Abu Dhabi Commercial Bank PJSC

Abu Dhabi Commercial Bank PJSC

Consolidated financial statements For the year ended December 31, 2017

Consolidated financial statements are also available at:

Table of Contents INDEPENDENT AUDITOR'S REPORT ..........................................................................................................................................................................................................4 Consolidated statement of financial position .....................................................................................................................................................................................10 Consolidated income statement................................................................................................................................................................................................................11 Consolidated statement of comprehensive income.........................................................................................................................................................................12 Consolidated statement of changes in equity.....................................................................................................................................................................................13 Consolidated statement of cash flows....................................................................................................................................................................................................14 Notes to the consolidated financial statements 1. Activities and areas of operations..................................................................................................................................................................................................15 2. Application of new and revised International Financial Reporting Standards (IFRSs) .......................................................................................15 3. Summary of significant accounting policies ..............................................................................................................................................................................23

3.1 Basis of preparation.........................................................................................................................................................................................................................23 3.2 Measurement ......................................................................................................................................................................................................................................23 3.3 Functional and presentation currency.....................................................................................................................................................................................23 3.4 Use of estimates and judgements...............................................................................................................................................................................................23 3.5 Basis of consolidation......................................................................................................................................................................................................................24 3.6 Foreign currencies............................................................................................................................................................................................................................26 3.7 Financial instruments .....................................................................................................................................................................................................................27 3.8 Sale and repurchase agreements................................................................................................................................................................................................32 3.9 Securities borrowing and lending..............................................................................................................................................................................................32 3.10 Cash and cash equivalents.............................................................................................................................................................................................................32 3.11 Amortised cost measurement......................................................................................................................................................................................................33 3.12 Fair value measurement ................................................................................................................................................................................................................33 3.13 Derivatives ........................................................................................................................................................................................................................................... 34 3.14 Hedge accounting..............................................................................................................................................................................................................................34 3.15 Treasury shares and contracts on own shares.....................................................................................................................................................................36 3.16 Financial guarantees........................................................................................................................................................................................................................36 3.17 Acceptances.........................................................................................................................................................................................................................................36 3.18 Collateral repossessed .................................................................................................................................................................................................................... 36 3.19 Leasing...................................................................................................................................................................................................................................................36 3.20 Investment properties ....................................................................................................................................................................................................................37 3.21 Property and equipment................................................................................................................................................................................................................37 3.22 Capital work in progress ................................................................................................................................................................................................................ 38 3.23 Intangible assets ................................................................................................................................................................................................................................ 38 3.24 Borrowing costs.................................................................................................................................................................................................................................38 3.25 Business combinations and goodwill ....................................................................................................................................................................................... 39 3.26 Impairment of non-financial assets...........................................................................................................................................................................................39 3.27 Employee benefits ............................................................................................................................................................................................................................40 3.28 Provisions and contingent liabilities.........................................................................................................................................................................................41 3.29 Segment reporting............................................................................................................................................................................................................................42 3.30 Taxation ................................................................................................................................................................................................................................................42 3.31 Revenue and expense recognition .............................................................................................................................................................................................42 3.32 Islamic financing................................................................................................................................................................................................................................43 4. Significant accounting judgements, estimates and assumptions ....................................................................................................................................45 5. Cash and balances with central banks .........................................................................................................................................................................................47 6. Deposits and balances due from banks, net ..............................................................................................................................................................................47 7. Reverse-repo placements...................................................................................................................................................................................................................48 8. Trading securities ..................................................................................................................................................................................................................................48 9. Derivative financial instruments ....................................................................................................................................................................................................49 10. Investment securities...........................................................................................................................................................................................................................52 11. Loans and advances to customers, net.........................................................................................................................................................................................53 12. Investment in associate.......................................................................................................................................................................................................................54 13. Investment properties .........................................................................................................................................................................................................................54 14. Other assets ..............................................................................................................................................................................................................................................55 15. Property and equipment, net............................................................................................................................................................................................................56 16. Intangible assets.....................................................................................................................................................................................................................................57 17. Due to banks.............................................................................................................................................................................................................................................58 18. Deposits from customers....................................................................................................................................................................................................................58 19. Euro commercial paper.......................................................................................................................................................................................................................58 20. Borrowings................................................................................................................................................................................................................................................60 21. Other liabilities........................................................................................................................................................................................................................................63 22. Share capital .............................................................................................................................................................................................................................................64 23. Other reserves .........................................................................................................................................................................................................................................65 24. Islamic financing.....................................................................................................................................................................................................................................66 25. Employees' incentive plan shares, net .........................................................................................................................................................................................67 26. Capital notes.............................................................................................................................................................................................................................................67 27. Interest income .......................................................................................................................................................................................................................................68 28. Interest expense .....................................................................................................................................................................................................................................68

