at fair value, which is the
cash consideration to originate or purchase a loan including any transaction costs, and measured
subsequently at amortised cost using the effective interest method.
The Group assesses at each financial position date whether there is objective evidence that loans and
advances are impaired. Loans and advances are impaired and impairment losses are incurred only if
there is objective evidence that the Group will not be able to collect all amounts due.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrowers competitive position;
Deterioration in the value of collateral; and
Observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of financial assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
F-65
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(c) Loans and advances and provision for impairment (continued)
The Group first assesses whether objective evidence of impairment exists either individually for
financial assets that are individually significant and individually or collectively for financial assets that
are not individually significant. If the Group determines that no objective evidence of impairment exists
for an individually assessed financial asset, whether significant or not, it includes the asset in a group
of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues
to be recognised are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial assets original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognised in
the consolidated income statement. If the amount of impairment subsequently decreases due to an
event occurring after the write down, the release of the provision is credited to the consolidated income
statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is
the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the
collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e. on the basis of the Groups grading process that considers asset
type, industry, collateral type, past-due status and other relevant factors). Those characteristics are
relevant to the estimation of future cash flows for groups of such assets by being indicative of the
debtors ability to pay all amounts due according to the contractual terms of the assets being
evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cash flows of the assets and historical loss experience for
assets with similar credit risk characteristics. Historical loss experience is adjusted on the basis of
current observable data to reflect the effects of current conditions that did not affect the period on
which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not currently exist.
Estimates of changes in future cash flows for groups of assets reflect and are directionally consistent
with changes in related observable data from period to period (for example, changes in unemployment
rates, property prices, payment status, or other factors indicative of changes in the probability of losses
and their magnitude). The methodology and assumptions used for estimating future cash flows are
reviewed regularly by the Group to reduce any differences between loss estimates and actual loss
experience.
When a loan is uncollectable, it is written off against the related provision for impairment. This is
normally done within six to twelve month of the loan becoming past due, depending on type of the loan.
Non performing mortgage loans, however, are written off after considering each individual case. If no
related provision exists, it is written off to the consolidated income statement. Subsequent recoveries
are credited to the consolidated income statement.
Loans that are either subject to collective impairment assessment or individually significant and whose
terms have been renegotiated are no longer considered to be past due but are treated as new loans.
F-66
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(d) Islamic financing
The Group engages in Shariah compliant Islamic banking activities through various Islamic
instruments such as Murabaha, Salam, Mudaraba, and Wakala. The accounting policy for initial
recognition, subsequent measurement and derecognition of Islamic financial assets and liabilities are
as per Note 2(c).
Murabaha financing
A sale contract whereby the Group sells to a customer commodities and other assets at an agreed
upon profit mark up on cost. The Group purchases the assets based on a promise received from
customer to buy the item purchased according to specific terms and conditions. Profit from Murabaha
is quantifiable at the commencement of the transaction. Such income is recognised as it accrues over
the period of the contract on effective profit rate method on the balance outstanding.
Salam
Bai Al Salam is a Sale contract where the Customer (Seller) undertakes to deliver/supply a specified
tangible asset to the Group (Buyer) at mutually agreed future date(s) in exchange for an advance price
fully paid on the spot by the buyer.
Revenue on Salam financing is recognised on the effective profit rate basis over the period of the
contract, based on the Salam capital outstanding.
Mudaraba
A contract between the Group and a customer, whereby one party provides the funds (Rab Al Mal-
customer) and the other party (the Mudarib- the Group) invests the funds in a project or a particular
activity and any profits generated are distributed between the parties according to the profit shares that
were pre-agreed in the contract. The Mudarib would bear the loss in case of default, negligence or
violation of any of the terms and conditions of the Mudaraba, otherwise, losses are borne by the Rab Al
Mal.
Wakala
An agreement between the Group and customer whereby one party (Rab Al Mal-principal) provides a
certain sum of money to an agent (Wakil), who invests it according to specific conditions in return for a
certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to
return the invested amount in case of default, negligence or violation of any of the terms and conditions
of the Wakala. The Group may be Wakil or Rab Al Mal depending on the nature of the transaction.
Estimated income from Wakala is recognised on an accrual basis over the period, adjusted by actual
income when received. Losses are accounted for on the date of declaration by the agent.
(e) Investment securities
The Group classifies its investment securities in the following categories: Held-to-maturity and
available-for-sale. Management determines the classification of its investments at initial recognition.
Held-to-maturity: Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the Groups management has the positive intention
and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-
maturity assets, the entire category would be reclassified as available for sale except if sale is due to
significant deterioration of the issuer.
Available-for-sale: Available-for-sale investments are those non-derivative financial assets that are
designated as available-for-sale or are not classified as (a) loans and advances, (b) held- to-maturity
investments.
F-67
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(e) Investment securities (continued)
Regular purchases and sales of financial assets at held to maturity and available for sale are
recognised on trade-date the date on which the Group commits to purchase or sell the asset.
Available-for-sale financial assets are subsequently carried at fair value. Held-to-maturity investments
are carried at amortised cost using the effective interest method. Gains and losses arising from
changes in the fair value of available-for-sale financial assets are recognised directly in consolidated
statement of comprehensive income, until the financial asset is derecognised or impaired. At this time,
the cumulative gain or loss previously recognised through the consolidated statement of
comprehensive income is recognised in the income statement.
Foreign currency gains and losses arising on available-for-sale monetary financial assets are directly
recognised in the consolidated income statement.
The fair values of quoted investments in active markets are based on current bid prices, as the Group
considers the bid to be most representative of fair value, if the market for a financial asset is not active
(and for unlisted securities), the Group establishes fair value by using valuation techniques.
Interest earned whilst holding investment securities is reported as income from investment securities in
the consolidated income statement.
Dividends on available-for-sale equity instruments are recognised in the consolidated income
statement when the Groups right to receive payment is established.
The Group assesses at each financial position date whether there is objective evidence that a financial
asset is impaired. In the case of equity investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost is considered in determining whether
the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative
loss measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in profit or loss is removed from equity
and recognised in the income statement. Impairment losses recognised in the income statement on
available-for-sale equity instruments are not reversed through the income statement. Impairment on
debt securities classified as available-for-sale and those held to maturity is assessed as outlined in the
accounting policy for impairment of loans and advances (Note 2(c)).
(f) Due from banks
Amounts due from banks are initially recognized at fair value and measured subsequently at amortised
cost using the effective interest method. Impairment of amount due from banks is assessed as outlined
in the accounting policy for loans and advances (Note 2(c))
(g) Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents include cash on hand, money
in current and call accounts and placements with original maturity of less than three months excluding
the statutory deposit required to be maintained with the UAE Central Bank.
(h) Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered
into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market
prices in active markets, including recent market transactions. All derivatives are carried as assets
when fair value is positive and as liabilities when fair value is negative.
F-68
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(i) Property and equipment
Land and buildings comprise branches, offices and certain residential premises purchased for
occupation of management and staff. Property and equipment is stated at cost less accumulated
depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent expenditures are included in the assets carrying amount or are recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repair and maintenance costs are charged to the income
statement during the financial period in which they are incurred.
Land is not depreciated as it is deemed to have an infinite life. Depreciation on other assets is
calculated using the straight-line method to write down the cost of assets to their estimated residual
values over their expected useful economic lives as follows:
Years
Buildings 15 - 30
Computer equipment and software 4 - 15
Furniture, fixtures and equipment 4 - 6
Leasehold improvements 2 - 6
Motor vehicles 2 - 4
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period.
Capital work in progress is stated at cost and is transferred to the appropriate asset category when it is
brought into use and is depreciated in accordance with the Groups accounting policy.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written
down immediately to its recoverable amount.
Gains and losses on disposal of property and equipment are determined by comparing the sales
proceeds to the carrying value of the asset disposed and are taken into account in determining
operating income.
(j) Fiduciary assets
Assets and the income arising on the Banks fiduciary activities, where it acts in a fiduciary capacity
such as nominee, trustee or agent, are excluded from these consolidated financial statements. Income
earned by the Group from its fiduciary services is recognised in accordance with the accounting policy
on fees and commission income (Note 2(q)).
(k) Employee benefits
i) Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in consolidated income statement in the periods during which services are
rendered by employees.
Pension contributions are made in respect of UAE national employees to the UAE General Pension
and Social Security Authority in accordance with the UAE Federal Law No (7), 1999 for Pension and
Social Security.
F-69
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(k) Employee benefits (continued)
ii) Defined benefit plan
The defined benefit obligation is calculated annually using the projected unit credit method. The
present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity approximating to the terms of the
related pension obligation
Provision is also made for the end of service benefits due to non-UAE nationals in accordance with the
UAE Labour Law for their periods of service up to the financial position date and the provision arising is
disclosed as provision for employees end of service benefits in the statement of financial position.
iii) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided. A liability is recognised for the amount expected to be paid under short-
term if the Bank has a present legal or constructive obligation to pay this amount as a result of past
service provided by the employee and the obligation can be estimated reliably.
A provision is made for the estimated liability for employees entitlements to annual leave and leave
passage as a result of services rendered by the employees up to financial position date. This provision
is included in other liabilities.
(l) Share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction
from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the
Banks shareholders.
(m) Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount of the obligation can be made.
When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, a receivable is recognised as an asset only if it is virtually certain that reimbursement
will be received and the amount of the receivable can be measured reliably.
Contingent liabilities, which include certain guarantees and letters of credit, are possible obligations
that arise from past events whose existence will be confirmed only by the occurrence, or non-
occurrence, of one or more uncertain future events not wholly within the Groups control; or are present
obligations that have arisen from past events but are not recognised because it is not probable that
settlement will require outflow of economic benefits, or because the amount of the obligations cannot
be reliably measured. Contingent liabilities are not recognised in the consolidated financial statements
but are disclosed in the notes to the consolidated financial statements, unless they are remote.
F-70
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
2 Significant accounting policies (continued)
(n) Due to customers
Deposits are recognised initially at fair value, net of transaction costs incurred. Deposits are
subsequently carried at amortised cost using the effective interest method.
(o) Foreign currencies
Items included in the consolidated financial statements of the Group are measured using UAE
Dirhams which is the currency of the primary economic environment in which the Group operates
(functional currency). The consolidated financial statements are presented in UAE Dirhams. Foreign
currency transactions are translated into the UAE Dirham at the rate ruling on the transaction date.
Monetary assets and liabilities denominated in foreign currencies are translated into UAE Dirhams at
the rates ruling at the consolidated statement of financial position date. Any resultant gains or losses
are accounted for in the income statement other than for items presented in other comprehensive
income.
(p) Interest income and expense
Interest income and expense are recognised in the income statement for all instruments measured at
amortised cost using the effective interest method. Interest earned whilst holding investment securities
is reported as income from investment securities in the income statement. The effective interest
method is a method of calculating the amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss.
(q) Fee and commission income
Fees and commissions, other than loan arrangement fees, are generally recognised when the service
has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred and
recognised as an adjustment to the effective interest rate on the loan. Portfolio and other management
advisory and service fees are recognised based on the, applicable service contracts, usually on a time-
proportionate basis. Fees earned on the Banks fiduciary activities are recognised over the period in
which the service is provided. The same principle is applied to custody services that are continuously
provided over an extended period of time.
(r) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of
financial position when there is a legally enforceable right to offset the recognised amounts and there is
an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
(s) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker is the person or group that
allocates resources to and assesses the performance of the operating segments of an entity. All
transactions between business segments are conducted on an arms length basis, with intra-segment
revenue and costs being eliminated. Income and expenses directly associated with each segment are
included in determining business segment performance. In accordance with IFRS 8, the Bank has the
following business segments: retail banking, corporate banking and treasury.
F-71
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management
3.1 Risk management review
The Groups activities expose it to a variety of financial risks and those activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is
core to the financial services business. The Groups aim is therefore to achieve an appropriate balance
between risk and return and minimise potential adverse effects on the Groups financial performance.
The Groupss risk management policies are designed to identify and analyse these risks, to set
appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of
reliable and up-to-date information systems. The Group regularly reviews its risk management policies
and systems to reflect changes in markets, products and emerging best practice.
3.2 Credit risk
Credit risk is defined as the risk that the Groups customers, clients or counter parties fail to perform or
are unwilling to pay interest, repay the principal or otherwise to fulfil their contractual obligations under
loan agreements or other credit facilities, thus causing the Group to suffer a financial loss.
Credit risk also arises through the downgrading of counter parties, whose credit instruments are held
by the Bank, thereby resulting in the value of the assets to fall. As credit risk is the Groups most
significant risk, considerable resources, expertise and controls are devoted to managing this risk within
the core departments of the Bank.
The Banks credit policy provides for the development of a systematic and consistent approach to
identifying and managing borrower and counter party risks contained in all retail, corporate and SME
assets.
The Head of Credit and his team including Collections are responsible for recognition and
management of credit risk both at transaction and portfolio levels and to ensure that risk procedures
are adhered to in a manner consistent with the framework set out in the Policy, Product Programs,
Credit circulars and comply with regulatory norms.
The Bank manages, limits and controls concentration of credit risk wherever it is identified in
particular, to individual counterparties and groups, and to industries and countries. The Group has a
Product Program Guide that sets limits of exposure and lending criteria. The Bank also has credit limits
that set out the lending and borrowing limits to/from other banks.
The Bank stratifies the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on an ongoing basis. Limits on the level of credit risk by product,
industry sector and by country are approved by the Executive Committee and the Board of Directors.
The exposure to any one borrower, including banks, is further restricted by sub-limits covering on- and
off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward
foreign exchange contracts. Actual exposures against limits are monitored on an ongoing basis.
The Group has in place policies which govern the determination of eligibility of various collaterals
including credit protection, to be considered for credit risk mitigation which includes the minimum
operational requirements that are required for the specific collateral to be considered as effective risk
mitigants. The Groups majority collaterals are mortgaged properties.
