Annual Report 2009 PDF

ANNUAL REPORT | 2009
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31 December 2009
His Highness
Sheikh Khalifa Bin Zayed Al Nahyan
President of the United Arab Emirates

31 December 2009
General Sheikh Mohammad Bin Zayed Al Nahyan

Abu Dhabi Crown Prince
Deputy Supreme Commander of the U.A.E. Armed Forces
His Highness Sheikh Hazza Bin Zayed Al Nahyan

Chairman
First Gulf Bank
CONTENTS
BOA RD O F D IRECTORS
11
CHA IRMA N S REPORT
12
E X E CUT I V E M A N A G EM EN T R E P O RT
14
GROWT H IN D ICATORS
18
AU D IT OR S REPORT
20
FINA N CIA L STATEM EN TS
22
BAS E L II PIL L A R III REPORT S
71
BOARD OF DIRECTORS
H. H. Sh ei kh H a z z a B in Z a y e d A l N a h yan
Chair m an
H. H. Sh ei kh Ta h n o o n B in Z a y e d A l N ahyan
V ic e Chair m an
Ab d u l h ami d Mo h a m m a d S a e e d
Board M em ber & M anaging D irec t or
Ah med Al i A l S a y e g h
Board M em ber
K h al d o o n K h a lif a A l M u b a r a k
Board M em ber
K h ad em Ab d u lla A l Qu b a isi
Board M em ber
Ah med Darw ish D a g h e r A l M a r a r
Board M em ber
11
CHAIRMANS REPORT
On behalf of the Board of Directors, I am pleased to present to the shareholders the Audited Financial
Statements of First Gulf Bank for the year ended 31 December 2009 and report the banks performance
during the year.
Global Markets
The trend for 2009 was really set in what we experienced in 2008, an unprecedented global economic crisis
and a systemic collapse of the world financial systems. Despite such a backdrop, whilst economic woes
continued some semblance of order was restored by active Government interventions across the globe.
Governments took decisive action both in terms of introducing liquidity and capital into the system but more
so by acting in a coordinated manner so that the damage did not spread. In the recent era, markets have
started defining nations, it is now time that nations define what is best for them and create an economic
order which serves all and not a section of society. In the latter half of 2009, markets especially Capital
Markets recovered across the globe but in many cases it did not translate into increased employment,
reduced foreclosures or positive GDP growth. Looking at the world economy today, the crisis continues to
unfold maybe at a reduced pace and in unpredictable ways, yet some things are getting very clear. Many
economies across Asia, Africa and the Middle East are still growing as they do not face the structural credit
de-leveraging, over complexity afflicting Western markets but are built on huge domestic consumptions,
natural resources and a basic intention to create growth in sectors important to them. These economies
with particular reference to the BRIC nations and the U.A.E. will be the beacons of growth and drive
economic order throughout the world in 2010 and beyond. The Eurozone struggling with contractions in
growth, lack of liquidity and huge external debt in certain economies in the European Union which may see
stress in its currency, its ability to raise debt and its political order for the Union in 2010. Whilst estimated
world growth will be negative in 2009, it is expected that this will return to positive territory in 2010 based
on strong growth in Asia led by China/India and the Middle East.
The U.A.E. Way Forward
2009 was characterized by some stress in certain parts of the U.A.E. Economy with some sectors like Real
Estate, Capital Markets, Trading and Contracting facing some problems. The year also saw issues with
long-term liquidity and shifting of population patterns as the interdependence of economies around the
world impacted some parts of the U.A.E. In the midst of all this, the U.A.E. Government and the Central
Bank of the U.A.E. took timely measures to ensure adequate liquidity and capital was maintained in the
system. The capital injections by the Abu Dhabi Department of Finance and the Ministry of Finance were
timely and ensured that banks in the country had solid risk bearing capacity. Going forward it is important
to look beyond the immediate issues; while the near-term economic conditions have stabilised, there are
some apprehensions and these apprehensions are being addressed by the U.A.E. Government. Our markets
remain fundamentally attractive, the governments initiative both on the Hydrocarbon side and the huge
infrastructure spending planned will ensure growth of the economy in 2010. The U.A.E. has been building
for the future with a world-class infrastructure in place which will reap benefits in the years to come. The
measures being taken in the Oil and Gas sector with further developments in the downstream economy will
ensure that we maximise the benefits from this key sector. With fiscal discipline, infrastructure spending,
diversified economy and a cohesive economic policy our market still offers enormous potential. In fact,
the crisis globally will accelerate the shift in Economic Power from West to the East and will throw up new
economic leaders; I am sure that the U.A.E. will not miss its tryst with destiny. We are in the right markets,
we will stay and grow.
Financials 2009
First Gulf Bank has had another astounding year with profits of AED3.310 Billion (USD901 Million) an increase
of 10.2% over the previous year. Our equity at AED23 Billion (USD6.2 Billion) with a capital adequacy ratio
of 22.6% is large and increases our risk bearing capacity apart from preparing us for new growth. Our
12
financial ratios are amongst the best in the banking industry (Return on Average Equity is 16.8%, Return
on Average Assets is 2.8%) and we take pride in having built enough provisioning and liquidity on our
Balance Sheet. All our businesses have delivered excellent results and we have maintained our earnings split
from our core business and our other ancillary businesses. Our joint venture bank in Libya and branch in
Singapore are coming to maturity and we added to our geographical footprint this year with Representative
Offices in Qatar and India; both good places to do business.
We have continued to build on our leadership position in the U.A.E. and are now able to deliver good
results even under stressed economic situations. The First Gulf Bank story in 2009 was simple and focused
on continued delivery of shareholders value through rigorous focus on our core business; our prudent
approach to liquidity and capital; and our continued discipline in cost and risk management. As stated in
my last report, the year 2009 was the year of Consolidation and we stuck to this and consolidated our
business and grew in sectors that we believed had the ability to withstand the economic situation. We will
continue with this theme in 2010 and I will call it the year of Consolidation with Selective Growth. There
are exciting opportunities available in the U.A.E. and the geographies that we operate in and with the
governments spending on key sectors to continue, we shall participate in this and other initiatives.
2008 and 2009 were years of extraordinary dislocation and disruption in financial markets. First Gulf Bank
has weathered the storm relatively well, we have not been unscathed but we have continued to be open
for business for most of our customers and once again delivered record profits. These results demonstrate
the underlying strength of our businesses and the overall resilience of the Bank. We are in very good shape,
with a strong balance sheet, an excellent customer franchise and good business momentum. We enter
2010 acutely aware of the many challenges across our markets, but also confident and clear about the way
ahead.
The Board of Directors acknowledging the great success of the bank in 2009 is pleased to recommend the
distribution of 50% cash dividend to Shareholders.
I would like to take this opportunity to express my gratitude to the President His Highness Sheikh Khalifa Bin
Zayed Al Nahyan for his guidance and support, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice
President, Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown
Prince of Abu Dhabi and their Highnesses and all members of the Supreme Council for their support.
I would also like to extend my thanks to all our Shareholders, Customers, Correspondent Banks, the Central
Banks of the countries we operate in and all staff at the Central Bank of the U.A.E. for their continued help
and support to First Gulf Bank.
Finally, I would like to thank all the Board Members, the Management Team and the staff for their
perseverance, commitment, and dedication in a very tough year and to congratulate them for a job done
extremely well.
Hazza Bin Zayed Al Nahyan