29. Net fees and commission income ...................................................................................................................................................................................................68 30. Net trading income................................................................................................................................................................................................................................68 31. Other operating income ......................................................................................................................................................................................................................68 32. Operating expenses...............................................................................................................................................................................................................................69 33. Impairment allowances.......................................................................................................................................................................................................................69 34. Earnings per share ................................................................................................................................................................................................................................69 35. Operating lease .......................................................................................................................................................................................................................................70 36. Cash and cash equivalents .................................................................................................................................................................................................................70 37. Related party transactions.................................................................................................................................................................................................................71 38. Commitments and contingent liabilities .....................................................................................................................................................................................73 39. Operating segments ..............................................................................................................................................................................................................................73 40. Financial instruments ..........................................................................................................................................................................................................................76 41. Fair value hierarchy..............................................................................................................................................................................................................................76 42. Risk management...................................................................................................................................................................................................................................79 43. Credit risk management......................................................................................................................................................................................................................80

43.1 Analysis of maximum exposure to credit risk ......................................................................................................................................................................81 43.2 Concentration of credit risk .........................................................................................................................................................................................................81 43.3 Credit risk management overview ............................................................................................................................................................................................83 43.4 Credit risk measurement and mitigation policies...............................................................................................................................................................84 43.5 Portfolio monitoring and identifying credit risk .................................................................................................................................................................85 43.6 Identification of impairment........................................................................................................................................................................................................87 43.7 Renegotiated loans...........................................................................................................................................................................................................................90 44. Interest rate risk framework, measurement and monitoring...........................................................................................................................................90 45. Liquidity risk framework, measurement and monitoring ..................................................................................................................................................93 46. Foreign exchange risk framework, measurement and monitoring ................................................................................................................................99 47. Market risk framework, measurement and management ............................................................................................................................................... 101 48. Operational risk management....................................................................................................................................................................................................... 104 49. Foreign currency balances.............................................................................................................................................................................................................. 105 50. Trust activities...................................................................................................................................................................................................................................... 105 51. Subsidiaries............................................................................................................................................................................................................................................ 105 52. Capital adequacy and capital management............................................................................................................................................................................. 106 53. Social contributions ........................................................................................................................................................................................................................... 111 54. Legal proceedings ............................................................................................................................................................................................................................... 111

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August 17th, 2016

Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990 Abu Dhabi United Arab Emirates

Tel: +971 (0) 2 408 2424 Fax:+971 (0) 2 408 2525

INDEPENDENT AUDITOR'S REPORT

The Shareholders Abu Dhabi Commercial Bank PJSC

Report on the audit of the consolidated financial statements

Opinion

We have audited the consolidated financial statements of Abu Dhabi Commercial Bank PJSC, Abu Dhabi (the "Bank") which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

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

Key audit matters

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

Anis Sadek (521), Cynthia Corby (995), Georges Najem (809), Mohammad Khamees Al Tah (717), Musa Ramahi (872), Mutasem Dajani (726), Rama Padmanabha Acharya (701) and Samir Madbak (386) are registered practising auditors with the UAE Ministry of Economy.

INDEPENDENT AUDITOR'S REPORT (continued)

Key audit matters (continued)

Key audit matter

How the matter was addressed in our audit

Impairment of loans and advances to customers

The assessment of the Bank's determination of impairment allowances for loans and advances to customer requires management to make significant judgements over both timing of recognition and quantum of such impairment. The audit was focused on this matter due to the materiality of the balances (representing 62% of total assets) and the subjective nature of the calculations.

In wholesale loans and advances, the material portion of impairment is individually calculated. There is a risk that management does not capture all information necessary and available to determine the best estimate of future cash flows and incurred loss at the reporting date. This is specifically relevant as a result of the limited amount of data available over future cash flows and the high volatility of underlying collateral values. There is also the risk that management does not identify impairment triggers in a timely manner for performing loans and may allow bias to influence the impairment allowance.

For retail and performing wholesale loans and advances, the material portion of impairment is calculated on a modelled basis for portfolios. The inputs to these models are subject to management judgements and model overlays are required when management believes the parameters and calculations are not sufficient to cover specific risks. These overlays require significant judgement. We also identified a significant risk over the impairment allowance resulting from external factors, mainly the macro-economic and credit situation in the country. In light of the economic background, there is a risk that the impairment models fail to reflect the current economic conditions when determining the portfolio provisions.

Our audit procedures included the assessment of controls over the monitoring of loans for the purposes of estimating incurred credit losses, and evaluating the methodologies, inputs and assumptions used by the Bank in calculating collectively assessed impairments and assessing the adequacy of impairment allowances for individually assessed loans.

We tested the design and operating effectiveness of relevant controls to determine which loans are impaired and allowances against those assets. These included testing:

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

Controls over the approval, accuracy and completeness of the impairment calculation models; and

Governance controls, including reviewing key meetings that form part of the approval process for loan impairment allowances.

We tested a sample of loans to assess whether impairment events had been identified in a timely manner.

In addition, we also focused on individually significant exposures. We tested the assumptions underlying the impairment identification and quantification, valuation of underlying collateral and estimates of recovery on default.

We paid particular attention to collective impairment methodology, where we reviewed the model to ensure that it meets the requirements of relevant accounting standards, tested inputs and re-performed the calculations. We also assessed the adequacy and movements of management overlays.

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