The collateral is valued periodically ranging from quarterly to annually, depending on the type of
collateral. Specifically for mortgaged property, a framework for valuation of mortgaged properties is
established to ensure adequate policies and procedures are in place for efficient and proper conduct of
valuation of mortgaged properties and other related activities in relation to the interpretation, monitoring
and management of valuation of mortgaged properties.
F-72
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.1 Maximum exposure to credit risk before collateral held or other credit enhancements
Maximum exposure
31 December
2013
31 December
2012
AED000 AED000
Credit risk exposures relating to on-balance sheet assets are as follows:
Due from banks 543,899 1,195,831
Loans and advances:
Loans to retail customers 21,035,608 19,790,501
Loans to corporate customers 923,637 492,926
Investment securities 2,695,952 1,586,878
Other assets 195,120 187,372
Credit risk exposures relating to off-balance sheet items are as follows:
Loan commitments and other off balance sheet items 7,311,091 6,615,636
32,705,307 29,869,144
The above table represents a worst case scenario of credit risk exposure to the Group at 31 December
2013 and 2012 without taking account of any collateral held or other credit enhancements attached.
For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as
reported in the consolidated statement of financial position.
As can be seen above, the most significant exposures arise from loans and advances to customers
(including commitments) and amounts due from banks.
Management is confident in its ability to continue to control and minimise the loss arising from its
exposure to credit risk resulting from its loans and advances portfolio, investment securities portfolio
and amounts due from banks based on the following:
92% (2012: 92%) of the loans and advances are categorised in the top grades of the banks
internal grading system.
Mortgage loans and auto loans, which together represent a significant portion (2013: 26% 2012:
24%) of loans and advances, of which 67% are backed by collateral.
11% (2012: 10%) of the loans comprise of renegotiated loans, where the Bank has mainly
aligned its lending rates to current prevailing market lending rates to manage credit risk.
The Bank continuously reviews its credit and credit underwriting policies and changes are made
based on the Management Information System (MIS) reports and the patterns that emerge from
these reports.
A significant portion of investments securities comprise debt instruments that are issued by
government and reputable quasi-government organisation (Note 3.2.6).
F-73
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.2 Loans and advances to customers and amounts due from banks
Loans and advances to customers and amounts due from banks are summarised as follows:
31 December 2013 31 December 2012
Loans and
advances to
customers
Amounts
due from
banks
Loans and
advances to
customers
Amounts
due from
banks
AED000 AED000 AED000 AED000
Neither past due nor impaired 20,632,958 543,899 18,878,453 1,195,831
Past due but not impaired 1,182,060 1,212,575
Individually Impaired 539,840 516,509
Gross 22,354,858 543,899 20,607,537 1,195,831
Less: allowance for impairment (395,613) - (324,110) -
Net 21,959,245 543,899 20,283,427 1,195,831
Neither past due nor impaired
31 December 2013 31 December 2012
Loans and
advances to
customers
Amounts
due from
banks
Loans and
advances to
customers
Amounts
due from
banks
AED000 AED000 AED000 AED000
Loans and advances
- Retail loans 19,721,434 - 18,398,325 -
- Corporate loans 911,524 - 480,128 -
Due from banks - 543,899 - 1,195,831
Gross 20,632,958 543,899 18,878,453 1,195,831
Loans and advances
The Group uses the grading of loans into different buckets in assessing the impairment loss in the
Groups loan portfolio. The credit quality of the portfolio of loans and advances that were neither past
due nor impaired can be assessed by reference to the internal rating system adopted by the Group.
Retail banking loans are graded into buckets according to the number of installments past due. All
loans that are not in default of interest payment and installment are graded as bucket 0, while loans
and advances that are in default of interest payment and installments are graded upwards from bucket
1 onwards, depending on the number of days past due. The corporate banking and SME credit matrix
is used to rate corporate and SME loans under various characteristics. There are six categories of
performing loans and three categories of non-performing loans. These ratings are reviewed at least
once a year, or more frequently as required. Loans and advances are classified as delinquent after
90 days of non-payment of interest and installments. The credit policy has set internal lending limits for
various industry exposures. The corporate loan portfolio is reviewed on a quarterly basis.
Amounts due from banks
The Group held amounts due from banks of AED 544 million (2012: 1196 million) which represents its
maximum credit exposure on these assets. The balance due from banks includes AED275 million
(2012: AED 665 million) placements with banks which enjoy a credit rating of at least BBB+. Remaining
F-74
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.2 Loans and advances to customers and amounts due from banks (continued)
balances due from banks and other financial institutions are held with reputable organisations within
and outside UAE, where the risk of default is considered low.
Past due but not impaired
Loans and advances less than 90 days past due are not considered impaired, however considered in a
collective assessment. Gross amount of loans and advances by class of customers that were past due
but not impaired are as follows:
31 December 2013 31 December 2012
Retail
loans
Corporate
loans Total
Retail
loans
Corporate
loans Total
AED000 AED000 AED000 AED000 AED000 AED000
Past due up to 30 days 689,873 - 689,873 731,915 - 731,915
Past due 30-60 days 270,317 - 270,317 329,986 - 329,986
Past due 60-90 days 221,870 - 221,870 150,674 - 150,674
Total 1,182,060 1,182,060 1,212,575 - 1,212,575
Fair value of collateral 332,984 - 332,984 465,461 - 465,461
Individually Impaired
The breakdown of the gross amount of individually impaired loans and advances, Islamic financing
assets along with the fair value of related collateral held by the bank as security, are as follows:
31 December 2013 31 December 2012
Retail
loans
Corporate
loans Total
Retail
loans
Corporate
loans Total
AED000 AED000 AED000 AED000 AED000 AED000
Individually impaired loans 497,147 42,693 539,840 471,804 44,705 516,509
Fair value of collateral (246,298) (9,570) (255,868) (259,839) (9,570) (269,409)
Net 250,849 33,123 283,972 211,965 35,135 247,100
The total impairment provision for loans and advances is AED 395.61 million (2012: AED 324.11
million) of which AED 329.61 million (2012: AED 271.94 million) represents provision in respect of the
individually impaired loans and advances and the remaining AED 66.00 million (2012: AED 52.17
million) represents the portfolio provision to reflect the risk inherent in the Banks loan portfolio.
Loans and advances renegotiated
Restructuring activities include interest rate adjustments, extended payment arrangements and
modification of payments. The majority of restructuring activity is undertaken to improve cash flow and
is within the terms and conditions of the Groups product programme guideline. These policies are kept
under continuous review. The table below presents the loans restructured during the year 2013 and
2012.
F-75
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.2 Loans and advances to customers and amounts due from banks (continued)
Restructured Loans
2013 2012
Product
No of
Accounts
Loan
Amount
No of
Accounts
Loan
Amount
AED000 AED000
Retail Loans 1,181 738,525 776 556,478
Small Commercial Loans 687 450,928 417 317,717
Mortgage Loans 59 120,048 28 60,445
Total 1,927 1,309,501 1,221 934,640
During the year AED 1,310 million (2012: AED 934.6 million) of loans to customers, mostly to UAE
Nationals, were restructured. The aggregate amount of restructured loans at 31 December 2013 is
AED 2,491 million (2012: AED 1,962 million). The majority of these restructured loans have performed
satisfactorily after restructuring and are neither past due nor impaired.
3.2.3 Investment securities
Investment securities comprise debt securities issued by the Government, organisations which are
quasi-governmental and local and foreign reputable organisations.
The table below presents an analysis of debt securities by rating agency designation at 31 December
2013 and 31 December 2012, based on Moodys and Fitch ratings or their equivalent.
31 December
2013
31 December
2012
AED000 AED000
A+ to A- 781,681 778,470
Ba1 to Baa3 1,231,843 412,008
Unrated 682,428 396,400
Total 2,695,952 1,586,878
The unrated securities include bonds/ Sukuk of Dubai Department of Finance Sukuk Limited AED
535.5 million and Emirates Airlines AED 146.8 million. Considering the names of the issuers, the
management is comfortable with the instruments being unrated.
3.2.4 Repossessed collateral
The bank occasionally takes possession of mortgaged property which was held as collateral for loan,
as there is no significant possession of collateral during the year no disclosures.
In the case of retail auto loans where the underlying asset is repossessed as a part of recovery
process, these are disposed of in an auction by authorised third parties and the bank does not carry
any such assets in its books.
3.2.5 Concentration of risks of financial assets with credit risk exposure
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their
F-76
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.5 Concentration of risks of financial assets with credit risk exposure (continued)
ability to meet contractual obligations to be similarly affected by changes in economic, political or other
conditions. Concentrations indicate the relative sensitivity of the banks performance to developments
affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Banks policies and procedures include specific
guidelines to limit concentrations of exposures to counterparties, geographies and industries. Identified
concentration of credit risk is controlled and managed accordingly.
Geographical risk concentration
The following table breaks down the banks credit exposures at their carrying amounts, categorised by
geographical region as of 31 December 2013 and 31 December 2012.
For this table, the Bank has allocated exposures to regions based on the country of domicile of its
counterparties:
On balance sheet items
UAE OECD Others Total
31 December 2013
AED000 AED000 AED000 AED000
Due from banks 373,257 165,230 5,412 543,899
Loans and advances
- Retail loans 20,852,955 66,476 116,177 21,035,608
- Corporate loans 919,701 1,139 2,797 923,637
Investment securities
- Held-to-maturity 1,957,901 18,494 677,289 2,653,684
- Available-for-sale 42,268 - - 42,268
Other assets 195,120 - - 195,120
Total 24,341,202 251,339 801,675 25,394,216
31 December 2012
AED000 AED000 AED000 AED000
Due from banks 782,095 405,975 7,761 1,195,831
Loans and advances:
- Retail loans 19,652,388 41,112 97,001 19,790,501
- Corporate loans 491,549 - 1,377 492,926
Investment securities
- Held-to-maturity 1,429,407 18,538 96,245 1,544,190
- Available-for-sale 42,688 - - 42,688
Other assets 187,372 - - 187,372
Total 22,585,499 465,625 202,384 23,253,508
F-77
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.5 Concentration of risks of financial assets with credit risk exposure (continued)
Off balance sheet items
UAE OECD Others Total
AED000 AED000 AED000 AED000
31 December 2013
Credit commitments 6,646,409 479 1,961 6,648,849
Guarantees, acceptances and other exposures 653,579 3,153 5,510 662,242
7,299,988 3,632 7,471 7,311,091
31 December 2012
Credit commitments 5,979,668 268 436 5,980,372
Guarantees, acceptances and other exposures 619,359 6,355 9,550 635,264
6,599,027 6,623 9,986 6,615,636
3.2.6 Concentration of credit risk by industry
The following table breaks down the banks credit exposures on loans and advances, debt securities
and off balance sheet items categorised by industry as of 31 December 2013 and 31 December 2012.
On balance sheet items
Total
funded
Off
balance
sheet
Items Total
Loans and
advances
Debt
securities
Due from
banks
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2013
Agriculture, fishing &
related activities 7,938 - - 7,938 154 8,092
Crude oil, gas, mining &
quarrying 26,348 178,981 - 205,329 89,022 294,351
Manufacturing 288,326 - - 288,326 191,901 480,227
Electricity & water 15,087 59,533 - 74,620 1,518 76,138
Construction 922,989 - - 922,989 127,738 1,050,727
Trading 3,766,355 - - 3,766,355 722,469 4,488,824
Transport, storage &
communication 1,131,076 146,883 - 1,277,959 56,288 1,334,247
Financial Institutions 42,194 992,105 543,899 1,578,198 201,908 1,780,106
Services 1,012,269 - - 1,012,269 263,750 1,276,019
Government - 1,318,450 - 1,318,450 97,343 1,415,793
Retail and consumer
banking 15,081,567 - - 15,081,567 5,557,438 20,639,005
Others 60,709 - 60,709 1,562 62,271
Total exposures 22,354,858 2,695,952 543,899 25,594,709 7,311,091 32,905,800
F-78
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.6 Concentration of credit risk by industry (continued)
On balance sheet items
Off
balance
sheet
Items
Loans and
advances
Debt
Securities
Due from
banks
Total
funded Total
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2012
Agriculture, fishing &
related activities 18,296 - - 18,296 629 18,925
Crude oil, gas, mining &
quarrying 390 - - 390 112,720 113,110
Manufacturing 205,043 - - 205,043 173,003 378,046
Electricity & water 15,131 - - 15,131 735 15,866
Construction 733,114 - - 733,114 104,464 837,578
Trading 2,711,962 - - 2,711,962 500,882 3,212,844
Transport, storage &
communication 777,752 73,460 - 851,212 43,079 894,291
Financial Institution 27,279 888,510 1,195,831 2,111,620 166,722 2,278,342
Services 760,366 - - 760,366 195,234 955,600
Government - 624,908 - 624,908 118,685 743,593
Retail and consumer
banking 15,296,538 - - 15,296,538 5,197,846 20,494,384
Others 61,666 - - 61,666 1,637 63,303
Total exposures 20,607,537 1,586,878 1,195,831 23,390,246 6,615,636 30,005,882
3.2.7 Individually impaired loans by industry
The breakdown of the gross amount of individually impaired loans and advances by industry are as
follows:
Less than
90 days
Overdue
above
90 Days Total
Specific
Provision
AED000 AED000 AED000 AED000
31 December 2013
Agriculture, fishing & related activities - 72 72 72
Crude oil, gas, mining & quarrying - - - -
Manufacturing - 1,379 1,379 1,379
Electricity & water - - - -
Construction 83 46,558 46,641 38,998
Trading 319 38,346 38,665 34,662
Transport, storage & communication 2 5,093 5,095 5,095
Financial institution 2 2 1
Services 75 7,198 7,273 7,273
Government - - - -
Retail and consumer banking 5,147 435,133 440,280 241,700
Others - 433 433 433
Total impaired loans 5,626 534,214 539,840 329,613
F-79
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.2 Credit risk (continued)
3.2.7 Individually impaired loans by industry (continued)
less than
90 days
Overdue
above
90 Days Total
Specific
Provision
AED000 AED000 AED000 AED000
31 December 2012
Agriculture, fishing & related activities - - - -
Crude oil, gas, mining & quarrying - - - -
Manufacturing 9 2,185 2,194 2,223
Electricity & water - - - -
Construction 1 45,284 45,285 37,494
Trading 164 29,226 29,390 23,462
Transport, storage & communication 1,658 7,093 8,751 8,751
Financial institution - - - -
Services 10 4,099 4,109 4,109
Government - - - -
Retail and consumer banking 11,377 414,869 426,246 195,369
Others - 534 534 534
Total impaired loans 13,219 503,290 516,509 271,942
3.2.8 Offsetting financial instruments
The Group has not entered in significant master netting arrangement with counterparties which enable
them to settle transactions on net basis. In absence of such agreements the financial asset and
liabilities are settled on gross basis.