Chairman
13
EXECUTIVE MANAGEMENT REPORT
Dear Stakeholders,
We are very pleased to report that First Gulf Bank has delivered another year of record income and profits
in 2009 driven by strong organic growth and successes in all our ancillary business. Notwithstanding the
market situation, we had another year of success and growth at your bank. This solid profit was delivered
whilst maintaining strict balance sheet discipline and further bolstering our capital strength.
First Gulf Banks 2009 strategy was simple and focused on mining our existing business linked to supporting
our core customers, pricing our credits for the risk we took in the climate of 2009, increasing our equity and
using it prudently, taking manageable risks and avoiding uncontrollable risks, strict cost management and
providing for credits where required. This strategy ensured that we stayed the path and did not divert into
areas which promised higher returns but lacked the discipline and control required in stressed times.
2009 The Year in Review
During the year under review, First Gulf Bank made significant strides in executing our stated plan of
Consolidation with desirable growth with total operating revenue of AED 6,164 million, an increase
of 31% over the previous year. Revenues from the core banking activities increased by 41% during the
year to AED 5,337 million, driven mainly by a 49% increase in the Net Interest and Islamic Financing
income that reached AED 3,834 million. Overall net profit of the bank has increased to AED 3,310 million
representing an impressive increase of 10% over last years figures. The Banks Assets grew by 17% to reach
AED 125 billion coupled with an increase in Banks Equity by 39% to AED 22.5 billion.
We are also pleased to announce that 2009 has been a year of major milestones and landmarks at
First Gulf Bank. This year, we celebrated 30 years of being in business and 30 years of growth,
innovation and accomplishments. The year was marked by many acknowledgements and recognitions of
First Gulf Banks strategy by the market including the award as Bank of the Year by The Banker Awards and
the Strongest Bank in the U.A.E. by the Asian Banker.
The Business Groups
Corporate Banking Group
2009 was another year of success for the Corporate Banking Group with both Balance Sheet growth and
higher profits. The success of the Group lies in the choice of customers that we have and the fact that
we continued to support them in stressed times. In line with the theme elucidated by the Chairman, the
growth that we had in the corporate book was selective and aimed at the right businesses with a focus on
Governmental/Infrastructure Projects and diversification into select industries.
The Corporate Banking Group continues to strengthen the relationship with its customers by providing
better services and customised solutions. In addition to this, the Transaction Banking Group within
Corporate Banking has launched initiatives like Cash Management solutions and to bring the Bank direct to
the customer with Doorstep Banking.
The year 2009 witnessed the funded assets of the Corporate Bank growing from AED 59.2 billion to
AED 63.4 billion, reflecting a growth of 7%. The non-funded assets of the Corporate Bank grew from
AED 48.6 billion to AED 56.1 billion, reflecting a growth of 15%. The Group continues to focus on enhancing
fee and foreign exchange income, simultaneously ensuring adequate provisioning wherever required. Going
forward, the Group will continue its organic growth with customers having the capacity to manage the
slightly difficult environment, will focus on raising deposits, will diversify across industries, will focus on
unfunded income and plan for exigencies that may arise in the future.
Retail Banking Group
The Retail Banking Group (RBG) continued with its stupendous growth during 2009 with a bottom-line of
AED 1.3 billion, a growth of 30% along with an asset growth from AED 19.5 billion to AED 27.1 billion.
14
The year 2009 was also characterised by the Groups continued focus on its U.A.E. national centric strategy
and curtailment of growth in the Expatriate segment of the business. In terms of products, whilst a full
offering was made to all consumers, certain products like Credit Cards and Personal Installment Loans were
controlled especially to the expatriate segment. Deposit mobilisation and having an advanced collection
system were also highlights for the year. Other key offerings introduced during the year included the
E-statement for account and credit card holders, IVR for Islamic Banking, Third-Party Fund Transfers and
opening Term Deposit through Internet Banking.
The Group continues to serve the local community by providing specialised services for the Abu Dhabi
Department of Finances National Housing Loan (NHL). To date, we have disbursed approximately
AED 6 billion in loans to U.A.E. Nationals. The Bank is fully committed to provide the best service to these
customers and therefore have put together a highly qualified and experienced team to assist and guide
customers through the process of design, tendering and construction of their homes. The Group will
continue with its U.A.E. National centric strategy in 2010.
Treasury & Investments
Our Treasury and Investment Divisions continue to make significant contributions to the Banks bottom-line
adding AED 609 million for the year 2009. The Treasury Division managed the liquidity of the Bank in an
admirable manner and ensured that diversified and cost-effective funding was available throughout the
year. They also ensured that the Loan to Deposit ratio was within approved levels of the U.A.E. Central Bank
and ensured long term-deposit garnering remained a key strategy.
The Investment Division, remained profitable in a year where almost all investment banking activities were
almost non-existent and client interest in these were limited or negative. The Investments division is active
in a variety of investment activities and manages substantial proprietary and clients capital across all major
traditional and alternative asset classes, regionally and globally. The division seeks to enhance the Banks risk
adjusted returns by managing its proprietary capital and also to generate fee income through portfolio and
asset management activities. It also offers customised investment solutions for institutional and High Net
Worth clients and offer a full range of investment products and services. An independent mid office under
Risk Management ensures that parameters as set for the products are followed and limits including stop loss
and take profits are strictly complied with.
The team manages two external funds namely Al Saqer Fund and First Gulf Bank Alternative Investment
Fund and will continue with its controlled growth strategy in 2010.
Financial Institutions/Syndications Group
The Financial Institutions (FI) division had a good year with Assets of AED 16.3 billion and a bottom-line
of AED 156.3 million. It provides competitive trade and cash management products and services to
First Gulf Banks corporate, institutional and retail banking customers and maintains relationships with
international, regional and local banks to ensure smooth flow of business. FI is also responsible for raising short
and long-term liquidity for the Bank and therefore negotiates various debt and capital market, syndication
and bilateral loan structures with various relationships. It is a key player in the Islamic Syndications and Sukuk
markets and has successfully managed and arranged many deals over the years. It will continue with this focus
in the year 2010. The unit also successfully raised US$ 500 million as part of the banks EMTN programme
which was over-subscribed six times in very tough market conditions.
International Banking Group
At First Gulf Bank, our international expansion is part of our diversification strategy and this strategy is built
on expansion in geographies that we are comfortable with and where economies have the potential of
long-term sustainable growth. In line with this strategy, we have successfully established First Gulf Libyan
Bank in Libya, a market which provides great opportunities. During 2009, we moved to the East and
upgraded our Singapore Representative Office to a wholesale branch and established representative offices
in Qatar and India where real potential is just being unleashed.
15
The international footprint currently operates in the corporate space a core competency in
First Gulf Bank. International locations are manned by seasoned bankers from within those markets with an
eye to positioning First Gulf Bank as local to needs of the country/region. Through 2010, we look forward
to developing our international presence as well as consolidating on our existing locations.
Subsidiaries and Associates
Our real estate subsidiaries continued to work in the property sector through our two arms of Green Emirates
Properties (GEP) and Mismak. On account of the stressed market conditions in the country, GEP in spite
of a healthy operating profit had a net loss for the year on account of write down of properties. Mismak
on the other hand continued with its upward trend and had substantial gains in P&L as investments made
in the past continued to give the company good returns. Both the companies have a diversified business
model and will continue operating this in 2010 with strict controls on further investments. Our property
management business continued to grow with more units under management and as a diversification
strategy we moved into the hospitality business with the launch of LArabia, our hotel apartment business
in Mussafah, Abu Dhabi.
Aseel, our Islamic mortgage services company continued with its controlled growth strategy with its focus on
the Abu Dhabi market and had an operating profit with a net loss on account of write downs in its owned Asset
business. It has launched the rent-to-own facility which is considered an innovation in Islamic financing.
Our brokerage subsidiary, First Gulf Financial Services (FGFS) has been providing and supporting its customers
with a full range of local equities brokerage services on all the three markets i.e. DFM, ADX and DIFX. It was
incorporated in 2002 and has been successfully meeting clients needs since then.
Enterprise Risk Management Group
Across the globe, enterprise risk management has become an integral part of corporate strategy as its
importance towards sustenance of business growth and avoidance of losses has become more and more
important. At First Gulf Bank, we firmly believe that establishment of effective enterprise risk management
results in greater alignment of business strategies with risk appetite, enhances risk response decisions, helps
reduce unpleasant surprises & losses, provides an integrated response to multiple risks & opportunities and
improves capital deployment based on risk sensitive measures. Accordingly, First Gulf Bank has implemented
a robust Enterprise Risk Management framework that spans across all business and support units as well as
its subsidiaries, associates and foreign offices including representative offices and overseas branches. This
framework provides management with an aggregate view of risks across the organisation thus enabling
business decisions commensurate with its risk appetite and risk management principles.
The risk management framework at First Gulf Bank is compliant with the Basel II accord and the Bank
has successfully implemented Basel II Pillar I, Pillar II and Pillar III principles (presented after the financial
statements). First Gulf Bank has fulfilled the Pillar I and Pillar II requirements as per U.A.E. Central Bank
guidelines and has been submitting the Pillar I reports to the U.A.E. Central Bank on a quarterly basis and
Pillar II ICAAP report on an annual basis.
Human Resource Group
The vision of our Human Resource Group is To be a strategic business partner through delivery of best
in class HR initiatives, creating a high performance organisation and being an employer of choice. As a
testament to this vision, First Gulf Bank was listed among the Hewitt Best Employers in Middle East 2009
among over 250 participating organisations across various sectors. The award exemplifies our progressive
HR policies and illustrates why we are among the best employers in the region.
Emiratisation continues to be a focus area for the Bank and one of the cornerstones of our HR Strategy. In
addition to periodic employee engagement initiatives like Musharaka, a strong focus has been maintained
on hiring U.A.E. Nationals in the Bank and continuously training and retaining the existing staff. As part of
our commitment to Emiratisation and the country, we have partnered with the Scholarship Coordination
Office to sponsor deserving students for higher studies abroad and also sponsored a Professor Chair at
the Higher Colleges of Technology.
16
Continuous Training is an aspect that sets First Gulf Bank apart from its competitors in the U.A.E. and in
line with this objective, First Gulf Bankers Academy was launched in March 2009 with an objective of
comprehensive training across all business lines.
Business Support Group
The year 2009 comprised of several initiatives aimed at taking First Gulf Bank and its Group Companies to
greater heights of excellence in business processes and customer satisfaction.
The focus for the year was on further improving the service standards in the Retail Channels like Branches
and Call Centre. Our Operations have been working to seamlessly implement important industry-wide
initiatives for the benefit of our customers, in particular the Wages Protection System and same-day (T+0)
cheque clearing. Despite the downturn, we have invested in different technology platforms like the Cash
Management platforms, Document Management systems, HR systems etc. We have also implemented
strategic systems like the Loan Origination system and have also improved the various channel offerings
to our customers by enhancing our Net Banking, SMS, IVR and other channel services. We have invested
in upgrading our critical infrastructure by revamping our Main Data Center and the entire Banks
telecommunication network.
Your Bank is currently in the midst of a major upgrade to its core banking and accounting system, which will
strengthen its technological capabilities in the coming years. First Gulf Banks Information Security department
has in its mission the objective to protect the information assets of the Bank and has implemented controls
related to people, process and technology.
The Year Ahead
We enter 2010 very confident of our strategy and with the belief that First Gulf Bank is well-positioned to
prosper in the year ahead. We will seize opportunities to expand our business, building on the strengths
that have served us well through the crisis, and adapting to the new demands of a changing competitive,
regulatory and commercial environment. We will remain a profoundly diverse and multicultural organisation
supported by a culture of performance, trust and respect for all our stakeholders. We will remain firmly
committed to the communities in which we operate around the world and will continue our initiatives as a
responsible Corporate Social Citizen. Last, but by no means least, nothing has changed in our commitment
to delivering value for you, our shareholders. We greatly appreciate your loyal support and remain absolutely
determined to continue to earn it.
We would like to take this opportunity to thank the staff and management team for their continued
dedication to the First Gulf Bank story, to the Board of Directors for their wisdom and guidance, our
shareholders who have stood by us in the market place and have ranked us above all our competitors,
to the U.A.E. Central Bank for their continued guidance and support and to the U.A.E. Government for
making the U.A.E. what it is today.
Andr Sayegh
Chief Executive Officer
AbdulHamid Saeed
Managing Director
17
GROWTH INDICATORS
All gures are shown in millions of U.A.E. Dirhams
Total Assets
Customer Loans and Advances