3.3 Market risk
The Bank takes on exposure to market risk, which is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices. Market risks arise from open
positions in interest rate, currency and equity instruments, all of which are exposed to general and
specific market movements and changes in the level of volatility of market rates or prices such as
interest rates, credit spreads, foreign exchange rates and equity prices.
The Asset and Liability Committee (ALCO) is chaired by the Chief Executive Officer and comprises of
the Heads of Finance, Treasury, Corporate Banking and Personal Banking. It meets on a regular basis
to monitor and manage market risk.
ALCO is responsible for formalising the Banks key financial indicators and ratios, set the thresholds to
manage and monitor the market risk and also analyse the sensitivity of the Banks interest rate and
maturity mis-matches. ALCO also guides the Banks investment decisions and provides guidance in
terms of interest rate and currency movements.
Further the Bank does not enter in to derivative trades for speculative or hedging purposes. The only
exposure to derivatives is in respect of forward exchange contracts which are entered, to meet
customer needs (Note 21).
3.3.1 Price risk
The Bank is exposed to price risk as a result of its holdings in debt securities classified as available-for-
sale investment securities. The fair values of investments quoted in active markets are based on
F-80
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
3.3.1 Price risk (continued)
current bid prices Senior management meets regularly to discuss the return on investment and
concentration across the Banks investment portfolio.
The sensitivity analysis for price risk illustrates how changes in the fair value of securities held by the
Bank will fluctuate because of changes to market prices whether those changes are caused by factors
specific to the individual issuer, or factors affecting all similar securities traded in the market. At
31 December 2013, if market prices had increased/decreased by 5%, with all other variables held
constant, the fair value reserve in equity would have increased/decreased by AED 2.1 million (2012:
AED 2.1 million).
3.3.2 Interest rate risk
Cash flow interest risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest. Fair value interest rate risk is the risk that the value of a
financial instrument will fluctuate because of changes in market interest rates. The Bank takes on
exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair
value and cash flow risks. Interest margins may increase as a result of such changes but may reduce
losses in the event that unexpected movements arise. The Bank monitors interest rate risk through the
use of a detailed gap report and stress tests to analyse the impact of anticipated movements in interest
rates.
F-81
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F-83
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
3.3.2 Interest rate risk (continued)
Interest rate risk is assessed by measuring the impact of reasonable possible change in interest rate
movements. The bank assumes a fluctuation in interest rates of 25 basis points (bps) and estimates
the following impact on the net profit for the year and net assets at that date:
2013 2012
AED000 AED000
Fluctuation in interest rates by 25 bps 33,367 29,418
The interest rate sensitivities set out above are worst case scenarios and employ simplified
calculations. They are based on the gap between AED 4,722 million (2012: AED 5,164 million) of
interest bearing assets with maturities within one year and AED 18,069 million (2012: AED 16,931
million) of interest bearing liabilities with maturities within one year. The sensitivity does not incorporate
actions that could be taken by management to mitigate the effect of interest rate movements.
3.3.3 Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates and arises from financial instruments denominated in a foreign currency. Positions are
closely monitored and strategies are used to ensure positions are maintained within established limits.
The Banks assets are typically funded in the same currency as that of the business transacted in order
to eliminate foreign exchange exposure. However, the Bank does maintain a US dollar open position
within limits approved by the Banks ALCO.
At 31 December 2013, the Bank had the following net exposures denominated in foreign currencies:
On balance sheet items
At 31 December 2013 AED USD Others Total
AED000 AED000 AED000 AED000
Assets
Cash and balances with the UAE Central Bank 3,308,160 314,102 - 3,622,262
Due from other banks 97,785 404,380 41,734 543,899
Loans and advances 21,103,712 839,527 16,006 21,959,245
Investment securities 50,000 2,645,952 - 2,695,952
Other assets 152,284 42,832 4 195,120
Total assets 24,711,941 4,246,793 57,744 29,016,478
Liabilities
Due to other banks 67 - 3,290 3,357
Due to customers 20,833,859 1,872,370 362,918 23,069,147
Other liabilities 470,123 1,807 815 472,745
Total liabilities 21,304,049 1,874,177 367,023 23,545,249
Net position of financial instruments 3,407,892 2,372,616 (309,279) 5,471,229
F-84
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.3 Market risk (continued)
3.3.3 Currency risk (continued)
At 31 December 2012 AED USD Others Total
AED000 AED000 AED000 AED000
Total assets 23,644,604 2,144,392 368,566 26,157,562
Total liabilities 19,393,635 1,678,025 421,820 21,493,480
Net position of financial instruments 4,250,969 466,367 (53,254) 4,664,082
The Bank has no significant exposure to foreign currency risk as its functional currency is pegged to
the USD, the currency in which the Bank has the largest net open position at 31 December 2013 and
31 December 2012. All currency positions are within limits laid down by ALCO.
Off-balance sheet items
At 31 December 2013 AED USD Others Total
AED000 AED000 AED000 AED000
Credit commitments 6,635,974 12,875 - 6,648,849
Guarantees, acceptances and other exposures 463,090 152,504 46,648 662,242
Total 7,099,064 165,379 46,648 7,311,091
At 31 December 2012
Credit commitments 5,956,983 23,389 - 5,980,372
Guarantees, acceptances and other exposures 396,016 122,940 116,308 635,264
6,352,999 146,329 116,308 6,615,636
3.4 Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its obligations when they fall due as a result of
customer deposits being withdrawn, cash requirements from contractual commitments, or other cash
outflows, such as debt maturities. Such outflows would deplete available cash resources for customer
lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in
reductions in the balance sheet and sales of assets, or potentially an inability to fulfil lending
commitments. The risk that the Bank will be unable to do so is inherent in all banking operations and
can be affected by a range of institution-specific and market-wide events including, but not limited to,
credit events, systemic shocks and natural disasters.
3.4.1 Liquidity risk management process
The Bank manages its liquidity in accordance with Central Bank of the U.A.E. requirements and the
banks internal guidelines mandated by ALCO. Based on the directives of the ALCO, the Treasury
manages the liquidity of the Bank.
On the funding side, the bank has a large proportion of its assets in the form of own funds which reduces
the requirement for external funds. The bank relies on deposits from its relationship based retail and
corporate customers as its primary source of funding and only on a short term basis relies on interbank
borrowings to fund its assets. Deposits from customers generally have shorter maturities and a large
portion of them are repayable on demand as is endemic to these markets. The short term nature of these
deposits increases the Banks liquidity risk and the bank manages this risk through maintaining
F-85
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.4 Liquidity risk (continued)
3.4.1 Liquidity risk management process (continued)
competitive pricing and constant monitoring of market trends. Also, a most of the deposit customers of
the bank are relationship based and based on past trends these deposits that they maintain are sticky in
nature, thus reducing the liquidity risk to a large extent. The bank does not rely on large ticket deposits
and its depositor profile is very diverse leading to a more stable deposit funding.
On the deployment side, the Bank maintains a portfolio of highly liquid assets largely made up of
balances with the UAE Central Bank, certificates of deposits issued by the the Central Bank, inter-bank
facilities and investment securities including investments in local government bonds which can be
repoed to meet short term liquidity mismatches and be offloaded to meet longer term mismatches. The
Central Bank of the U.A.E. has prescribed reserve requirements on deposits ranging between 1% and
14% on time and demand deposits. As a contingency funding plan, the bank evaluates and keeps
ready debt financing plans which can be quickly executed if required.
The table below analyses assets and liabilities of the Bank into relevant maturity groupings based on the
remaining years from the reporting date to the contractual maturity date. The maturities of assets and
liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are
important factors in assessing the liquidity of the bank and its exposure to changes in interest rates and
exchange rates.
The Central Bank of the U.A.E. also imposes mandatory 1:1 advances to stable resources ratio (ASRR)
whereby loans and advances (combined with inter-bank placements having a remaining term of greater
than three months) should not exceed stable funds as defined by the Central Bank of the U.A.E. ALCO
monitors advances to deposits ratios on a daily basis. The bank on a daily basis also monitors the liquid
assets to total assets ratio and the Liquid Asset Ratio and has set up internal Management Action
Triggers to take suitable corrective actions once the internal thresholds have been reached.
F-86
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.4 Liquidity risk (continued)
3.4.1 Liquidity risk management process (continued)
At 31 December 2013, 22.7% (31 December 2012 20 %) of the Banks total assets was in liquid
assets. The ASRR as at 31 December, 2013 stood at 88.1% which is way above the minimum
requirement of 100%. Similarly the Liquid Assets Ratio of the Bank stood at 20% as at 31 December,
2013 which also reflecting a healthy liquidity position.
Up to
3 months
3-12
months
1-5
years
Over
5 years Total
AED000 AED000 AED000 AED000 AED000
At 31 December 2013
Assets
Cash and balances with the UAE
Central Bank 2,872,262 750,000 - - 3,622,262
Due from other banks 543,899 - - - 543,899
Loans and advances 3,166,779 479,725 8,458,382 9,854,359 21,959,245
Investment securities 42,268 50,000 907,441 1,696,243 2,695,952
Property and equipment, and other
assets 230,818 36,412 9,308 1,028,873 1,305,411
Total 6,856,026 1,316,137 9,375,131 12,579,475 30,126,769
Liabilities and shareholders
equity
Due to other banks 3,357 - - - 3,357
Due to customers 18,869,809 4,199,338 - - 23,069,147
Other liabilities and provision for
employees end of service
benefits 472,745 - - 65,450 538,195
Shareholders equity - - - 6,516,070 6,516,070
Total 19,345,911 4,199,338 - 6,581,520 30,126,769
Net liquidity gap (12,489,885) (2,883,201) 9,375,131 5,997,955 -
At 31 December 2012
Total assets 6,425,433 1,648,568 7,450,995 11,725,141 27,250,137
Total liabilities and equity 18,355,314 3,138,143 23 5,756,657 27,250,137
Net liquidity gap (11,929,881) (1,489,575) 7,450,972 5,968,484 -
3.4.2 Derivative cash flows
The Banks derivatives that will be settled on a gross basis comprise foreign exchange contracts.
F-87
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.4 Liquidity risk (continued)
3.4.2 Derivative cash flows (continued)
The table below analyses the Banks derivative financial instruments that will be settled on a gross basis
into relevant maturity groupings based on the remaining period at the reporting date to the contractual
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Up to
1 month
1-3
months
3-12
months
1-5
years
Over
5 years Total
AED000 AED000 AED000 AED000 AED000 AED000
At 31 December 2013
Foreign exchange contracts
Outflow 471,224 - - - - 471,224
Inflow 481,291 - - - - 481,291
At 31 December 2012
Foreign exchange contracts:
Outflow 51,017 - - - - 51,017
Inflow 50,371 - - - - 50,371
3.4.3 Off-balance sheet items
No later
than 1 year
1-5
years
Over
5 years Total
AED000 AED000 AED000 AED000
At 31 December 2013
Credit commitments 6,648,849 - - 6,648,849
Guarantees, acceptances and other financial facilities 662,208 34 - 662,242
Total 7,311,057 34 - 7,311,091
At 31 December 2012
Credit commitments 5,980,372 - - 5,980,372
Guarantees, acceptances and other financial facilities 634,219 1,045 - 635,264
Total 6,614,591 1,045 - 6,615,636
3.5 Fair values of financial assets and liabilities
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. Consequently, differences can arise
between the carrying values and fair value estimates of financial assets and liabilities. At 31 December
2013, the carrying value of the Banks financial assets and liabilities measured at amortised
approximate their fair values, except for the below mentioned financial asset:
Fair value Carrying value
2013 2012 2013 2012
AED000 AED000 AED000 AED000
Financial assets
Investment securities 2,631,967 1,617,175 2,653,264 1,544,190
F-88
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.5 Fair values of financial assets and liabilities (Continued)
Investment securities
Investment securities comprise interest-bearing debt instruments that are held-to-maturity or classified
as available-for-sale financial assets and measured at fair value. The fair value of the debt instruments
is based on quoted market prices.
3.6 Financial instruments
Categories of financial instruments
The following tables analyse the Banks financial assets and financial liabilities in accordance with
categories of financial instruments under IAS 39.
Loans and
receivables
Available
For sale
Fair value
through
profit or loss
Total
December 31, 2013 AED000 AED000 AED000 AED000
Assets
Investment securities 2,653,684 42,268 - 2,695,952
Derivative financial instruments - - 375 375
Cash and balances with the UAE central Bank 3,622,262 - - 3,622,262
Due from other Banks 543,899 - - 543,899
Loans and advances 21,959,245 - - 21,959,245
Other assets 195,120 - - 195,120
Total financial assets 28,974,210 42,268 375 29,016,853
Liabilities
financial
liabilities at
amortised
cost
Due to banks 3,357 - - 3,357
Due to customer 23,069,147 - - 23,069,147
Other liabilities 48,844 - - 48,844
Total financial liabilities 23,121,348 - - 23,121,348
F-89
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.6 Financial instruments (continued)
Loans and
receivables
Available
For sale
Fair value
through
profit or loss
Total
December 31, 2012
Assets
Investment securities 1,544,190 42,688 - 1,586,878
Derivative financial instruments - - 35 35
Cash and balances with the UAE central Bank 2,904,054 - - 2,904,054
Due from other Banks 1,195,831 - - 1,195,831
Loans and advances 20,283,427 - - 20,283,427
Other assets 187,372 - - 187,372
Total financial assets 26,114,874 42,688 35 26,157,597
Liabilities financial
liabilities at
amortised
cost
Due to banks 233,841 - - 233,841
Due to customer 20,719,725 - - 20,719,725
Other liabilities 94,931 - - 94,931
Total financial liabilities 21,048,497 - - 21,048,497
3.7 Fair value hierarchy
The fair value measurements are categorised into different levels in the fair value hierarchy based on
the inputs to valuation techniques used. The different levels are defined as follows:
Quoted market prices Level 1
Financial instruments are classified as Level 1 if their values are observable in an active market. Such
instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in
active markets where the quoted price is readily available, and the price represents actual and
regularly occurring market transactions.
Valuation techniques using observable inputs Level 2
Financial instruments classified as Level 2 have been valued using models whose inputs are
observable in an active market. Valuation based on observable inputs include financial instruments
such as forwards foreign exchange contracts which are valued using market standard pricing
techniques.
Valuation techniques using significant unobservable inputs Level 3
Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are
not based on observable market data (unobservable inputs). A valuation input is considered
observable if it can be directly observed from a transaction in an active market.
Unobservable input levels are generally determined based on observable inputs of a similar nature,
historical observations or other analytical techniques.
This hierarchy requires the use of observable market data when available. The Bank considers
relevant and observable market prices in its valuations where possible. The table below analyses
recurring fair value measurements for assets and liabilities.
F-90
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.7 Fair value hierarchy (continued)
The assets measured at fair value as per the hierarchy are disclosed in the table below:
31 December 2013 Quoted
market
prices
Level 1
Observable
inputs
Level 2
Significant
unobservable
inputs
Level 3 Total
AED000 AED000 AED000 AED000
Asset at fair value
Available for sale financial assets - - - -
- Investment securities debt 42,268 - - 42,268
Foreign currency forwards - 375 - 375
Asset at amortised cost
Investment securities 2,631,967 - - 2,631,967
2,674,235 375 - 2,674,610
31 December 2012
Available for sale financial assets
- Investment securities debt 42,688 - - 42,688
Foreign currency forwards - 35 - 35
Asset at amortised cost
Investment securities 1,617,175 - - 1,617,175
1,659,863 35 - 1,659,898
All the investments are quoted except foreign currency forwards. There are no transfers between levels
during the period hence no Level 3 reconciliation is presented.
3.8.1 Capital structure and capital adequacy as per Basel II requirement as at 31 December
2013
The Bank is required to report capital resources and risk-weighted assets under the Basel II Pillar 1
framework, as shown in the following table. The Bank has adopted standardised approach for
calculation of credit risk and market risk capital charge. On operational risk, alternative standardized
approach is followed for capital charge calculation under Pillar 1.
2013 2012
AED000 AED000
Tier 1 capital
Ordinary share capital 1,676,245 1,523,859
Share premium 110,350 110,350
Statutory and other reserves 2,877,477 2,294,911
Retained earnings 421,180 363,296
Total 5,085,252 4,292,416
Tier 2 capital - -
Total regulatory capital 5,085,252 4,292,416
Risk weighted assets
Credit risk 18,720,220 16,951,305
Market risk 4,618 3,633
Operational risk 849,176 714,989
Total risk weighted assets 19,574,014 17,669,927
Capital adequacy ratio on regulatory capital 25.98% 24.29%
Capital adequacy ratio on Tier 1 capital 25.98% 24.29%
F-91
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.7 Fair value hierarchy (continued)
3.8.1 Capital December structure 2013 and capital adequacy as per Basel II requirement as at
31 December 2013 (continued)
The above ratios are computed without considering the current year profits and proposed cash
dividends. On approval of the Consolidated Financial statements by Central Bank of UAE and
thereafter by the shareholders, the capital position and risk assets ratio will be as follows:
Total Tier 1 capital 5,677,947 5,085,671
Total Tier 2 capital - -
Total capital base 5,677,947 5,085,671
Risk asset ratio on total capital base (%) 29.01% 28.78%
Risk asset ratio on tier 1 capital base (%) 29.01% 28.78%
3.8 Capital management
3.8.2 Analysis of the Banks exposure based on Basel II standardised approach
On balance
sheet net
outstanding
Off
balance
sheet net
exposure
after credit
conversion
Credit Risk Mitigation (CRM)
Exposure
before
CRM CRM After CRM
Risk
weighted
Assets
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2013
Claims on sovereigns 3,683,882 - 3,683,882 - 3,683,882 -
Claims on PSEs 560,438 - 560,438 - 560,438 -
Claims on banks 1,438,522 97 1,438,619 - 1,438,619 556,692
Claims on corporates 1,515,044 308,768 1,823,812 135,630 1,688,182 1,585,632
Claims included in
the regulatory retail
portfolio 17,355,802 230,816 17,586,618 68,156 17,518,462 13,410,836
Claims secured by
residential property 3,383,181 - 3,383,181 - 3,383,181 1,459,004
Claims secured by
commercial real
estate 58,485 - 58,485 - 58,485 58,485
Past due loans 226,820 - 226,820 - 226,820 324,664
Other assets 1,970,102 - 1,970,102 - 1,970,102 1,324,907
Total claims 30,192,276 539,681 30,731,957 203,786 30,528,171 18,720,220
Of which:
Rated exposure 2,995,486
Unrated exposure 27,736,471
Total exposure 30,731,957
F-92
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.8 Capital management (continued)
3.8.2 Analysis of the Banks exposure based on Basel II standardised approach (continued)
On balance
sheet net
outstanding
Off
balance
sheet net
exposure
after credit
conversion
Credit Risk Mitigation (CRM)
Exposure
before
CRM CRM After CRM
Risk
weighted
Assets
AED000 AED000 AED000 AED000 AED000 AED000
31 December 2012
Claims on sovereigns 2,755,627 - 2,755,627 - 2,755,627 -
Claims on PSEs 264,639 - 264,639 - 264,639 -
Claims on banks 1,966,876 - 1,966,876 - 1,966,876 651,759
Claims on corporates 604,689 466,000 1,070,689 161,029 909,660 909,660
Claims included in
the regulatory retail
portfolio 16,135,758 29,988 16,165,746 89,693 16,076,053 12,163,873
Claims secured by
residential property 3,377, 069 - 3,377,069 - 3,377,069 1,518,297
Claims secured by
commercial real
estate 27,750 - 27,750 - 27,750 27,750
Past due loans 263,788 - 263,788 - 263,788 376,527
Other assets 1,906,108 - 1,906,108 - 1,906,108 1,303,439
Total claims 27,302,304 495,988 27,798,292 250,722 27,547,570 16,951,305
Of which:
Rated exposure 2,231,515
Unrated exposure 25,566,777
Total exposure 27,798,292
3.8.3 Capital requirement for market risk under standardised approach as at 31 December
Market Risk
Risk Weighted Assets Capital Charge
2013 2012 2013 2012
AED000 AED000 AED000 AED000
Foreign exchange risk 4,618 3,633 554 436
Capital charge for year ended 31 December 2013 has been calculated at 12% (2012: 12%)
F-93
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
3 Financial risk management (continued)
3.8 Capital management (continued)
3.8.4 Gross exposures and credit risk mitigation
Exposures Risk Weighted Assets
2013 2012 2013 2012
AED000 AED000 AED000 AED000
Gross exposure prior to Credit Risk Mitigation 30,731,957 27,798,292 18,918,254 17,192,835
Less: Exposures covered by eligible financial
collateral (203,786) (250,722) (198,034) (241,530)
Net Exposures after Credit Risk Mitigation 30,528,171 27,547,570 18,720,220 16,951,305
For the credit risk mitigation and credit risk management refer note 3.2.
4 Critical accounting estimates, and judgements in applying accounting
policies
The Groups consolidated financial statements and its financial results are influenced by accounting
policies, assumptions, estimates and management judgement, which necessarily have to be made in
the course of preparation of the consolidated financial statements. The Group makes estimates and
assumptions that affect the reported amounts of assets and liabilities within the next financial year. All
estimates and assumptions required in conformity with IFRS are best estimates undertaken in
accordance with applicable standards. Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Accounting policies and management judgement
for certain items are especially critical for the Groups results and financial situation due to their
materiality.
(a) Impairment losses on loans and advances
The Group reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining
whether an impairment loss should be recorded in the income statement, the Group makes
judgements as to whether there is any observable data indicating that there is a measurable decrease
in the estimated future cash flows from a portfolio of loans before the decrease can be identified with
an individual loan in that portfolio. This evidence may include observable data indicating that there has
been an adverse change in the payment status of borrowers in a group, or national or local economic
conditions that correlate with defaults on assets in the group. Management takes into account the
historical loss experience in estimating future cash flows in assessing the loan portfolio for impairment.
The methodology and assumptions used for estimating both the amount and timing of future cash flows
are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
A +/-5% change in the provision would increase/decrease the profit by AED 19.8 million (2012:
AED 16 million).
(b) Held-to-maturity investments
The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires judgement.
In making this judgement, the Group evaluates its intention and ability to hold such investments to
maturity. If the Group fails to hold these investments to maturity other than in specific circumstances
for example, selling an insignificant amount close to maturity or for exceptional credit related reasons
it will be required to reclassify the entire class as available-for-sale. The investments would therefore
be measured at fair value not amortised cost.
F-94
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
5 Cash and balances with the UAE Central Bank
2013 2012
AED000 AED000
Cash in hand (Note 30) 568,206 508,696
Balances with UAE Central Bank 198,242 -
Statutory deposit with the UAE Central Bank 2,105,814 1,645,358
Certificates of deposit with the UAE Central Bank 750,000 750,000
3,622,262 2,904,054
The statutory deposit with the UAE Central Bank is not available to finance the day to day operations of
the bank. Cash in hand, balances and statutory deposit with the UAE Central Bank are non-interest
bearing. Certificates of deposit carry an interest rate 0.45% (2012: 0.50%) per annum.
6 Due from other banks
2013 2012
AED000 AED000
Placements with other banks 275,475 664,580
Demand deposits 170,942 413,786
Clearing account balances 97,482 117,465
543,899 1,195,831
Placements with other banks carry an interest rate of 0.08% (2012: 0.12% to 0.53%) per annum.
The above represents deposits and balances due from:
Banks in UAE 373,257 782,095
Banks outside UAE 170,642 413,736
543,899 1,195,831
7 Loans and advances
7(a) Loans and advances
2013 2012
AED000 AED000
Retail loans 21,400,640 20,082,704
Corporate loans 954,218 524,833
Total loans and advances 7 (b) 22,354,858 20,607,537
Provision for impairment 7 (c) (395,613) (324,110)
Net loans and advances 21,959,245 20,283,427
7(b) Analysis of loans and advances
Commercial loans and overdrafts 9,778,256 9,600,684
Retail Loans 6,848,808 7,051,179
Credit Cards 2,864,215 2,713,784
Auto loans 1,685,885 1,241,890
Islamic financing assets (Note 8) 1,177,694 -
Total loans and advances 22,354,858 20,607,537
F-95
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
7 Loans and advances (continued)
7(c) Provision for impairment
Retail
loans
Corporate
loans Total
31 December 2013 AED000 AED000 AED000
Balance brought forward 292,203 31,907 324,110
Impairment charge/ (release) (Note 7(d)) 393,145 (1,050) 392,095
Written off during the year (320,316) (276) (320,592)
Balance carried forward 365,032 30,581 395,613
31 December 2012
Balance brought forward 305,351 32,627 337,978
Impairment charge/ (release) (Note 7(d)) 250,751 (302) 250,449
Written off during the year
(263,899) (418) (264,317)
Balance carried forward 292,203 31,907 324,110
7(d) Impairment charge/ (release) on loans and advances net of write (back)/off
Retail
loans
Corporate
loans Total
31 December 2013 AED000 AED000 AED000
Impairment charge / (release) 393,145 (1,050) 392,095
Net recovery during the year (51,472) - (51,472)
341,673 (1,050) 340,623
31 December 2012
Impairment charge 250,751 (302) 250,449
Net recovery during the year (41,334) - (41,334)
209,417 (302) 209,115
Net recovery mainly represents amounts subsequently recovered from fully written off loans.
7(e) Impaired loans and provision coverage
2013 2012
AED000 AED000
Aggregate impaired loans 539,840 516,509
Provision held 395,613 324,110
Coverage ratio 73.28% 62.75%
The ratio of provisions held to aggregate impaired loans (coverage ratio) is an indicator of the Banks
achievements in managing lower default rates and improving recovery rates. For computation of above
ratio, the bank has considered total impairment provision including the portfolio provision for risk
inherent in the banks portfolio (Note 3.2.2).
F-96
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
8 Islamic financing assets
2013 2012
AED000 AED000
Analysis of Islamic financing assets
Islamic Salam personal finance 730,088 -
Islamic Auto Murabaha 370,079 -
Islamic business finance 34,938 -
Islamic credit cads 42,589 -
Total Islamic financing assets 1,177,694 -
Provision for impairment (5,312) -
1,172,382 -
The Islamic operations were launched in January 2013 and hence there are no comparatives to report.
9 Investment securities
9(a) Total investment securities
2013 2012
AED000 AED000
Available-for-sale securities
Quoted debt securities 42,268 42,688
Held-to-maturity securities
Quoted debt securities 2,653,684 1,544,190
Total 2,695,952 1,586,878
9(b) Movement in investment securities
Available-for-
sale
securities
Held-to-
maturity
securities Total
AED000 AED000 AED000
At 1 January 2012 151,426 1,012,387 1,163,813
Purchases - 641,074 641,074
Disposals / Maturity (118,365) (110,605) (228,970)
Net changes in fair value (Note 19) 9,627 - 9,627
Amortisation of discount/(premium) - 1,334 1,334
At 31 December 2012 42,688 1,544,190 1,586,878
Purchases 106,483 1,829,092 1,935,575
Disposal* /Maturity (106,483) (706,199) (812,682)
Net changes in fair value (Note 19) (420) - (420)
Amortisation of discount/(Premium) - (13,399) (13,399)
At 31 December 2013 42,268 2,653,684 2,695,952
* Management undertook a review of the held to maturity bonds portfolio in April 2013 and a decision
was taken to exit two bonds with carrying value of AED 165.2 million. This was an exceptional event
arising due to credit concerns and is not expected to recur. All other reductions are due to redemptions
at normal maturity date.