(Net)
100,000
80,000
2005
Customers Deposits
18
34,434
17,314
20,000
2006
52,256
2007
2008
86,422
40,000
73,963
60,000
2009
Shareholders Equity
Operating Income
Net Profit
19
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF

FIRST GULF BANK PJSC
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of First Gulf Bank PJSC and its
subsidiaries (the Bank), which comprise the consolidated balance sheet as at 31 December 2009 and the
consolidated income statement, consolidated statement of comprehensive income, consolidated statement
of changes in equity and consolidated cash flow statement 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 the applicable provisions of the articles of
association of the Bank and the U.A.E. Commercial Companies Law of 1984 (as amended). This responsibility
includes: designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
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
for 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 the 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 consolidated financial statements present fairly, in all material respects, the financial
position of the Bank as of 31 December 2009 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
We also confirm that, in our opinion, the consolidated financial statements include, in all material respects,
the applicable requirements of the U.A.E. Commercial Companies Law of 1984 (as amended) and the
articles of association of the Bank; proper books of account have been kept by the Bank, and the contents
20
of the Chairmans Report relating to these consolidated financial statements are consistent with the books
of account. We have obtained all the information and explanations which we required for the purpose of
our audit and, to the best of our knowledge and belief, no violations of the U.A.E. Commercial Companies
Law of 1984 (as amended) or the articles of association of the Bank have occurred during the year which
would have had a material effect on the business of the Bank or on its financial position.
Signed by
Andre Kasparian
Partner
Ernst & Young
Registration No. 365
27 January 2010
Abu Dhabi
21
CONSOLIDATED BALANCE SHEET

31 December 2009

Notes
Assets
Cash and balances with U.A.E. Central Bank
Due from banks and financial institutions
Loans and advances
Non-trading investments
Investment in associates
Investment properties
Other assets
Property and equipment
2009
AED 000
2008
AED 000
2008
US$ 000
3
27
4
5
6
7
8
9
5,546,970 5,005,045 1,510,201 1,362,659

4,626,549 2,837,412 1,259,610
772,505
90,385,885 79,362,996 24,608,191 21,607,132
13,481,978 9,979,576 3,670,563 2,717,009
561,455
553,030
152,860
150,566
6,000,383 3,991,341 1,633,646 1,086,671
4,230,602 3,780,048 1,151,811 1,029,145
638,721 2,012,260
173,896
547,852
Total assets
125,472,543 107,521,708 34,160,778 29,273,539
Liabilities
Due to Banks
Due to U.A.E. Central Bank
Customers deposits
Term loans
Other liabilities
10
11
12
13
14
1,940,567 3,112,642
528,333
847,439
- 4,200,000
- 1,143,479
86,421,906 73,962,659 23,528,970 20,136,852
9,819,962 5,784,975 2,673,552 1,575,000
4,387,340 3,841,822 1,194,484 1,045,963
Total liabilities
102,569,775 90,902,098 27,925,339 24,748,733
Equity
Equity attributable to equity holders of the Bank
Share capital
16
Treasury shares
17
Capital notes
18
Legal reserve
19
Special reserve
19
General reserve
19
Revaluation reserve
9
Proposed cash dividends
19
Retained earnings
Cumulative changes in fair values
Foreign currency translation reserve
Mandatory convertible bonds
20
1,375,000
(44,871)
-
5,305,110
846,648
120,000
70,730
477,400
4,545,986
(32,516)
(18,246)
3,600,000
374,353
(54,134)
1,089,028
1,444,353
230,506
32,671
23,837
184,318
1,860,838
(31,306)
(3,950)
980,125
374,353
(12,216)
1,444,353
230,506
32,671
19,257
129,976
1,237,677
(8,853)
(4,968)
980,125

Minority interests
22,517,837 16,245,241
384,931
374,369
6,130,639
104,800
4,422,881
101,925
Total equity
22,902,768 16,619,610
6,235,439
4,524,806
Total equity and liabilities
1,375,000
(198,833)
4,000,000
5,305,110
846,648
120,000
87,554
677,000
6,834,854
(114,988)
(14,508)
3,600,000
125,472,543 107,521,708 34,160,778 29,273,539

Chairman
Managing Director
The attached notes 1 to 34 form part of these consolidated financial statements.
22
2009
US$ 000

Chief Executive Officer
CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2009

Notes
Interest income and income from
Islamic financing
21
Interest expense and Islamic financing

expense
22
NET INTEREST INCOME AND

INCOME FROM ISLAMIC FINANCING
2009
AED 000
2008
AED 000
2009
US$ 000
2008
US$ 000
6,489,973
4,957,185
1,766,941
1,349,628
(2,656,241) (2,376,685)
(723,180)
(647,069)
3,833,732
2,580,500
1,043,761
702,559
29,039
156,943
7,906
42,729
23
2,301,243
1,961,006
626,529
533,898
OPERATING INCOME
6,164,014
4,698,449
1,678,196
1,279,186
(1,080,583) (1,134,896)
(294,196)
(308,983)
Share of profits of associates

Other operating income
General and administrative expenses
24
PROFIT FROM OPERATIONS BEFORE

IMPAIRED ASSETS CHARGE
5,083,431
3,563,553
1,384,000
970,203
(1,680,466)
(566,350)
(457,519)
(154,193)
(90,000)
(24,503)
PROFIT FOR THE YEAR
3,312,965
2,997,203
901,978
816,010
Attributable to:
Equity holders of the Bank
Minority interests
3,310,335
2,630
3,005,250
(8,047)
901,262
716
818,201
(2,191)
3,312,965
2,997,203
901,978
816,010
Basic and diluted earnings per share
AED 2.06
AED 2.05
US$ 0.56
US$ 0.56
Provision for impairment of

loans and advances
25
Impairment of available for sale
investments
26
23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


2009
2008
2009
2008
AED 000
AED 000
US$ 000
US$ 000
PROFIT FOR THE YEAR
3,312,965
2,997,203
901,978
816,010
Net unrealised losses on available for sale investments
(123,034)
(85,659)
(33,496)
(23,321)
Impairment of available for sale investments
90,000
24,503
Realised gains on available for sale investments
(49,683)
(21,755)
(13,527)
(5,923)
Board of directors remuneration
(66,000)
(60,000)
(17,969)
(16,335)
Share of changes recognised directly in associates equity
245
97
67
26
Revaluation reserve
16,824
4,580
7,735
(18,246)
2,106
(4,968)
Other comprehensive loss for the year
(123,913)
(185,563)
(33,736)
(50,521)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
3,189,052
2,811,640
868,242
765,489
Equity holders of the Bank
3,182,425
2,819,687
866,438
767,680
Minority interests
6,627
(8,047)
1,804
(2,191)
OTHER COMPREHENSIVE INCOME:
Foreign exchange translation
Total comprehensive income attributable to:

3,189,052
2,811,640
868,242
765,489

24
CONSOLIDATED STATEMENT OF CASH FLOWS


Notes
OPERATING ACTIVITIES
Profit for the year
Adjustments for:
Depreciation
9
Loss (profit) on sale of property and equipment
23
Provision for impairment of loans and advances
25
Impairment of available for sale investments
Gain on revaluation of investment properties
7
Loss on revaluation of property and equipment
23
Gain on disposal of development properties
23
Gain on sale of investment properties
(Gain) loss from investments
6
Operating profit before changes in operating
assets and liabilities:
Deposits with Banks
Deposits with U.A.E. Central Bank
Loans and advances
Other assets
Due to Banks
Customers deposits
Other liabilities