F-97
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
9 Investment securities (continued)
9(c) Income from investment securities
2013 2012
AED000 AED000
Net Interest income on debt securities 108,535 73,056
Release of fair value to income statement on maturity/ disposal of available-for-
sale investment securities (Note 19) 26,576 (1,515)
Profit on sale of HTM securities 8,410 -
Dividend and other income 6,322 -
149,843 71,541
F-98
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F-99
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
11 Other assets
2013 2012
AED000 AED000
Interest receivable 175,973 164,794
Profit receivable on Islamic financing assets 11,941 -
Prepayments and deposits 54,229 61,324
Others 34,395 18,056
276,538 244,174
12 Due to other banks
Term deposits - 100,000
Current account balance with UAE Central Bank (Note 30) - 133,376
Demand deposits 3,357 465
3,357 233,841
13 Due to customers
Time deposits 7,104,006 9,249,064
Current accounts 9,573,066 7,817,296
Savings deposits 3,416,942 2,749,198
Call deposits 1,010,673 904,167
Islamic customer deposits (As per Note 14) 1,964,460 -
23,069,147 20,719,725
Time deposits include AED255 million (2012: AED 280 million) held by the bank as cash collateral for
loans and advances granted to customers.
14 Islamic customer deposits
Wakala investment deposits 1,017,385 -
Mudaraba term investment deposits 55,673
Qard-E-Hasan - current accounts 145,001 -
Mudaraba - current accounts 618,427
Mudaraba - savings deposits 125,376 -
Mudaraba - call deposits 2,598 -
1,964,460 -
The Islamic operations were launched in January 2013 and hence there are no comparatives to report.
15 Other liabilities
2013 2012
AED000 AED000
Interest payable 39,738 94,931
Profit distributable in Islamic customer deposits 9,106 -
Accrued expenses 155,364 175,797
Managers cheques issued 150,123 151,215
Others 118,414 117,971
472,745 539,914
F-100
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
16 Provision for employees end of service benefits
2013 2012
AED000 AED000
At 1 January 61,442 53,067
Charge for the year (Note 26) 13,776 15,797
Payment during the year (9,768) (7,422)
At 31 December 65,450 61,442
In accordance with the provisions of IAS 19, management has carried out an exercise to assess the
present value of its obligations as at 31 December 2013, using the projected unit credit method, in
respect of employees end of service benefits payable under the UAE Labour Law. The expected
liability at the date of leaving the service has been discounted to net present value using a discount
rate of 4.48% (2012: 3%). Under this method an assessment has been made of an employees
expected service life with the Group and the expected basic salary at the date of leaving the service.
Management has assumed average annual increment/promotion costs of 3% (2012: 5%).
17 Share capital
The authorised, issued and fully paid share capital comprises 1,676.25 million shares of AED 1 each
(2012: 1,523.86 million shares of AED 1 each).
At the meeting of the shareholders held on 24 March 2013, the shareholders of the Bank approved a
stock dividend (issue of bonus shares) in respect of year 2012 at 10% of the issued and paid up capital
amounting to AED 152.39 million (2011: AED 138.53 million) and cash dividend at 40% of issued and
paid up capital amounting to AED 609.54 million (2011: AED 415.6 million). Accordingly, the authorised
and issued share capital was increased by the amount of stock dividend.
18 Share premium
Share premium represents amounts received from shareholders in excess of the nominal value of the
shares allotted to them. In accordance with the Articles of Association of the Bank, share premium is
not available for distribution.
F-101
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F-102
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
20 Contingencies and commitments
2013 2012
AED000 AED000
Commitments to extend credit 6,648,849 5,980,372
Guarantees 570,353 492,854
Letters of credit 62,951 111,708
Acceptances 28,938 30,702
Capital commitments 11,937 37,324
7,323,028 6,652,960
Letters of credit are written undertakings by the Bank on behalf of a customer authorising a third party
to draw drafts on the Bank, up to a stipulated amount, under specific terms and conditions. These
letters of credit are collateralised by the underlying shipments of goods to which they relate and
therefore have significantly less risk.
Cash requirements under guarantees and standby letters of credit are considerably less than the
amount of the commitment because the Bank does not generally expect the third party to draw funds
under the agreement.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form
of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the
Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss, though not easy to quantify, is considerably less than the total unused
commitments since most commitments to extend credit are contingent upon customers maintaining
specific credit standards. While there is some risk associated with the remainder of commitments, the
risk is viewed as modest, since it results firstly from the possibility of the unused portion of loan
authorisations being drawn by the customer, and second, from these drawings subsequently not being
repaid as due. The Bank monitors the term to maturity of credit commitments because longer term
commitments generally have a greater degree of risk than shorter term commitments. The total
outstanding contractual amount of commitments to extend credit does not necessarily represent future
cash requirements, since many of these commitments will expire or terminate without being funded.
Commitments to extend credit amounting to AED 6,571million (31 December 2012 AED 5,855 million)
are revocable at the option of the Bank.
21 Forward foreign exchange contracts
Forward foreign exchange contracts comprise commitments to purchase foreign and domestic
currencies on behalf of customers and in respect of the Banks undelivered spot transactions.
The Bank had the following forward exchange transactions outstanding.
Contract amount Fair value
AED000 AED000
31 December 2013 481,291 375
31 December 2012 51,017 35
The positive fair values of the outstanding foreign exchange forward contracts are recorded in other
assets.
F-103
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
22 Interest income and expense
2013 2012
AED000 AED000
Interest income
Commercial loans and overdrafts 1,318,959 1,310,697
Retail loans 510,512 562,103
Credit cards 613,028 617,069
Auto loans 121,708 88,034
Other banks 3,235 4,099
Deposits with the UAE Central Bank 2,980 1,848
2,570,422 2,583,850
Interest expense
Due to customers 246,703 330,477
Subordinated debt - 19,993
Borrowings from other banks 802 92
247,505 350,562
23 Income from Islamic financing and distribution to depositors
2013 2012
AED000 AED000
Islamic Salam personal finance 33,623 -
Islamic Auto Murabaha 11,358 -
Islamic business finance 658 -
45,639
Distribution of profit on Islamic term investment deposits 8,421 -
Distribution of profit on Islamic demand deposits 3,163 -
11,584 -
24 Fee and commission income
2013 2012
AED000 AED000
Credit Cards 176,159 187,870
Commercial loans 81,852 70,612
Retail loans 17,970 13,074
Mortgage Loans 29,704 24,174
Auto Loans 30,981 18,123
Trade Finance 15,572 13,191
Fiduciary income 75,035 72,847
Others 101,590 88,283
528,863 488,174
F-104
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
25 Operating expenses
2013 2012
AED000 AED000
Staff costs (Note 26) 597,280 610,342
Occupancy costs 90,567 94,968
Marketing expenses 32,514 31,600
Depreciation (Note 10) 126,908 99,860
Services 49,520 46,104
Legal and consultancy fees 53,376 45,979
Computer expenses 65,859 55,193
Outsourced staff costs 295,578 247,108
Others 67,284 50,096
1,378,886 1,281,250
26 Staff costs
2013 2012
AED000 AED000
Salaries and allowances 554,663 567,309
Pension 10,584 9,633
End of service benefits (Note 16) 13,776 15,797
Others 18,257 17,603
597,280 610,342
27 Earnings per share
The basic earnings per share is calculated by dividing the net profit attributable to shareholders by the
weighted average number of ordinary shares in issue during the period. In accordance with IAS 33
Earnings Per Share, the impact of bonus shares issued has been considered retrospectively while
computing the weighted average number of ordinary shares during all periods presented.
2013 2012
Net profit for the year in AED 1,430,818,246 1,402,798,602
Weighted average number of shares in issue 1,676,245,428 1,676,245,428
Basic earnings per share in AED 0.85 0.84
There were no potentially dilutive shares as at 31 December 2013 and 31 December 2012.
28 Dividends
At the meeting held on 29 January 2014, the Board of Directors proposed a cash dividend of 50%
amounting to AED 838.12 million of the issued and paid up capital in respect of the year ended
31 December 2013 (2012: 10% stock dividend amounting to AED152.39 million and 40% cash
dividend amounting to AED 609.54 million).
Dividends are not accounted for until they have been approved at the Annual General Meeting and,
accordingly, the proposed dividend will be accounted for as an appropriation of retained earnings of the
year ended 31 December 2013 after it has been approved by the shareholders.
F-105
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
29 Related party transactions and balances
Related parties comprise shareholders, key management, businesses controlled by shareholders and
directors as well as businesses over which they exercise significant influence. During the year, the
Bank entered into significant transactions with related parties in the ordinary course of business. The
transactions and balances arising from these transactions are as follows:
2013 2012
AED000 AED000
Transactions during the year
Interest/Profit income 955 1,333
Interest/Profit expense 11,201 19,528
Commission income 742 777
Directors remuneration 5,216 5,212
Remuneration payable to key management personnel 39,104 40,374
Balances at 31 December:
Loans and advances:
- Shareholders and their related companies 25,740 107
- Directors and their related companies 3,875 231
- Key management personnel 17,899 20,018
47,514 20,356
Due to customers:
- Shareholders and their related companies 1,073,772 642,582
- Directors and their related companies 78,247 42,194
- Key management personnel 9,748 22,924
1,161,767 707,700
Irrevocable commitments, contingent liabilities and forward contracts
- Shareholders and their related companies 74,262 118,752
- Directors and their related companies 6,657 445
80,919 119,197
30 Cash and cash equivalents
2013 2012
AED000 AED000
Cash in hand (Note 5) 568,206 508,696
Current account balance with UAE Central Bank (Note 5, 12) 198,242 (133,376)
Due from other banks (Note 6) 543,899 1,195,831
1,310,347 1,571,151
Less : Due from other banks with original maturity of 3 months or more - (206,952)
1,310,347 1,364,199
31 Segments analysis
Following the management approach of IFRS 8, operating segments are reported in accordance with
the internal reporting to the management, which is responsible for allocating resources to the
reportable segments and assesses its performance. All operating segments used by the Bank meet the
definition of a reportable segment under IFRS 8.
The Bank has three main business segments:
Retail banking incorporating private customer current accounts, savings accounts, deposits,
credit and debit cards, customer loans and mortgages;
F-106
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
31 Segments analysis (continued)
Corporate banking incorporating transactions with corporate bodies including government and
public bodies, small and medium entities; and comprising of loans, advances, deposits and trade
finance transactions; and
Treasury incorporating activities of the dealing room, related money market, foreign exchange
transactions with other banks and financial institutions including the UAE Central Bank, none of
which constitute a separately reportable segment.
The above segments include conventional and Islamic products and services of the Bank. As the
Banks segment operations are all financial with a majority of revenues deriving from interest and fees
and commission income, the management relies primarily on revenue and segmental results to assess
the performance of the segment.
Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-
segment revenue. Interest charged for these funds is based on the Banks funds transfer pricing policy.
There are no other material items of income or expense between the business segments.
The Banks management reporting is based on a measure of net profit comprising net interest income,
loan impairment charges, net fee and commission income, other income and non-interest expenses.
The segment information provided to the management for the reportable segments for the year ended
31 December 2013 is as follows:
Retail
banking
Corporate
banking
Treasury
and others Unallocated Total
AED000 AED000 AED000 AED000 AED000
31 December 2013
External interest income 2,499,488 64,719 6,215 - 2,570,422
External interest expense (151,401) (72,349) (23,755) - (247,505)
Income from Islamic financing 45,639 - - - 45,639
Islamic profit distribution (9,789) (1,795) - - (11,584)
Transfer pricing income/expense (67,984) 46,634 21,350 - -
Net interest income and
Income from Islamic
financing 2,315,953 37,209 3,810 - 2,356,972
Non interest income 539,264 67,825 186,266 - 793,355
Operating income 2,855,217 105,034 190,076 - 3,150,327
Operating expense excluding
depreciation (888,948) (79,307) (4,911) (278,812) (1,251,978)
Depreciation (56,233) (2,035) (60) (68,580) (126,908)
Total Operating expense (945,181) (81,342) (4,971) (347,392) (1,378,886)
Impairment charge net of write off
/ recovery (341,673) 1,050 - - (340,623)
Net profit / (loss) 1,568,363 24,742 185,105 (347,392) 1,430,818
Segment assets 21,935,133 925,936 6,176,724 - 29,037,793
Unallocated assets - - - 1,088,976 1,088,976
Total assets 21,935,133 925,936 6,176,724 1,088,976 30,126,769
Segment liabilities 13,545,444 8,314,559 1,358,217 - 23,218,220
Unallocated liabilities 392,479 392,479
Total liabilities 13,545,444 8,314,559 1,358,217 392,479 23,610,699
F-107
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
31 Segments analysis (continued)
Retail
banking
Corporate
banking
Treasury
and
others Unallocated Total
AED000 AED000 AED000 AED000 AED000
31 December 2012
External interest income 2,543,417 34,486 5,947 - 2,583,850
External interest expense (215,334) (91,381) (43,847) - (350,562)
Transfer pricing income/expense (102,136) 67,298 34,838 - -
Net Interest income 2,225,947 10,403 (3,062) - 2,233,288
Non interest income 512,913 41,833 105,130 - 659,876
Operating income 2,738,860 52,236 102,068 - 2,893,164
Operating expense excluding
depreciation (860,082) (69,036) (5,414) (246,858) (1,181,390)
Depreciation (50,974) (1,994) (77) (46,815) (99,860)
Total Operating expense (911,056) (71,030) (5,491) (293,673) (1,281,250)
Impairment charge net of write off /
recovery (209,417) 302 - - (209,115)
Net profit / (loss) 1,618,387 (18,492) 96,577 (293,673) 1,402,799
Segment assets 20,571,820 493,955 5,078,492 - 26,144,267
Unallocated assets 1,105,870 1,105,870
Total assets 20,571,820 493,955 5,078,492 1,105,870 27,250,137
Segment liabilities 12,737,106 6,835,888 1,548,501 - 21,121,495
Unallocated liabilities 433,427 433,427
Total liabilities 12,737,106 6,835,888 1,548,501 433,427 21,554,922
32 Fiduciary activities
The Bank holds assets in a fiduciary capacity for its customers without recourse to itself. At
31 December 2013, such assets amounted to AED 1,666.6 million (2012: AED1,109.14 million) and
are excluded from these consolidated financial statements of the bank.