2009
AED 000
2008
AED 000
2009
US$ 000
2008
US$ 000
3,312,965
2,997,203
901,978
816,010
61,424
24,385
1,680,466
90,000
(221,030)
83,558
(459,978)
-
(46,236)
(29,039)
38,810
(98,684)
566,350
-
(288,437)
-
-
(240,119)
262,434
(156,943)
16,723
6,639
457,519
24,503
(60,177)
22,749
(125,232)
-
(12,588)
(7,906)
10,566
(26,867)
154,193
(78,529)
(65,374)
71,449
(42,729)
4,496,515
3,080,614
(1,083,250)
524,999
(500,000)
(865,000)
(12,703,355) (35,520,078)
(407,299)
(860,476)
(4,200,000)
4,200,000
(1,172,075)
326,410
16,969,334
21,706,590
523,523
1,565,405
1,224,208
(294,922)
(136,129)
(3,458,577)
(110,890)
(1,143,479)
(319,106)
4,620,020
142,532
838,719
142,935
(235,502)
(9,670,590)
(234,271)
1,143,479
88,868
5,909,771
426,191
Cash from (used) in operations

Directors remuneration paid
1,923,393
(60,000)
(5,841,536)
(50,000)
523,657
(16,335)
(1,590,400)
(13,613)
Net cash from (used) in operating activities
1,863,393
(5,891,536)
507,322
(1,604,013)
(16,534,972) (14,793,711)
(4,501,762)
(4,027,692)
INVESTING ACTIVITIES
Purchase of non-trading investments
Proceeds from redemption and
sale of non-trading investments
Purchase of property and equipment
9
Investments in associates
Dividends from associates
Additions to investment properties
7
Proceeds from sale of investment properties
Proceeds from the sale of development properties
Proceeds from disposal of property and equipment

12,906,089
(84,495)
-
20,859
(638,444)
-
571,235
1,411
13,148,219
(1,414,218)
(80,000)
10,275
(1,198,692)
658,193
-
215,521
3,513,773
(23,004)
-
5,679
(173,821)
-
155,523
384
3,579,695
(385,031)
(21,781)
2,797
(326,352)
179,198
58,677
(3,758,317)
(3,454,413)
(1,023,228)
(940,489)
FINANCING ACTIVITIES
Mandatory convertible bonds
20
Acquisition of treasury shares
Capital contribution by minority shareholders
Dividends paid
19
Interest on mandatory convertible bonds
Interest on capital notes
Issuance of capital notes
Draw-down of term loans
13
Repayment of term loans
13
Other movement in minority interests
-
(153,962)
-
(460,081)
(159,791)
(120,000)
4,000,000
2,279,650
(2,754,750)
3,935
3,600,000
(44,871)
382,407
(233,645)
-
-
-
-
-
-
-
(41,917)
-
(125,260)
(43,504)
(32,671)
1,089,028
620,650
(750,000)
1,071
980,125
(12,216)
104,114
(63,611)
-
Net cash from financing activities
2,635,001
3,703,891
717,397
1,008,412
NET INCREASE (DECREASE) IN

CASH AND CASH EQUIVALENTS
740,077
(5,642,058)
201,491
(1,536,090)
5,142,457
7,735
10,802,761
(18,246)
1,400,070
2,106
2,941,128
(4,968)
5,890,269
5,142,457
1,603,667
1,400,070
6,548,279
2,754,954
4,725,691
2,371,052
1,782,815
750,056
1,286,603
645,536
Net cash used in investing activities
Cash and cash equivalents at 1 January

Net changes in foreign currency translation reserve
AT 31 DECEMBER
27
Operating cash flows from interest and Islamic financing

Interest and Islamic financing income received
Interest and Islamic financing expense paid
25
Transfer to dividends payable
Capital contribution by minority shareholders
Issuance of mandatory convertible bonds (note 20)
Net purchase of treasury shares (note 17)
Proposed cash dividends (note 19)
4,000,000
1,375,000
Interest on mandatory convertible bonds (note 20)
Interest on capital notes (note 18)
Net purchase of treasury shares (note 17)
Proposed cash dividends (note 19)
Other movements in minority interests
Issuance of capital notes (note 18)
(198,833)
(153,962)
(44,871)
(44,871)
(44,871)
5,305,110
5,305,110
5,305,110
5,305,110
846,648
846,648
846,648
300,525
546,123
As of 31 December 2009
4,000,000
Transfer of dividends payable on treasury shares
Transfer to dividends payable
1,375,000
At 1 January 2009
Total comprehensive income for the year
1,375,000
As of 31 December 2008
125,000
Transfer to special reserves
Bonus shares issued
1,250,000
Total comprehensive income for the year
At 1 January 2008
120,000
120,000
120,000
120,000
87,554
16,824
70,730
70,730
70,730
(125,000)
125,000
677,000
677,000
(1,324)
(476,076)
477,400
477,400
477,400
(250,000)
250,000
6,834,854
(677,000)
(120,000)
(159,791)
1,324
3,244,335
4,545,986
4,545,986
(477,400)
(300,525)
2,945,250
2,378,661
Foreign
currency
translation
reserve
AED 000
(114,988)
(82,472)
(32,516)
(32,516)
(107,317)
(14,508)
3,738
(18,246)
(18,246)
(18,246)
3,600,000
3,600,000
3,600,000
3,600,000
22,517,837
4,000,000
(153,962)
(120,000)
(159,791)
(476,076)
3,182,425
16,245,241
16,245,241
(44,871)
3,600,000
(250,000)
2,819,687
10,120,425
Mandatory
convertible
bonds
Total
AED 000
AED 000
74,801
Cumulative

changes

Share
Capital
Treasury
Legal
Special
General Revaluation Reserve for
Cash
Retained
in fair

capital
notes
shares
reserve
reserve
reserve
reserve bonus issue
dividends
earnings
values

AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
AED 000
Attributable to equity holders of the Bank
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
384,931
3,935
6,627
374,369
374,369
382,407
(8,047)
Minority
interests
AED 000
22,902,768
4,000,000
3,935
(153,962)
(120,000)
(159,791)
(476,076)
3,189,052
16,619,610
16,619,610
(44,871)
3,600,000
382,407
(250,000)
2,811,640
10,120,434
Total
equity
AED 000

31 December 2009
1
ACTIVITIES
First Gulf Bank PJSC (the Bank) is a public joint stock company with limited liability incorporated in
Abu Dhabi in accordance with U.A.E. Federal Law No. (8) of 1984 (as amended). The Bank carries on
commercial, investment and retail Banking through its Head Office and branches in AbuDhabi and its
other branches in Dubai, Ajman, Sharjah, Fujairah, Al Ain and Ras Al Khaimah. The representative office
of the Bank has commenced operations in Singapore from June 2007 and was upgraded to a wholesale
Bank in August 2009. Under an agreement signed with the Economic and Social Development Fund of
Libya, a commercial Bank (First Gulf Libyan Bank) was established in Libya which commenced activities in
November 2008. The First Gulf Libyan Bank which is being managed by the Bank, has a paid up capital of
US$ 200 million which has been contributed equally by both parties. The Bank has obtained approval to
open a representative office in Qatar in November 2009 and has established a representative office in India
in September 2009.
The principal activities of the Bank are described in Note 31.
The registered Head Office of the Bank is at PO Box 6316, Abu Dhabi, United Arab Emirates (U.A.E.).
The consolidated financial statements of the Bank were authorised for issue by the Board of Directors on
27 January 2010.
2
SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards and applicable requirements of the Laws in the U.A.E.
The consolidated financial statements have been prepared under the historical cost convention except for
investment securities (other than held to maturity investments), derivative financial instruments, investment
properties and land included in property and equipment which have been measured at fair value. The
carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise
carried at cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.
The consolidated financial statements of the Bank are prepared in United Arab Emirates Dirhams (AED) which
is the functional currency of the Bank. The consolidated balance sheet, consolidated income statement and
consolidated statement of cash flows in US Dollar (US$) are presented solely for the convenience of the
readers of the consolidated financial statements. The AEDamounts have been translated at the rate of
AED 3.673 to US$1 (2008: AED3.673 to US$ 1).
Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year except as follows:
The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2009:
Amendments to IAS 40 Investment Property
Under the revised IAS 40, properties under construction are treated as investment properties. Previously they
were treated as property and equipment under IAS 16. The IASB allowed that entities may apply amendments
to IAS 40 prospectively for annual periods beginning on or after 1 January 2009. Upon adoption of IAS 40
(revised), properties under construction with a carrying value of AED 1,150 million as of 1 January 2009
were reclassified from property and equipment to investment properties.
27