33 List of subsidiaries
The following entities have been treated as subsidiaries for the purpose of consolidation as per the
Banks accounting policy as disclosed in Note 2(b). The Banks interests, held directly or indirectly, in
the subsidiaries are as follows:
Name of subsidiary
Proportion of
ownership
interest
Country of
incorporation Principal activities
RAK Islamic Finance company
PVT. J.S.C
99.99% UAE Islamic financing
Back office support services
(BOSS) FZCO
80% UAE Back office support
RAK Technology FZCO 80% UAE Information technology support
During the year 2013, BOSS FZCO and RAK technologies FZCO generated nil profit and have
negligible net assets hence non-controlling interest deemed to be immaterial.
F-108
Notes to the consolidated financial statements for the year ended 31 December
2013 (continued)
34 Subordinated debt
In 2009 the Bank received funds from the Ministry of Finance as per an agreement dated 31 December
2009 as part of a facility set up by the UAE Central Bank to provide liquidity support to banks operating
in the UAE and for stimulating and maintaining economic activity in the Country. During year 2012 the
subordinated debt of AED 684.47 million was settled in full by the Bank.
F-109
Review report to the Directors of
The National Bank of Ras Al-Khaimah (P.S.C.)
Introduction
We have reviewed the accompanying condensed consolidated interim statement of financial position
and the explanatory notes of The National Bank of Ras Al- Khaimah (P.S.C.) (the Bank) and its
subsidiaries (together referred to as the Group) as at 31 March 2014 and the related condensed
consolidated interim statements of income, comprehensive income, changes in equity and cash flows
for the three month period then ended. Management is responsible for the preparation and
presentation of this condensed consolidated interim financial information in accordance with
International Accounting Standard 34 Interim Financial Reporting (IAS 34). Our responsibility is to
express a conclusion on this condensed consolidated interim financial information based on our
review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements
2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A
review of condensed consolidated interim financial information consists of making inquiries, primarily of
persons responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying condensed consolidated interim financial information is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting.
PricewaterhouseCoopers
28 April 2014
Paul Suddaby
Registered Auditor Number 309
Dubal, United Arab Emirates
F-110
The National Bank of Ras Al-Khaimah (P.S.C.)
Condensed consolidated statement of financial position
31 March
2014
31 December
2013
Note (reviewed) (audited)
AED000 AED000
ASSETS
Cash and balances with UAE Central Bank 3 3,502,701 3,622,262
Due from other banks 4 560,040 543,899
Loans and advances 5 22,588,144 21,959,245
Investment securities 7 3,557,700 2,695,952
Property and equipment 8 1,006,540 1,028,873
Other assets 9 302,888 276,538
Total assets 31,518,013 30,126,769
LIABILITIES
Due to other banks 570,772 3,357
Deposits from customers 10 23,515,976 23,069,147
Other liabilities 12 1,350,687 472,745
Provision for employees end of service benefits 67,489 65,450
Total liabilities 25,504,924 23,610,699
Equity
Share capital 13 1,676,245 1,676,245
Share premium 110,350 110,350
Retained earnings 948,884 1,452,439
Other reserves 14 3,277,610 3,277,036
Total equity 6,013,089 6,516,070
Total liabilities and equity 31,518,013 30,126,769
This condensed consolidated interim financial information was approved by the Board Audit Committee
on 28 April 2014 and was signed on its behalf by:
Peter William England
Chief Executive Officer
The notes 1 to 28 form an integral part of the condensed consolidated interim financial statements
F-111
The National Bank of Ras Al-Khaimah (P.S.C.)
Condensed consolidated income statement (reviewed)
Three months ended
31 March
2014 2013
Note AED000 AED000
Interest income 17 667,743 666,891
Interest expense 17 (51,329) (72,537)
Net interest income 616,414 594,354
Income from Islamic financing 18 30,080 843
Distribution to depositors 18 (7,281) (239)
Income from Islamic financing net of distribution to depositors 22,799 604
Net interest income and income from Islamic products net of
distribution to depositors 639,213 594,958
Net fees and commission income 19 149,504 129,638
Foreign exchange income (net) 20,179 17,012
Investment income 20 2,340 159
Other operating income (net) 13,441 10,630
Non-interest income 185,464 157,439
Operating income 824,677 752,397
Operating expenses (359,767) (322,990)
Provision for impairment of loans and advances net of write backs 5(d) (130,342) (61,430)
Net profit for the period 334,568 367,977
Earnings per share
Basic and diluted 21 AED 0.20 AED 0.22
The notes 1 to 28 form an integral part of the condensed consolidated interim financial statements
F-112
The National Bank of Ras Al-Khaimah (P.S.C.)
Condensed consolidated statement of comprehensive income (reviewed)
Three months ended
31 March
2014 2013
AED000 AED000
Profit for the period 334,568 367,977
Other comprehensive income:
Net changes in fair value of available-for-sale investment securities 7 574 1,826
Other comprehensive income for the period 574 1,826
Total comprehensive income for the period 335,142 369,803
The notes 1 to 28 form an integral part of the condensed consolidated interim financial statements
F-113
The National Bank of Ras Al-Khaimah (P.S.C.)
Condensed consolidated statement of changes in equity (reviewed)
Share
capital
Share
premium
Retained
earnings
Other
reserves Total
AED000 AED000 AED000 AED000 AED000
At 1 January 2014 1,676,245 110,350 1,452,439 3,277,036 6,516,070
Dividend (note 13) - - (838,123) - (838,123)
Total comprehensive income for the
period - - 334,568 574 335,142
At 31 March 2014 1,676,245 110,350 948,884 3,277,610 6,013,089
At 1 January 2013 1,523,859 110,350 1,183,109 2,877,897 5,695,215
Dividend - - (609,544) - (609,544)
Total comprehensive income for the
period - - 367,977 1,826 369,803
At 31 March 2013 1,523,859 110,350 941,542 2,879,723 5,455,474
See note 13 for details of cash dividend in respect of the year ended 31 December 2013.
The notes 1 to 28 form an integral part of the condensed consolidated interim financial statements
F-114
The National Bank of Ras Al-Khaimah (P.S.C.)
Condensed consolidated statement of cash flows (reviewed)
Three months ended
31 March
Note
2014
AED000
2013
AED000
Operating activities
Net Profit for the period 334,568 367,977
Adjustments:
Provision for impairment of loans and advances 5(d) 147,061 75,448
Depreciation 8 31,922 29,619
Provision for employees end of service benefits 3,873 3,360
Gain on disposal of property and equipment (199) (228)
Amortisation of premium / (discount) relating to securities held to
maturity 7 3,368 2,445
Gain on held for trading investment securities 7 (739) -
Operating cash flows before payment of employees end of service
benefits and changes in assets and liabilities: 519,854 478,621
Payment of employees end of service benefits (1,834) (2,416)
Changes in assets and liabilities:
Deposits with the UAE Central Bank 3 (37,436) (62,893)
Due from other banks with original maturities of three months or over - 120,902
Loans and advances, Islamic Financing assets net of provisions for
impairment 5,6 (775,960) 14,966
Other assets 9 (26,350) (40,620)
Due to other banks (net of amount due to Central Bank) 567,415 1,208,482
Deposits from customers 10,11 446,829 (298,463)
Other liabilities 12 39,819 (71,243)
Net cash generated from operating activities 732,337 1,347,336
Investing activities
Purchase of investment securities 7 (863,803) (1,422,936)
Purchase of property and equipment 8 (9,595) (29,499)
Proceeds from disposal of property and equipment 205 293
Net cash used in investing activities (873,193) (1,452,142)
Financing activities
Dividends Paid - -
Net cash used in financing activities - -
Net decrease in cash and cash equivalents (140,856) (104,806)
Cash and cash equivalents, beginning of the period 1,310,347 1,364,199
Cash and cash equivalents, end of the period 23 1,169,491 1,259,393
The notes 1 to 28 form an integral part of the condensed consolidated interim financial statements
F-115
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014
1 Incorporation and principal activities
The National Bank of Ras Al-Khaimah (P.S.C.) (the Bank) is a public shareholding company
incorporated in the Emirate of Ras Al-Khaimah in the United Arab Emirates (UAE). The head office of
the Bank is located at the National Bank of Ras Al-Khaimah building, Al Rifa area, Exit No. 129, Sheikh
Mohammed Bin Zayed road, Ras Al-Khaimah.
The Bank is engaged in providing retail and commercial banking services through a network of thirty
four branches in the UAE.
At 31 March 2014, The National Bank of Ras Al-Khaimah (P.S.C) comprises the Bank and three
subsidiaries (together the Group). These subsidiaries are RAK Islamic Finance Pvt. J.S.C in which
the Bank owns 99.9% , BOSS FZCO and RAK Technologies FZCO in which the Bank owns 80%. RAK
Islamic Finance Pvt. J.S.C has an authorised and issued capital of AED 100 million, and was
incorporated to enable the Bank to sell sharia compliant financial products. BOSS FZCO and RAK
Technologies FZCO has been incorporated to provide back office support services to the Bank. Both
BOSS FZCO and RAK Technologies FZCO have an authorised and issued share capital of AED
500,000 each and were formed under the Dubai Silicon Oasis Authority guidelines.
The condensed consolidated interim financial information for the three months ended 31 March 2014
comprises the Bank and its subsidiaries (together referred to as the Group).
2 Significant accounting policies
2.1 Basis of preparation
The condensed consolidated interim financial information is prepared in accordance with International
Accounting Standard (IAS) 34 Interim Financial Reporting. The condensed consolidated interim
financial information is prepared under the historical cost convention as modified by the revaluation of
available-for-sale financial assets and derivative financial instruments.
The accounting policies applied in the preparation of the condensed consolidated interim financial
information are consistent with those applied in the annual financial statements for the year ended
31 December 2013. The policies below are not a complete list of significant accounting policies which
are included in the 2013 Financial Statements.
The condensed consolidated interim financial information should therefore be read in conjunction with
the annual financial statements for year ended 31 December 2013.
Costs that occur unevenly during the financial year are anticipated or deferred in the condensed
consolidated interim financial information only if it would also be appropriate to anticipate or defer such
costs at the end of the financial year.
2.1 Application of new and revised International Financial Reporting Standards (IFRSs)
2.1.1 New and revised IFRSs effective for accounting periods beginning January 1, 2014
Amendments to IAS 32-Financial Instruments requires presentation to clarify certain aspects because
of diversity in application of the requirements on offsetting, focused on four main areas:
the meaning of currently has a legally enforceable right of set-off
the application of simultaneous realisation and settlement
the offsetting of collateral amounts
the unit of account for applying the offsetting requirements
there is no impact of these provision on the interim financial statement of the Group
F-116
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.1 Basis of preparation (continued)
2.1.1 New and revised IFRSs effective for accounting periods beginning January 1,
2014 (continued)
Amendments to IFRS 10-Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other
Entities and IAS 27 Separate Financial Statements relate only to investment entities, therefore will not
apply to the Bank.
Amendment to IAS 36-Impairment of Assets to reduce the circumstances in which the recoverable
amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required,
and to introduce an explicit requirement to disclose the discount rate used in determining impairment
(or reversals) where recoverable amount (based on fair value less costs of disposal) is determined
using a present value technique.
Amendment to IAS 39-Financial Instruments: Recognition and Measurement make it clear that there is
no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria
are met. Other than the above, there are no other IFRSs or IFRIC interpretations that were effective for
the first time for the financial year beginning January 1, 2014 that have had a material impact on
Banks condensed consolidated interim financial information.
2.1.2 Standards and Interpretations in issue not yet effective
The Bank has not early adopted new and revised IFRSs that have been issued but are not yet
effective.
New Standards and amendments to
Standards:
Effective for annual periods beginning on or
after
IFRS 9-Financial Instruments: Classification and
Measurement (intended as complete
replacement for IAS 39).
January 1, 2018 ( Tentative)
Key requirements of IFRS 9 are described as follows:
IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial
Instruments:
Recognition and Measurement to be subsequently measured at amortised cost or fair value.
Specifically, debt investments that are held within a business model whose objective is to collect the
contractual cash flows, and that have contractual cash flows that are solely payments of principal and
interest on the principal outstanding are generally measured at amortised cost at the end of
subsequent accounting periods. All other debt investments and equity investments are measured at
their fair values at the end of subsequent accounting periods.
Management anticipates that these IFRSs and amendments will be adopted in the condensed
consolidated interim financial statements in the initial period when they become mandatorily effective
(i.e. January 1, 2018).The Bank will assess IFRS 9s full impact once the remaining parts of the
standard are formally issued.
The Group has segregated and reclassified the interest income earned on investments to interest
income which was previously included in investment income. As the investment portfolio has increased
considerably during the quarter, the Group has decided it is appropriate to make this reclassification
now.
F-117
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.2 Functional and presentation currency
For the purpose of condensed consolidated interim financial information, the results and financial
position of each entity are expressed in U.A.E Dirham (AED), which is the functional and presentation
currency of the Group for these condensed consolidated interim financial information, rounded to the
nearest thousand.
2.3 Basis of consolidation
This condensed consolidated interim financial information incorporates the financial statements of the
National Bank of Ras Al- Khaimah (P.S.C) and its subsidiaries (the Group).
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity. The Group also assesses
existence of control where it does not have more than 50 per cent of the voting power but is able to
govern the financial and operating policies by virtue of de-facto control.