31 December 2009
2
SIGNIFICANT ACCOUNTING POLICIES continued
Changes in accounting policies continued

IFRS 7 Financial Instruments: Disclosures
The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair
value measurements related to items recorded at fair value are to be disclosed by source of inputs using
a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition,
a reconciliation between the beginning and ending balance for level 3 fair value measurements is now
required, as well as significant transfers between levels in the fair value hierarchy. The amendments also
clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used
for liquidity management. The fair value measurement disclosures are presented in Note 33. The liquidity
risk disclosures are not significantly impacted by the amendments and are presented in Note 32.
IFRS 8 Operating Segments
This standard requires disclosure of information about the Banks operating segments and replaced the
requirement to determine primary (business) and secondary (geographical) reporting segments of the Bank.
Disclosures relating to analysis of the operating segments are set out in Note 31.
Amendments to IAS 1 Presentation of Financial Statements
The standard replaces IAS 1 Presentation of Financial Statements (revised in 2003) as amended in 2005. The
revised IAS 1 was issued in September 2007 and is effective for accounting periods beginning on or after
1January 2009.
The Standard separates owner and non-owner changes in equity. The statement of changes in equity will
include only details of transactions with owners, with all non-owner changes in equity presented in a single
line. In addition, the Standard introduces the statement of comprehensive income, which presents income and
expense items recognised in profit or loss, together with all other items of recognised income and expense.
The changes introduced by the revision are presentational in nature, and will not have an impact on the
results of the Bank.
Other new or amended IFRS and IFRIC interpretations applicable to the year ended 31 December 2009 do
not have any significant impact on the financial statements and are summarised as follows:
-- IFRS 2 Share-based Payment: Vesting Conditions and Cancellations effective 1 January 2009
-- IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended)
effective 1 July 2009 including consequential amendments to IAS 21, IAS 28, IAS 31 and IAS 39
-- IAS 23 Borrowing Costs (Revised) effective 1 January 2009
-- IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations
Arising on liquidation effective 1 January 2009
-- IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items effective 1 July 2009
-- IFRIC 9 Remeasurement of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and
measurement effective for periods ending on or after 30 June 2009
-- IFRIC 13 Customer Loyalty Programmes effective 1 July 2008
-- IFRIC 16 Hedges of a Net Investment in a Foreign Operation effective 1 October 2008
-- IFRIC 18 Transfers of Assets from Customers effective 1 July 2009
Future changes in accounting policies
The following IASB Standard and amendments have been issued but are not yet mandatory, and have not
yet been adopted by the Bank:
28

31 December 2009
2
-- IFRS 9 Financial Instruments
---
The Bank has not adopted the IFRS 9 Financial Instruments, applicable for year ending 31 December
2013. This standard will replace IAS 39 in entirety. IFRS 9 improves and simplifies the approach for
classification and measurement of financial assets compared with the requirements of IAS 39 Financial
Instruments: Recognition and Measurement. It applies a consistent approach to classifying financial
assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own
classification criteria.
IFRS 2 Share-based payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010
IFRIC 17 Distributions of Non-cash Assets to Owners
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank
following subsidiaries:

Activity
Country of incorporation

Mismak Properties Co. LLC (Mismak)
Real estate investments
United Arab Emirates
Radman Properties Co. LLC (Subsidiary of Mismak)
Real estate investments
First Merchant International LLC
Merchant Banking services
First Gulf Libyan Bank
Banking services
Libya
and those of its

Percentage of holding
2009
2008
100%
100%
80%
80%
100%
100%
50%
50%
The financial statements of the subsidiaries are prepared for the same reporting year as the Bank, using
consistent accounting policies. All intra-group balances, transactions, income and expenses and profits and
losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.
Subsidiaries are fully consolidated from the date on which control is transferred to the Bank. Control is
achieved where the Bank has the power to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the date of acquisition or up to the date of disposal,
as appropriate.
Minority interests represent the portion of the profit and net assets in subsidiaries not held by the Bank
and are presented separately in the consolidated income statement and within equity in the consolidated
balance sheet, separately from the Bank shareholders equity.
Due from banks
Due from banks are stated at amortised cost using the effective interest rate less any amounts written off
and provision for impairment.
Trading investments
These are initially recognised at cost, being the fair value of the consideration given and subsequently
remeasured at fair value. All related realised and unrealised gains or losses are included in the income
statement.
These are classified as follows:
Held to maturity
Available for sale
Investments carried at fair value through income statement
Investments carried at amortised cost
All investments are initially recognised at cost, being the fair value of the consideration given including
acquisition charges (except for investments carried at fair value through the income statement) associated
with the investment. Premiums and discounts on non-trading investments (excluding those carried at fair
value through income statement) are amortised using the effective interest rate method and taken to
interest income.
29

31 December 2009
2
Non-trading investments continued

Held to maturity
Investments which have fixed or determinable payments and are intended to be held to maturity, are carried
at amortised cost, less provision for impairment in value.
Available for sale
After initial recognition, investments which are classified available for sale are remeasured at fair value,
unless fair value cannot be reliably determined in which case they are measured at cost less impairment.
Fair value changes which are not part of an effective hedging relationship, are reported as a separate
component of equity until the investment is derecognised or the investment is determined to be impaired.
On derecognition or impairment the cumulative gain or loss previously reported as cumulative changes in
fair value within equity, is included in the consolidated income statement.
Investments are classified as fair value through income statement if the fair value of the investment can be
reliably measured and the classification as fair value through income statement is as per the documented
strategy of the Bank. Investments classified as Investments at fair value through income statement
upon initial recognition are remeasured at fair value with all changes in fair value being recorded in the
consolidated income statement.
The Banks investment in associates is accounted for under the equity method of accounting. An associate is
an entity in which the Bank has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the balance sheet at cost plus
post-acquisition changes in the Banks share of net assets of the associate. Losses in excess of the cost of the
investment in an associate are recognised when the Bank has incurred obligations on its behalf.
The Banks share of the result of operations of associates is included in the consolidated income statement.
Unrealised profits and losses from transactions between the Bank and an associate are eliminated to the
extent of the Banks interest in the associate. The reporting dates of associates and the Bank are identical
and the associates accounting policies conform to those used by the Bank for like transactions and events
in similar circumstances.
Repurchase and reverse repurchase agreements
Assets sold with a simultaneous commitment to repurchase at a specified future date (Repo) are not
derecognised. The counterparty liability for amounts received under these agreements is included in due
to banks or customers deposits in the balance sheet, as appropriate. The difference between the sale and
repurchase price is treated as interest expense which is accrued over the life of the Repo agreement.
Conversely, securities purchased under agreements to resell at a specified future date (Reverse Repos) are
not recognised on the balance sheet. The corresponding cash paid, including accrued interest, is included
in loans and advances. The difference between the purchase price and resale prices is treated as interest
income which is accrued over the life of the Reverse Repos.
Loans and advances
These are stated at cost, adjusted for effective hedges and stated net of interest suspended less any amounts
written off and provision for impairment. Impaired loans are written off only when all possible courses of
action to achieve recovery have proved unsuccessful.
Islamic financing
Islamic financing comprise principally of floating profit-rate Ijara and Murabaha contracts which are stated
at cost less any provisions for impairment.
30

31 December 2009
2
Impairment and uncollectibility of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that
a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the
income statement.
Impairment is determined as follows:
(a) for assets carried at amortised cost, impairment is based on estimated cash flows discounted at the
original effective interest rate.
(b) for assets carried at fair value, impairment is the difference between cost and fair value.
(c) for assets carried at cost, impairment is based on the present value of future cash flows discounted at
the current market rate of return for a similar financial asset.
For available for sale equity investments, reversals of impairment losses are recorded as increases in cumulative
changes in fair value through equity.
In addition, a provision is made to cover collective impairment for specific groups of assets carried at
amortised cost, where there is a measurable decrease in estimated future cash flows.
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and
all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as
income over the period necessary to match the grant on a systematic basis to the costs that it is intended to
compensate. Where the Bank receives non-monetary grants with no conditions attached thereto, the asset
and grant are recorded at fair value and the grant is recognised in the consolidated income statement in
the period in which it is received. In the case of other non-monetary grants, the grant is set up as deferred
income at its fair value and is released to the consolidated income statement over the expected useful life
of the relevant asset by equal annual installments.
Investment properties
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are stated at fair value which reflects market conditions at the balance
sheet date. Gains or losses arising from changes in the fair values of investment properties are included in
the consolidated income statement in the year in which they arise.
Investment properties are derecognised when either they have been disposed of or when the investment
property is permanently withdrawn from use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment property are recognised in the consolidated
income statement in the year of retirement or disposal.
Property and equipment
Property and equipment are initially recorded at cost. The carrying amounts are reviewed at each balance
sheet date to assess whether they are recorded in excess of their recoverable amount and, where carrying
values exceed the recoverable amount, assets are written down. Land is measured at fair value based on
valuations performed by independent professional valuers. Valuations are performed frequently to ensure
that the fair value of revalued land does not differ materially from its carrying amount.
Any revaluation surplus is credited to the revaluation reserve included in the equity section of the consolidated
statement of financial position, except to the extent that it reverses a revaluation decrease of the same asset
previously recognised in the consolidated income statement, in which case the increase is recognised in the
consolidated income statement. A revaluation deficit is recognised in the consolidated income statement, except
to the extent that it offsets an existing surplus on the same asset recognised in the revaluation reserve.
31