De-facto control may arise in circumstances where the size of the Groups voting rights relative to the
size and dispersion of holdings of other shareholders give the Group the power to govern the financial
and operating policies.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases. The financial statements of the subsidiary are
included in the consolidated financial statements from the date the control commences until the date
that control ceases.
Transactions and balances eliminated on consolidation
Inter-company transactions, balances, income and expenses on transactions between Group
companies are eliminated. Profits and losses resulting from intercompany transactions that are
recognized in assets are also eliminated. Accounting policies of the subsidiary have been changed
where necessary to ensure consistency with the policies adopted by the Group.
2.4 Loans and advances and provision for impairment
Loans and advances are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and advances are initially recognized at fair value, which is the
cash consideration to originate or purchase a loan including any transaction costs, and measured
subsequently at amortised cost using the effective interest method.
The Group assesses at each balance sheet date whether there is objective evidence that loans and
advances are impaired. Loans and advances are impaired and impairment losses are incurred only if
there is objective evidence that the Group will not be able to collect all amounts due.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
F-118
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.4 Loans and advances and provision for impairment (continued)
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrowers competitive position;
Deterioration in the value of collateral; and
Observable data indicating that there is a measurable decrease in the estimated future
cash flows from a portfolio of financial assets since the initial recognition of those assets,
although the decrease cannot yet be identified with the individual financial assets in the
portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
The Group first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that are not
individually significant. If the Group determines that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues
to be recognised are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial assets original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognised in
the consolidated income statement. If the amount of impairment subsequently decreases due to an
event occurring after the write down, the release of the provision is credited to the consolidated income
statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is
the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the
collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (ie, on the basis of the Groups grading process that considers asset
type, industry, collateral type, past-due status and other relevant factors). Those characteristics are
relevant to the estimation of future cash flows for groups of such assets by being indicative of the
debtors ability to pay all amounts due according to the contractual terms of the assets being
evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cash flows of the assets and historical loss experience for
assets with similar credit risk characteristics. Historical loss experience is adjusted on the basis of
current observable data to reflect the effects of current conditions that did not affect the period on
which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not currently exist.
Estimates of changes in future cash flows for groups of assets reflect and are directionally consistent
with changes in related observable data from period to period (for example, changes in unemployment
rates, property prices, payment status, or other factors indicative of changes in the probability of losses
F-119
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.4 Loans and advances and provision for impairment (continued)
and their magnitude). The methodology and assumptions used for estimating future cash flows are
reviewed regularly by the Group to reduce any differences between loss estimates and actual loss
experience.
When a loan is uncollectable, it is written off against the related provision for impairment. This is
normally done within six to twelve month of the loan becoming past due, depending on type of the loan.
Non performing mortgage loans, however, are written off after considering each individual case. If no
related provision exists, it is written off to the consolidated income statement. Subsequent recoveries
are credited to the consolidated statement of income.
Loans that are either subject to collective impairment assessment or individually significant and whose
terms have been renegotiated are no longer considered to be past due but are treated as new loans. In
subsequent years, the loan is considered to be past due and disclosed only if renegotiated again.
2.5 Islamic financing
The Group engages in Shariah compliant Islamic banking activities through various Islamic
instruments such as Murabaha, Salam, Mudaraba, and Wakala. The accounting policy for initial
recognition, subsequent measurement and derecognition of Islamic financial assets (Note 2.4) and
liabilities are same.
Murabaha financing
A sale contract whereby the Group sells to a customer commodities and other assets at an agreed
upon profit mark up on cost. The Group purchases the assets based on a promise received from
customer to buy the item purchased according to specific terms and conditions. Profit from Murabaha
is quantifiable at the commencement of the transaction. Such income is recognised as it accrues over
the period of the contract on effective profit rate method on the balance outstanding.
Salam
Bai Al Salam is a Sale contract where the Customer (Seller) undertakes to deliver/supply a specified
tangible asset to the Group (Buyer) at mutually agreed future date(s) in exchange for an advance price
fully paid on the spot by the buyer. Revenue on Salam financing is recognised on the effective profit
rate basis over the period of the contract, based on the Salam capital outstanding.
Mudaraba
A contract between the Group and a customer, whereby one party provides the funds (Rab Al Mai-
customer) and the other party (the Mudarib- the Group) invests the funds in a project or a particular
activity and any profits generated are distributed between the parties according to the profit shares that
were pre-agreed in the contract. The Mudarib would bear the loss in case of default, negligence or
violation of any of the terms and conditions of the Mudaraba, otherwise, losses are borne by the Rab Al
Mai.
Wakala
An agreement between the Group and customer whereby one party (Rab Al Mal- principal) provides a
certain sum of money to an agent (Wakil), who invests it according to specific conditions in return for a
F-120
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.5 Islamic financing (continued)
certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to
return the invested amount in case of default, negligence or violation of any of the terms and conditions
of the Wakala. The Group may be Wakil or Rab Al Mai depending on the nature of the transaction.
Estimated income from Wakala is recognised on an accrual basis over the period, adjusted by actual
income when received. Losses are accounted for on the date of declaration by the agent.
Ijara
Ijara financing is a finance lease agreement whereby the Bank (lessor) leases an asset based on the
customers (lessee) request and promise to lease the assets for a specific period in lieu of rental
instalments. Ijara ends in transferring the ownership of the asset to the lessee at the end of the lease
inclusive of the risks and rewards incident to an ownership of the leased assets. Ijara assets are stated
at amounts equal to the net investment outstanding in the lease including the income earned thereon
less impairment provisions
2.6 Investment securities
The Group classifies its investment securities in the following categories: held at fair value investments,
held-to-maturity investments and available-for-sale investments. Management determines the
classification of its investments at initial recognition.
Held at fair value: Investment securities held at fair value through profit and loss are those which are
acquired principally for the purpose of trading with the objective of generating profit.
Held-to-maturity: Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the Groups management has the positive intention
and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-
maturity assets, the entire category would be reclassified as available for sale, except if the sale is due
to significant deterioration in the credit worthiness of the issuer.
Available-for-sale: Available-for-sale investments are those non-derivative financial assets that are
designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity
investments or (c) financial assets at fair value through profit or loss.
Regular purchases and sales of held at fair value, held to maturity and available-for-sale financial
assets are recognised on trade-date, the date on which the Group commits to purchase or sell the
asset.
All Financial assets, except assets that are held for trading are initially recognised at fair value plus
transaction costs. For financial assets acquired for trading, transaction costs are charged to profit and
loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or where the bank has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets are subsequently carried at fair value. Held-to-maturity investments
are carried at amortised cost using the effective interest method.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are
recognised in the consolidated statement of comprehensive income, until the financial asset is
derecognised or impaired. At this time, the cumulative gain or loss previously recognised in the
consolidated statement of comprehensive income is recognised in the consolidated income statement.
F-121
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
2 Significant accounting policies (continued)
2.6 Investment securities (continued)
Foreign currency gains and losses arising on available-for-sale monetary financial assets are
recognised directly in the consolidated income statement.
The fair values of quoted investments in active markets are based on current bid prices. If the market
for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using
valuation techniques.
Interest earned whilst holding investment securities is reported as income from investment securities in
the consolidated income statement. Dividends on available-for-sale and held for trading equity
instruments are recognised in the consolidated income statement when the entitys right to receive
payment is established.
The Group assesses at each balance sheet date whether there is objective evidence that a financial
asset is impaired. In the case of equity investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost is considered in determining whether
the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative
loss measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in consolidated income statement is
removed from the consolidated statement of comprehensive income and recognised in the
consolidated income statement. Impairment losses recognised in the consolidated income statement
on available-for-sale equity instruments are not reversed through the consolidated income statement.
The Group assesses at each balance sheet date whether there is objective evidence that debt
securities classified as available-for-sale and those held to maturity are impaired. Debt securities are
impaired and impairment losses are incurred only if there is objective evidence that the Group will not
be able to collect all amounts due.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings; and
Deterioration of the borrowers competitive position.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial assets original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognised in
the consolidated income statement. If an asset has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under the contract.
F-122
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
3 Cash and balances with the UAE Central Bank
31 March
2014
31 December
2013
(reviewed) (audited)
AED000 AED000
Cash in hand 609,451 568,206
Balances with UAE Central Bank - 198,242
Statutory deposit with the UAE Central Bank 2,143,250 2,105,814
Certificates of deposit with the UAE Central Bank 750,000 750,000
3,502,701 3,622,262
The statutory deposit with the UAE Central Bank is not available to finance the day to day operations of
the Group.
4 Due from other banks
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Placements with other banks 374,584 275,475
Demand deposits 93,251 170,942
Clearing account balances 92,205 97,482
560,040 543,899
The below represents deposits and balances due from:
Banks in UAE 467,089 373,257
Banks outside UAE 92,951 170,642
560,040 543,899
5 Loans and advances (Including Islamic financing)
5(a) Loans and advances
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Retail loans 21,911,701 21,400,640
Corporate loans 1,123,610 954,218
Loans and advances (Note 5(b)) 23,035,311 22,354,858
Provision for impairment (Note 5(c)) (447,167) (395,613)
Net loans and advances 22,588,144 21,959,245
F-123
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
5 Loans and advances (Including Islamic financing) (continued)
5(b) Analysis of loans and advances
Commercial loans and overdrafts 10,073,902 9,778,256
Retail loans 3,108,297 3,179,806
Mortgage loans 3,735,558 3,669,002
Credit cards 2,737,622 2,864,215
Auto loans 1,737,303 1,685,885
Islamic financing assets (Note 6) 1,642,629 1,177,694
Total loans and advances 23,035,311 22,354,858
5(c) Provision for impairment
Retail
Loans
AED000
Corporate
loans
AED000
Total
AED000
Balance brought forward 1 January 2014 365,032 30,581 395,613
Impairment charge/(release) (Note 5(d)) 146,921 140 147,061
Written off during the period (95,279) (228) (95,507)
Balance carried forward 31 March 2014 (reviewed) 416,674 30,493 447,167
Balance brought forward 1 January 2013 292,203 31,907 324,110
Impairment charge/(release) 393,145 (1,050) 392,095
Written off during the year (320,316) (276) (320,592)
Balance carried forward 31 December 2013 (audited) 365,032 30,581 395,613
5(d) Impairment charge / (release) on loans and advances net of recovery
Retail
Loans
AED000
Corporate
loans
AED000
Total
AED000
Three months ended 31 March 2014 (reviewed)
Impairment Charge/(release) 146,921 140 147,061
Recovery during the period (16,719) - (16,719)
130,202 140 130,342
31 March 2013 (reviewed)
Impairment Charge/(release) 74,945 503 75,448
Recovery during the period (14,018) - (14,018)
60,927 503 61,430
Recoveries mainly represent amounts subsequently recovered from fully written off loans.
F-124
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
5 Loans and advances (Including Islamic financing) (continued)
5(e) Impaired loans and advances provision coverage
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Aggregate impaired loans 562,786 539,840
Provision held 447,167 395,613
Coverage ratio 79.46% 73.28%
The ratio of provisions held to aggregate impaired loans (coverage ratio) does not take into account
collateral available, including cash, property and other realizable assets.
6 Islamic Financing assets
6(a) Islamic Financing assets
Islamic financing asset 1,642,629 1,177,694
Total Islamic financing assets 1,642,629 1,177,694
Provision for impairment (10,570) (5,312)
1,632,059 1,172,382
6(b) Analysis of Islamic financing assets
Islamic Salam Personal finance 931,918 730,088
Islamic Auto Murabaha 512,614 370,079
Islamic Business finance 126,966 34,938
Islamic Ijara property finance 3,000 -
Islamic Credit cards 68,131 42,589
1,642,629 1,177,694
7 Investment securities
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Securities available-for-sale
Quoted equity securities 50,969 -
Quoted debt securities 42,515 42,268
93,484 42,268
Held for trading
Quoted equity securities 10,098 -
Securities held-to-maturity
Quoted debt securities 3,454,118 2,653,684
Total investment securities 3,557,700 2,695,952
F-125
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
7 Investment securities (continued)
The Groups investment portfolio is denominated in US dollar or UAE Dirhams.
The composition of the investment portfolio by geography is as follows:
31 March
2014
AED000
31 December
2013
AED000
UAE 2,384,136 2,000,169
Other GCC countries 239,682 153,152
India 915,398 524,137
Others 18,484 18,494
3,557,700 2,695,952
The composition of the investment portfolio by category is as follows:
31 March
2014
AED000
31 December
2013
AED000
Federal and local Government UAE 1,316,418 1,095,983
Government related entity UAE 377,249 275,070
Government GCC 94,222 94,280
Government related entity GCC 86,598 -
Banks and financial institutions UAE 680,371 629,115
Banks and financial institutions Non UAE 665,253 362,990
Public limited companies UAE 10,098 -
Public limited companies Non UAE 327,491 238,514
3,557,700 2,695,952
The movement in investment securities is as follows:
Securities
Available
for sale
Securities
Held for
trading
Securities
held to
maturity Total
AED000 AED000 AED000 AED000
At 1 January 2014 42,268 - 2,653,684 2,695,952
Purchases 50,676 9,359 803,768 863,803
Net changes in fair value 574 739 - 1,313
Amortisation of premium (34) - (3,334) (3,368)
At 31 March 2014 (reviewed) 93,484 10,098 3,454,118 3,557,700
At 1 January 2013 42,688 - 1,544,190 1,586,878
Purchases 106,483 - 1,316,453 1,422,936
Changes in fair value 1,826 - - 1,826
Amortisation of premium - - (2,445) (2,445)
At 31 March 2013 (reviewed) 150,997 - 2,858,198 3,009,195
F-126
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F-128
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
9 Other assets
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Interest receivable 182,661 175,973
Profit receivable on Islamic financing assets 17,252 11,941
Prepayments and deposits 70,841 54,229
Others 32,134 34,395
302,888 276,538
10 Deposits from customers
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Time deposits 6,378,542 7,104,006
Current accounts 10,123,649 9,573,066
Savings deposits 3,777,050 3,416,942
Call deposits 930,319 1,010,673
Islamic customer deposits (Note 11) 2,306,416 1,964,460
23,515,976 23,069,147
Time deposits include AED 276 million (2013: AED 255 million) held by the Group as cash collateral for
loans and advances granted to customers.