31 December 2009
2
Property and equipment continued

Depreciation is provided on a straight-line basis on all property and equipment, other than freehold land
which is determined to have an indefinite life.
The estimated useful lives of the assets for the calculation of depreciation are as follows:
Buildings
Motor vehicles
Furniture, fixtures and equipment
Computer hardware and software
20 years
3 years
4 years
4 years
Capital work-in-progress is initially recorded at cost, and upon completion is transferred to the appropriate
category of property and equipment and thereafter depreciated.
Provisions
Provisions are recognised when the Bank has a present obligation (legal or constructive) arising from a past
event and the costs to settle the obligation are both probable and able to be reliably measured.
Deposits
All money market and customer deposits are carried at amortised cost less amounts repaid.
Treasury shares
Own equity instruments which are acquired (treasury shares) are deducted from the equity and accounted
for at weighted average cost. No gain or loss is recognised in the consolidated income statement on the
purchase, sale, issue or cancellation of the Banks own equity instruments.
Fiduciary assets
Assets held in trust or in a fiduciary capacity are not treated as assets of the Bank and accordingly are not
included in these consolidated financial statements.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and
the revenue can be reliably measured. The following specific recognition criteria must also be met before
revenue is recognised:
i.
Interest income and expense
For all financial instruments measured at amortised cost and interest bearing financial instruments classified
as available for sale investments, interest income or expense is recorded at the effective interest rate, which
is the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial
asset or financial liability. The calculation takes into account all contractual terms of the financial instrument
and includes any fees or incremental costs that are directly attributable to the instrument and are an integral
part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or
financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying
amount is calculated based on the original effective interest rate and the change in carrying amount is
recorded as interest income or expense.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to
an impairment loss, interest income continues to be recognised.
32

31 December 2009
2
Revenue recognition continued

ii.
Fee and commission income
The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee
income can be divided into the following two categories:
Fee income earned from services that are provided over a certain period of time
Fees earned for the provision of services over a period of time are accrued over that period. These fees
include commission income and asset management, custody and other management and advisory fees. Loan
commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together
with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan.
Fee income from providing transaction services
Fees arising from negotiating or participating in the negotiation of a transaction for a third party such as
the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses are
recognised on completion of the underlying transaction. Fees or components of fees that are linked to
a certain performance are recognised after fulfilling the corresponding criteria.
iii.
Dividend income
Revenue is recognised when the Banks right to receive the payment is established.
iv.
Net trading income
Results arising from trading activities include all gains and losses from changes in fair value and related
interest income or expense and dividends for financial assets and financial liabilities held for trading. This
includes any ineffectiveness recorded in hedging transactions.
v.
Rental income
Rental income arising on investment properties is accounted for on a straight-line basis over the lease terms
on ongoing leases and is recorded in the income statement in Other operating income.
vi.
Income from Islamic financing
Income from Islamic financing is recognised on a time-proportion basis based on principal amounts outstanding.
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into AED at rates of exchange prevailing
at the balance sheet date. Any gains and losses are taken to the consolidated income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the date when the fair value was determined.
As at the reporting date, the assets and liabilities of foreign operations are translated into the Banks
presentation currency at the rate of exchange ruling at the balance sheet date, and their income statements
are translated at the weighted average exchange rates for the year. Exchange differences arising on
translation are taken directly to a separate component of equity. On disposal of a foreign operation, the
deferred cumulative amount recognised in the equity relating to a particular foreign operation is recognised
in the consolidated income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash, balances with U.A.E. Central Bank and due from Banks and other
financial institutions with original maturities of less than three months.
Employees pension and end of service benefits
The Bank provides end of service benefits for its employees. The entitlement to these benefits is based upon
the employees length of service and completion of a minimum service period. The expected costs of these
benefits are accrued over the period of employment.
With respect to its U.A.E. national employees, the Bank makes contributions to the relevant government
pension scheme calculated as a percentage of the employees salaries. The Banks obligations are limited to
these contributions, which are expensed when due.
33

31 December 2009
2
Leases
Finance leases, which transfer to the Bank substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower,
at the present value of the minimum lease payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are
depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified
as operating leases. Operating lease payments are recognised as an expense in the consolidated income
statement on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset.
Derivatives
The Bank enters into derivative financial instruments including forwards, swaps, futures, options and
swaptions in the foreign exchange and capital markets. Derivatives are stated at fair value. The fair value
of a derivative is the equivalent of the unrealised gain or loss from marking to market the derivative using
prevailing market rates or internal pricing models. Derivatives with positive market values (unrealised gains)
are included in other assets and derivatives with negative market values (unrealised losses) are included in
other liabilities in the balance sheet.
Hedges
For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which
hedge the exposure to changes in the fair value of a recognised asset or liability; and (b) cash flow hedges
which hedge exposure to variability in cash flows that is either attributable to a particular risk associated
with a recognised asset or liability or a forecasted transaction.
In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from
remeasuring the hedging instrument to fair value is recognised immediately in the income statement. The
hedged item is adjusted for fair value changes relating to the risk being hedged and the difference is
recognised in the consolidated income statement.
In relation to cash flow hedges which meet the conditions for hedge accounting, the portion of the gain or
loss on the hedging instrument that is determined to be an effective hedge is recognised initially in equity
and the ineffective portion is recognised in the consolidated income statement. The gains or losses on
effective cash flow hedges recognised initially in equity are either transferred to the income statement in
the period in which the hedged transaction impacts the consolidated income statement or included in the
initial measurement of the cost of the related asset or liability.
For hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair
value of the hedging instrument are taken to the consolidated income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised,
or no longer qualifies for hedge accounting. At that point in time, in the case of a cash flow hedge, any
cumulative gains or losses on the hedging instrument initially recognised in equity remains in equity until
the forecasted transaction occurs. Where the hedged transaction is no longer expected to occur, the net
cumulative gains or losses initially recognised in equity are transferred to the consolidated income statement.
In the case of a fair value hedge, for hedged items recorded at amortised cost, using the effective interest
rate method, the difference between the carrying value of the hedged item on termination and the face
value is amortised over the remaining term of the original hedge. If the hedged item is derecognised, the
unamortised fair value adjustment is recognised immediately in the consolidated income statement.
Trade and settlement date accounting
Purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Bank commits
to purchase or sell the asset.
34

31 December 2009
2
Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet
when there is a legally enforceable right to set off the recognised amounts and the Bank intends to either
settle on a net basis, or to realise the asset and settle the liability simultaneously.
Financial guarantees
Financial guarantees are defined as contracts whereby an entity undertakes to make specific payments for
a third party if the latter does not do so. Financial guarantees are reviewed periodically so as to determine
the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required.
The credit risk is determined by application of criteria similar to those established for quantifying impairment
losses on loans and advances. If a specific provision is required for financial guarantees, the related unearned
commissions recognised under other liabilities in the consolidated balance sheet are reclassified to the
appropriate provision.
De-recognition of financial assets and liabilities
The Bank de-recognises all or part of a financial asset when the contractual rights to the cash flows on
the asset expire or when the Bank has transferred the contractual rights to receive the cash flows and
substantially all of the risks and rewards linked to the ownership of the asset. The Bank derecognises all or
part of a financial liability when the liability is extinguished in full or in part.
Fair values
For investments and derivatives quoted in an active market, fair value is determined by reference to quoted
market prices. Bid prices are used for assets and ask prices are used for liabilities. The fair value of investments
in mutual funds, private equity funds or similar investment vehicles are based on the last net asset value
published by the fund manager. For other investments, a reasonable estimate of the fair value is determined
by reference to the price of recent market transactions involving such investments, current market value of
instruments which are substantially the same, or is based on the expected discounted cash flows.
The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits,
is the amount payable on demand.
The fair value of forward exchange contracts is calculated by reference to forward exchange rates with
similar maturities. For other derivatives without quoted prices in an active market, fair value is determined
based on quotations received from counter party financial institutions or established third party valuation
models.
The fair value of unquoted investments is determined by reference to discounted cash flows, pricing models,
net asset base of investee companies or broker over-the-counter quotes.
Significant accounting judgements and estimates
In the process of applying the Banks accounting policies, management has used its judgements and made
estimates in determining the amounts recognised in the financial statements. The most significant use of
judgements and estimates are as follows:
Classification of investment properties under construction
Management decides on acquisition of a property whether it should be classified as investment property,
property and equipment or as properties held for sale.
Properties acquired by the Bank are recorded as investment properties if these were acquired for rental
purposes or capital appreciation.
Properties held for own use is recorded as property and equipment.
Properties are recorded as held for sale if their carrying amounts will be recovered through a sale transaction.
35

31 December 2009
2
Significant accounting judgements and estimates continued

Classification of investments
Management decides on acquisition of an investment whether it should be classified as held to maturity,
held for trading, carried at fair value through income statement, or available for sale.
For those deemed to be held to maturity, management ensures that the requirements of IAS 39 are met and
in particular the Bank has the intention and ability to hold these to maturity.
The Bank classifies investments as trading if they are acquired primarily for the purpose of making a short
term profit by the dealers.
Classification of investments as fair value through income statement depends on how management
monitors the performance of these investments. When they are not classified as held for trading but have
readily available reliable fair values and the changes in fair values are reported as part of profit or loss in the
management accounts, they are classified as fair value through income statement.
All other investments are classified as available for sale.
Impairment of investments
The Bank treats available for sale equity investments as impaired when there has been a significant or prolonged
decline in the fair value below its cost or where other objective evidence of impairment exists. The determination
of what is significant or prolonged requires judgement for which management takes into consideration,
amongst other factors, share price volatility and the underlying asset base of the investee companies.
Impairment losses on loans and advances
The Bank reviews its problem loans and advances on a quarterly basis to assess whether a provision for
impairment should be recorded in the consolidated income statement. In particular, considerable judgement
by management is required in the estimation of the amount and timing of future cash flows when determining
the level of provisions required. Such estimates are necessarily based on assumptions about several factors
involving varying degrees of judgement and uncertainty, and actual results may differ resulting in future
changes to such provisions.
Collective impairment provisions on loans and advances
In addition to specific provisions against individually significant loans and advances, the Bank also makes
a collective impairment provision against loans and advances which although not specifically identified as
requiring a specific provision have a greater risk of default than when originally granted. The amount of
the provision is based on the historical loss pattern for loans and advances and is adjusted to reflect current
economic changes.
CASH AND BALANCES WITH U.A.E. CENTRAL BANK

2009
AED 000
2008
AED 000
Cash on hand
Balances with U.A.E. Central Bank
236,623
5,310,347
237,847
4,767,198
5,546,970
5,005,045
Balances with U.A.E. Central Bank include AED 1,934,150 thousand (2008: AED 1,855,876 thousand)
representing mandatory cash reserve deposits and AED 3,200,000 thousand (2008: AED 2,700,000 thousand)
representing certificates of deposit. These are not available for use in the Banks day-to-day operations.
36

31 December 2009
4
LOANS AND ADVANCES
The composition of loans and advances portfolio is as follows:

Economic Sector
Agriculture
Energy
Trading
Construction
Transport
Personal Retail loans and credit cards
Personal Retail mortgages
Personal Retail mortgages National Housing Loan (note 12)
Personal Others
Government
Share financing
Real estate
Services
Public sector
Manufacturing
2009
AED 000
2008
AED 000
237,937
438,106
3,635,260
5,720,128
785,054
19,567,061
1,847,756
6,416,092
7,657,352
340,165
4,310,895
17,878,232
15,050,687
6,360,774
2,670,168
120,566
633,567
4,545,107
5,021,054
500,357
15,880,750
1,510,343
2,556,314
10,232,807
496,383
5,289,226
13,545,100
12,562,196
5,067,724
2,542,293
Total
Less provision for impaired loans and advances
92,915,667
(2,529,782)
80,503,787
(1,140,791)
Total
90,385,885
79,362,996
Representing:
Conventional loans and advances
Islamic financing
84,884,283
5,501,602
74,549,324
4,813,672
Total
90,385,885
79,362,996
Loans and advances include an amount of AED 55,095 thousand (2008: AED 722,527 thousand) being
amounts lent against the purchase of debt securities under reverse repurchase agreements with arrangements
to resell them at a fixed future date.
Loans and advances to customers are stated net of provision for impairment. The movements in the provision
during the year were as follows:

At 1 January
Amounts written off
Recoveries (Note 25)
Charge for the year (Note 25)
Notional interest on impaired loans and advances (Note 21)
At 31 December
2009
AED 000
2008
AED 000
1,140,791
(289,865)
(21,572)
1,702,038
(1,610)
2,529,782
653,790
(73,479)
(26,132)
592,482
(5,870)
1,140,791
At 31 December 2009, the balances in accounts classified as impaired amounted to AED 1,450,813 thousand
(2008: AED 489,876 thousand).
In certain cases, the Bank continues to carry classified doubtful debts and delinquent accounts on its books
even after making 100% allowance for impairment. Where appropriate, interest is recorded and suspended
on these accounts for legal considerations. Interest income on impaired loans is recognised in accordance
with IAS 39: Financial Instruments: Recognition and Measurement. The notional interest on impaired loans
and advances charged during the year amounted to AED 1,610 thousand (2008: AED 5,870 thousand).
37

31 December 2009
5
NON-TRADING INVESTMENTS
2009
AED 000
2008
AED 000
203,374
214,928
520,508
240,431
Available for sale investments

Investments in equities - Quoted

- Unquoted
Investments in private equity funds
Debt securities
-
125,759
1,022,968
771,912
5,738
120,162
1,134,777
25,069
Held to maturity investments

Debt securities
- Quoted

- Unquoted
Total
7,562,710
3,580,327
13,481,978
3,660,278
4,272,613
9,979,576
9,063,273
2,851,676
4,208,322
3,749,638
11,914,949
7,957,960
Within U.A.E.
Outside U.A.E.
3,686,093
9,795,885
2,694,876
7,284,700
13,481,978
9,979,576

Carried at fair value through income statement
Investments in managed funds
Investments in equities - Quoted
Analysis of debt securities:

Fixed rate
Floating rate

Geographic analysis of investments is as follows:
Investments in managed funds represent investments made in managed hedge funds which invest in
equities, debt securities and derivatives with the objective of generating superior returns on a risk-adjusted
basis using a diversified portfolio approach.
Investments in private equity funds represent investments made in funds and limited partnerships to fund
primary investment commitments in target companies with the objective of generating returns outperforming
the public equity markets.
Investments in equities amounting to AED 41,660 thousand (2008: AED 40,042 thousand) are held in the
name of third parties with the beneficial interest assigned to the Bank.
Debt securities represent bonds with maturities ranging up to 10 years from the balance sheet date. Of the
debt securities at 31 December 2009, 79% (2008: 71%) comprise bonds which are either guaranteed by
governments or issued by entities owned by governments.
At 31 December 2009, the Banks largest holding of debt securities issued by a single issuer accounted for
62% (2008: 46%) of total investments.
At 31 December 2009, debt securities with a carrying value of AED 7,823,490 thousand (2008: AED 4,554,520
thousand) were pledged under repurchase agreements with overseas financial institutions and banks with
a principal value of AED 7,784,683 thousand (2008: AED 4,430,100 thousand).
The fair value of held to maturity investments at 31 December 2009 amounted to AED 10,899,123 thousand
(2008: AED7,904,786 thousand).
38

31 December 2009
5
NON-TRADING INVESTMENTS continued
All unquoted available for sale equities are recorded at fair value except for investments amounting to
AED 64,533 thousand (2008: AED 64,292 thousand) which are recorded at cost since their fair values
cannot be reliably estimated. There is no active market for these investments and the Bank intends to hold
them for the long term.
During the previous year, the Bank entered into an exchange agreement in respect of an investment it held
in a quoted equity, whereby the rights and benefits to the investment were transferred to a third party in
exchange for the payment of interest at the rate of EURIBOR plus 0.5% for the duration of the agreement
of 5 years. Under the agreement, any appreciation or decline in value of the investment at maturity or
termination of the agreement, if earlier, would be ceded to the third party. Accordingly, the investment
in the quoted equity was de-recognised and the balance outstanding from the third party representing
the value of the investment of Euro 260 million (equivalent to AED 1,406 million at the inception of the
agreement) was recorded under other assets (Note 8). This is a non-cash flow transaction which has been
excluded from the consolidated statement of cash flows.
6
INVESTMENT IN ASSOCIATES
The Bank has the following investments in associates

Percentage of holding
2009
2008
First Gulf Financial Services LLC

Green Emirates Properties PJSC
Aseel Finance PJSC
45%
40%
40%
45%
40%
40%
First Gulf Financial Services LLC (FGFS), is a limited liability company which is incorporated in the Emirate
of Abu Dhabi and provides equity brokerage services in the United Arab Emirates.
Green Emirates Properties PJSC is a private joint stock company incorporated in the Emirate of Abu Dhabi
and engaged mainly in the management and brokerage of real estate properties in United Arab Emirates
and overseas.
Aseel Finance PJSC is a private joint stock company which is incorporated in the Emirate of Abu Dhabi and
provides Islamic financial services.
Summarised financial information on the investment in associates is set out below.
2009
AED 000
2008
AED 000
1,162,189
600,734
1,159,319
606,289
Net assets
561,455
553,030
Carrying amount of investment in associates
561,455
553,030
65,346
29,039
213,913
156,943

Share of associates balance sheet
Assets
Liabilities
Share of associates revenue and profit:

Revenue
Profit for the year
As of 31 December 2009, the Banks share of the contingent liabilities of associates amounted to
AED 335,300 thousand (2008: AED 336,131 thousand).
39