11 Islamic customer deposits
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Wakala deposits 1,138,214 1,017,385
Mudaraba term investment deposits 62,131 55,673
Qard-E-Hasan - current accounts 197,058 145,001
Mudaraba - current accounts 783,948 618,427
Mudaraba - savings deposits 119,875 125,376
Mudaraba - call deposits 5,190 2,598
2,306,416 1,964,460
F-129
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
12 Other liabilities
31 March
2014
(reviewed)
31 December
2013
(audited)
AED000 AED000
Interest payable 41,303 39,738
Profit distributable on Islamic deposits 13,156 9,106
Accrued expenses 96,022 155,364
Managers cheques issued 185,501 150,123
Undistributed cash dividend for 2013 838,123 -
Others 176,582 118,414
1,350,687 472,745
13 Share capital and dividend
At 31 March 2014, the authorised, issued and fully paid share capital of the Group comprised
1,676.25 million shares of AED 1 each (31 December 2013: 1,676.25 million shares of AED 1 each).
At the meeting of shareholders held on 24 March 2014, the shareholders of the Bank approved a cash
dividend of 50% of issued and paid up capital amounting to AED 838.12 million (2012: AED 609.54
million). The record date for cash dividend was 3rd April 2014. Dividend amount has been declared
and recorded under other liabilities (Note 12)
14 Other reserves
Other reserves include legal reserve and voluntary reserve. In accordance with the Articles of
Association of the Group, 10% of the net profit for the year is to be transferred to a legal reserve until
such time as the balance in the reserve equals 50% of the issued share capital and 10% of the net
profit for the year is to be transferred to a voluntary reserve until such time as the balance in the
reserve equals 20% of the issued share capital. No allocations to the legal reserve and the voluntary
reserve have been made for the three month period ended 31 March 2014, as these will be effected at
the year end based on the Groups audited results for the year ending 31 December 2014. The
movement in other reserves is on account of fair value gains on investment securities.
In 2012, the shareholders of the Bank approved the creation of a non-distributable special reserve titled
Reserve - Regulatory Credit risk reserve account. This reserve is maintained at least 1.5% of the credit
risk weighted assets at the end of each financial year, as required by the Central Bank of UAE.
15 Contingencies and commitments
31 March
2014
(reviewed)
AED000
31 December
2013
(audited)
AED000
Commitments to extend credit 6,925,340 6,648,849
Letters of guarantee 592,580 570,353
Letters of credit 58,706 62,951
Acceptances 60,976 28,938
Capital commitments 12,786 11,937
7,650,388 7,323,028
Commitments to extend credit represent unfunded amounts out of approved limits offered to
customers, which are revocable at the discretion of the Group.
F-130
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
16 Forward foreign exchange contracts
Forward foreign exchange contracts comprise commitments to purchase foreign and domestic
currencies on behalf of customers and in respect of the Groups undelivered spot transactions.
Outstanding forward foreign exchange transactions at 31 March 2014 and 31 December 2013 are as
follows:
Contract amount
AED000
Fair value
AED000
31 March 2014 (reviewed) 554,289 395
31 December 2013 (audited) 481,291 375
The fair values of the outstanding foreign exchange forward contracts recorded in other assets if
positive, otherwise in other liabilities.
17 Interest income and expense
Three months ended
31 March (reviewed)
2014 2013
AED000 AED000
(Reclassified)
Interest income
Commercial loans and overdrafts 330,770 327,755
Retail loans 63,050 78,121
Mortgage loans 52,070 56,173
Credit cards 153,013 151,998
Auto loans 33,008 27,134
Investments 33,916 24,084
Other banks 1,068 686
Deposits with the UAE Central Bank 848 940
Total interest income 667,743 666,891
Interest expense
Due to customers 51,218 72,387
Borrowings from other banks 111 150
51,329 72,537
Net interest income 616,414 594,354
18 Income from Islamic financing and distribution to depositors
Income from Islamic Financing
Islamic Salam personal finance 17,608 473
Islamic auto Murabaha 8,080 127
Islamic business finance 4,002 -
Islamic Investments 387 243
Islamic property finance 3 -
Total income from Islamic Financing 30,080 843
Distribution to Islamic depositors 7,281 239
Income from Islamic financing net of distribution to depositors 22,799 604
F-131
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
19 Net fees and commission income
Three months ended
31 March (reviewed)
2014 2013
AED000 AED000
Credit cards 45,916 44,998
Commercial loans 26,422 18,879
Retail loans 5,416 3,320
Mortgage loans 8,244 6,696
Auto loans 9,554 6,274
Trade finance 7,191 3,589
Fiduciary income 18,458 18,556
Others 28,303 27,326
149,504 129,638
20 Investment income
Three months ended
31 March (reviewed)
2014 2013
AED000 AED000
Profit on revaluation Held for trading securities 739 -
Dividend income 1,601 159
2,340 159
21 Earnings per share
The basic earnings per share is calculated by dividing the net profit attributable to shareholders by the
weighted average number of ordinary shares in issue during the period. The weighted average number
of ordinary shares during the period ended 31 March 2014 is aggregating to 1,676,245,428 shares
(31 March 2013: 1,676,245,428 shares).
22 Fiduciary activities
The Group holds assets in a fiduciary capacity for its customers without recourse to itself. At 31 March
2014, such assets amounted to AED 1,690.02 million (31 December 2013: AED 1,666.6 million) and
are excluded from the condensed consolidated interim financial information of the Group.
23 Cash and cash equivalents
At 31 March
2014 2013
(reviewed)
AED000
(reviewed)
AED000
Cash in hand and current account with the UAE Central Bank (Note 3) 609,451 957,394
Due from other banks (Note 4) 560,040 388,049
1,169,491 1,345,443
Less: Due from other banks with original maturity of 3 months or more - (86,050)
1,169,491 1,259,393
F-132
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
24 Operating segments
Following the management approach of IFRS 8, operating segments are reported in accordance with
the internal reporting provided to the key management, which is responsible for allocating resources to
the reportable segments and assesses its performance. All operating segments used by the Group
meet the definition of a reportable segment under IFRS 8.
The Group has three main business segments:
Retail banking incorporating private customer current accounts, savings accounts, deposits,
credit and debit cards, customer loans and mortgages;
Corporate banking incorporating transactions with corporate bodies including government and
public bodies, secured small and medium entities; and comprising of loans, advances, deposits and
trade finance transactions; and
Treasury incorporating activities of the dealing room, related money market, foreign exchange
transactions with other banks and financial institutions including the UAE Central Bank, none of
which constitute a separately reportable segment
The above segments include conventional and Islamic products and services of the Group.
As the Groups segment operations are all financial with a majority of revenues deriving from interest
and fees and commission income, the management relies primarily on revenue and segmental results
to assess the performance of the segment.
Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-
segment revenue. Interest charged for these funds is based on the Groups transfer pricing policy.
There are no other material items of income or expense between the business segments.
The Groups management reporting is based on a measure of operating profit comprising net interest
income, loan impairment charges, net fee and commission income, other income and non-interest
expenses.
Segment assets and liabilities comprise operating assets and liabilities, being the majority of the
balance sheet items. During the quarter the Group has reclassified some of the corporate liabilities and
brought it under retail umbrella.
F-133
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F-135
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
25 Related parties balances
Related parties comprise key management, businesses controlled by shareholders and directors as
well as businesses over which they exercise significant influence. During the period, the Group entered
into transactions with related parties in the ordinary course of business. The transactions with related
parties and balances arising from these transactions are as follows:
Three months ended
31 March
2014 2013
(reviewed)
AED000
(reviewed)
AED000
Transactions during the period
Interest income 227 266
Interest expense 2,433 2,441
Commission income 665 343
Directors remuneration 2,237 1,365
Remuneration to key management personnel 3,585 3,637
31 March
2014
31 December
2013
(reviewed) (audited)
AED000 AED000
Balances
Loans and advances:
- Shareholders and their related companies
- Directors and their related companies
23,310
8,419
25,740
3,875
- Key management personnel 16,887 17,899
48,616 47,514
Due to customers:
- Shareholders and their related companies 1,060,150 1,073,772
- Directors and their related companies 87,439 78,247
- Key management personnel 11,382 9,748
1,158,971 1,161,767
Irrevocable commitments and contingent liabilities and forward
contracts
- Shareholders and their related companies 60,871 74,262
- Directors and their related companies 6,697 6,657
67,568 80,919
F-136
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
26 Capital adequacy
Capital structure and capital adequacy as per Basel II requirement as at 31 March 2014
The Bank is required to report capital resources and risk-weighted assets under the Basel II Pillar 1
framework, as shown in the following table. The Bank has adopted standardised approach for
calculation of credit risk and market risk capital charge. On operational risk, alternative standardized
approach is followed for capital charge calculation under pillar 1.
31 March
2014
31 December
2013
AED000 AED000
Tier 1 capital
Ordinary share capital 1,676,245 1,676,245
Share premium 110,350 110,350
Statutory and other reserves 3,277,610 3,277,036
Retained earnings 614,316 614,316
Total 5,678,521 5,677,947
Tier 2 capital
- -
Total regulatory capital 5,678,521 5,677,947
Risk weighted assets
Credit risk 19,707,885 18,720,220
Market risk 13,871 4,618
Operational risk 849,176 849,176
Total risk weighted assets 20,570,932 19,574,014
Capital adequacy ratio on regulatory capital 27.60% 29.01%
Capital adequacy ratio on Tier 1 capital 27.60% 29.01%
27 Fair values of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged or a liability settled between
knowledgeable, willing parties in an arms length transaction. Consequently, differences can arise
between the carrying values and fair value estimates of financial assets and liabilities. At 31 March
2014, the carrying value of the Groups financial assets and liabilities approximate their fair values,
except for the below mentioned financial asset and liability:
Fair value Carrying value
31 March
2014
31 December
2013
31 March
2014
31 December
2013
AED000 AED000 AED000 AED000
Financial assets
Investment securities 3,663,150 2,674,235 3,557,700 2,695,952
F-137
The National Bank of Ras Al-Khaimah (P.S.C.)
Notes to the condensed consolidated interim financial information for the three
months ended 31 March 2014 (continued)
28 Fair value hierarchy
The fair value measurements are categorised into different levels in the fair value hierarchy based on
the inputs to valuation techniques used. The different levels are defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes debt instruments on stock exchanges.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The sources of input
parameters like LIBOR yield curve or counterparty credit risk are Bloomberg and Reuters.
Level 3 inputs for the asset or liability that are not based on observable market data (unobservable
inputs). This level includes equity investments and debt instruments with significant unobservable
components. This hierarchy requires the use of observable market data when available. The Group
considers relevant and observable market prices in its valuations where possible.
This hierarchy requires the use of observable market data when available. The Group considers
relevant and observable market prices in its valuations where possible.
31 March 2014
Quoted
market
prices
Level 1
Observable
inputs
Level 2
Significant
unobservable
inputs
Level 3 Total
AED 000 AED 000 AED 000 AED000
Asset at fair value
Available for sale financial assets
- Investment securities debt 42,515 - - 42,515
- Investment securities Equity 50,969 - - 50,969
Held for trading financial assets
- Investment securities Equity 10,098 - - 10,098
Foreign currency forwards - 395 - 395
103,582 395 - 103,977
31 December 2013
Available for sale financial assets - - - -
- Investment securities debt 42,268 - - 42,268
Foreign currency forwards - 375 - 375
42,268 375 - 42,643
All the investments are quoted. There is no transfer between levels during the period, hence no level 3
reconciliation needed.
F-138
REGISTERED OFFICE OF THE
ISSUER
REGISTERED OFFICE OF THE
GUARANTOR
RAKFUNDING CAYMAN LTD
P.O. Box 309
Ugland House
Grand Cayman
KY1-1104
Cayman Islands
The National Bank of Ras Al-Khaimah
(P.S.C.)
RAKBANK Building
Sheikh Mohammed Bin Zayed Road
P.O. Box 5300
Ras Al-Khaimah
United Arab Emirates
ARRANGERS AND DEALERS
National Bank of Abu Dhabi PJSC
One NBAD Tower
Sheikh Khalifa Street
P.O. Box 4
Abu Dhabi
United Arab Emirates
Standard Chartered Bank
P.O. Box 999
Dubai
United Arab Emirates
LISTING AGENT FISCAL AGENT , PAYING AGENT,
TRANSFER AGENT AND
CALCULATION AGENT
REGISTRAR, TRANSFER AGENT AND
PAYING AGENT
Arthur Cox Listing Services Limited
Earlsfort Centre
Earlsfort Terrace
Dublin 2
Ireland
The Bank of New York Mellon,
London Branch
One Canada Square
London E14 5AL
United Kingdom
The Bank of New York Mellon
(Luxembourg) S.A.
Vertigo Building-Polaris
2-4 rue Eugne Ruppert
L-2453
Luxembourg
LEGAL ADVISERS
To the Arrangers and the Dealers as to
English law:
To the Arrangers and the Dealers as to
UAE law:
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2HS
United Kingdom
Herbert Smith Freehills LLP
Dubai International Financial Centre
Gate Village 7, Level 4
P.O. Box 506631
Dubai
United Arab Emirates
To the Issuer and the Guarantor as to
English law and to the Guarantor as to
UAE law
To the Issuer as to Cayman Islands law
Dentons & Co.
Level 18, Boulevard Plaza
Burj Khalifa District
P.O. Box 1756
Dubai
United Arab Emirates
Maples and Calder
11
th
Floor, 200 Aldersgate Street
London EC1A 4HD
United Kingdom
AUDITORS TO THE GUARANTOR
PricewaterhouseCoopers
Emaar Square
Building 4 Level 8
P.O. Box 11987
Dubai
United Arab Emirates
Printed by RRDonnelley 739566