31 December 2009
7
INVESTMENT PROPERTIES
2009
AED 000
2008
AED 000
Balance at 1 January
Additions
Disposals
Transferred from property and equipment
Gain from fair value adjustment (Note 23)
3,991,341
638,444
-
1,149,568
221,030
2,922,286
1,198,692
(418,074)
288,437
At 31 December
6,000,383
3,991,341
Investment properties are stated at fair value which represents the amount at which the assets could be
exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length
transaction at the date of valuation. Investment properties have been valued as follows:
As of 31 December 2009, all investment properties were valued by independent professional valuers.
As of 31 December 2008, investment properties include properties with a carrying value of AED 2,996,839
thousand which were valued by independent professional valuers. For the balance of the investment
properties, valuations were performed by management. Management considers various factors in
determining fair value including the location of land plots, prevailing prices of land and valuations of similar
plots carried out by independent professional valuers.
The fair value of the properties has been determined either based on transactions observable in the market
or based on a valuation model.
Properties under construction for future use as investment properties were transferred from property and
equipment to investment properties effective 1 January 2009 upon adoption of IAS 40 (revised) (note 2).
This non-cash transaction has been excluded from the consolidated statement of cash flows.
The property rental income earned by the Bank from its investment properties, that are leased out under
operating leases, amounted to AED 117,438 thousand (2008: AED 115,635 thousand).
8
OTHER ASSETS
2009
AED 000
2008
AED 000
Interest receivable
Prepayments
Positive fair value of derivatives (Note 30)
Receivable under equity swaps (Note 5)
Receivable from sale of development properties
Receivable from sale of investment properties
Others
646,460
137,967
664,033
1,657,805
261,408
276,808
586,121
706,376
187,073
595,055
1,597,748
403,180
290,616
Total
4,230,602
3,780,048
Receivable under equity exchange include an interest bearing receivable arising from an equity exchange
entered into by the Bank during the previous year as further discussed in Note 5.
During 2009, development properties which are held for sale with a carrying value of AED 154,512 thousand
(Note 9) were reclassified from property and equipment to other assets. As of 31 December 2009, other assets
include a development property which is held for sale with a carrying value of AED 53,952 thousand. The
balance of development properties were sold during the year at a gain of AED 459,978 thousand (Note 23).
40

31 December 2009
9
PROPERTY AND EQUIPMENT

Land Buildings

AED 000 AED 000
2009
Cost or valuation:
At 1 January 2009
Additions during the year
Revaluation adjustment
Transfer to investment properties (Note 7)
Transfer to other assets (Note 8)
Cost of disposals
Capital Furniture Computer

work-in
Motor fixtures & hardware &
progress vehicles equipment
software
AED 000 AED 000 AED 000
AED 000
Total
AED 000
310,941
3,481
(66,734)
-
-
-
333,242 1,309,575
19,876
8,614
-
-
- (1,149,568)
- (154,512)
(22,607)
(6,799)
1,040
617
-
-
-
(199)
75,314
26,855
-
-
-
(3,689)
116,117 2,146,229
25,052
84,495
-
(66,734)
- (1,149,568)
- (154,512)
(401)
(33,695)
247,688
330,511
7,310
1,458
98,480
140,768
826,215
-
-
-
38,275
18,059
(5,105)
-
-
-
594
294
(199)
37,074
18,722
(2,208)
58,026
24,349
(387)
133,969
61,424
(7,899)
51,229
689
53,588
81,988
187,494
Net book value:

At 31 December 2009
247,688
279,282
7,310
769
44,892
58,780
638,721
2008
Cost or valuation:
At 1 January 2008
Additions during the year
Transfers
Cost of disposals
135,173
175,768
-
-
140,731 1,201,741
42,061 1,139,409
150,450 (142,593)
- (888,982)
865
500
-
(325)
53,391
28,679
(6,756)
-
89,463
27,801
(1,101)
(46)
1,621,364
1,414,218
(889,353)
At 31 December 2008
310,941
333,242 1,309,575
1,040
75,314
116,117
2,146,229
At 31 December 2009
Depreciation:
At 1 January 2009
Provided during the year
Disposals
At 31 December 2009
Depreciation:
At 1 January 2008
Provided during the year
Transfers
Disposals
-
-
-
-
19,480
11,977
6,818
-
-
-
-
-
623
296
-
(325)
33,911
9,387
(6,224)
-
41,501
17,150
(594)
(31)
95,515
38,810
(356)
At 31 December 2008
38,275
594
37,074
58,026
133,969
Net book value:

At 31 December 2008
310,941
294,967 1,309,575
446
38,240
58,091
2,012,260
During the year, the Bank revalued plots of land held for own use to their estimated fair value based
on professional valuations performed by independent real estate valuers. The surplus on revaluation of
certain plots of AED 16,824 thousand was transferred to the revaluation reserve which is not available
for distribution. The decrease in carrying amounts of certain plots of land as a result of revaluation of
AED 83,558 thousand was recorded in the income statement (Note 23).
41

31 December 2009
10
DUE TO BANKS

2009
AED 000
2008
AED 000
Current and demand deposits

Deposits maturing within one year
116,512
1,824,055
235,906
2,876,736
Total
1,940,567
3,112,642
As of 31 December 2009, deposits maturing within one year include a deposit of AED 398,491 thousand
(2008: AED870,325 thousand) from overseas banks held against the sale of debt securities with arrangements
to repurchase them at a fixed future date.
11
DUE TO U.A.E. CENTRAL BANK
This represents short term advances obtained from the U.A.E. Central Bank. The advances were repaid
during the year.
12
CUSTOMERS DEPOSITS

2009
AED 000
2008
AED 000
Current accounts
Saving accounts
Time deposits
Call and other deposits
5,769,838
193,328
71,007,287
9,451,453
5,584,114
136,341
59,628,002
8,614,202
Total
86,421,906
73,962,659
As of 31 December 2009, time deposits include deposits of AED 7,386,192 thousand (2008: AED 3,559,775
thousand) from overseas financial institutions held against the sale of debt securities with arrangements to
repurchase them at a fixed future date.
In December 2006, the Bank received an amount of AED 5 billion from the Government of Abu Dhabi
(the Government) to fund an interest-free housing loans scheme for U.A.E. Nationals and is recorded in
call and other deposits. The scheme is being administered by the Bank based on various terms and conditions
agreed with the Government. As of 31 December 2009, the Government time deposit amounted to
AED 6,873 million (2008: AED5,644 million) and housing loans amounting to AED 6,416 million
(2008: AED 2,579 million) were disbursed by the Bank. Interest is payable on this Government deposit at
market rates based on the principal amount net of loan disbursements made.
As of 31 December 2009, the top 5 depositors accounted for 32% of total customer deposits
(2008: 33%).
As further disclosed in Note 13, deposits of AED 4,510,087 thousand from the U.A.E. Federal Government
were re-categorised as a loan as of 31 December 2009.
42

31 December 2009
13
TERM LOANS

Loan 1 Syndicated loan
Loan 2 Syndicated loan
Loan 3 Bank loan
Loan 4 Euro Medium Term Note
Loan 5 Federal Government loan

2009
AED 000
2008
AED 000
-
3,030,225
550,950
1,728,700
4,510,087
9,819,962
2,754,750
3,030,225
5,784,975
Loan 1:
During 2006, the Bank obtained a loan of US$ 750 million (equivalent of AED 2,755 million) from a syndicate
comprising of several foreign and local Banks. The loan was repaid in full in March 2009.
Loan 2:
During 2007, the Bank obtained a loan of US$ 825 million (equivalent of AED 3,030 million) from a syndicate
comprising of several foreign and local Banks. The loan is repayable in full in November 2012. The loan
accrues interest at the rate of LIBOR plus a margin of 0.275% per annum plus mandatory cost calculated
by the facility agent as weighted average of the lenders additional cost rates, which are payable quarterly.
The loan is subject to various terms, covenants and conditions. Specifically, the Bank should ensure that
its capital adequacy ratio shall not at any time be less than the Basel minimum capital requirements as
implemented in the U.A.E. under the guidelines of the Central Bank.
Loan 3:
During the year, the Bank obtained a loan of US$150 million (equivalent of AED 551 million) from a foreign
Bank. The loan is repayable in full in December 2011. The loan accrues interest at the rate of 2.85% per
annum.
Loan 4:
During the year, the Bank issued a 3-year Euro Medium Term Note (EMTN) of US$ 500 million (equivalent
of AED 1,837 million). The notes are due in November 2012 and carry a coupon rate of 4% per annum
payable semi-annually in arrears. During the year, EMTN notes with a nominal value of US$ 28 million were
repurchased by the Bank.
Loan 5:
As of 31 December 2008, customer deposits included deposits of AED 4,510,087 thousand placed by the
U.A.E. Federal Government (the Lender) for a period of 3-5 years. During the year these deposits were
re-categorised as a subordinated loan. The loan is eligible as Tier 2 Capital for the purposes of calculation of
capital adequacy ratio as per the Basel II guidelines implemented by the Central Bank of the U.A.E..
As per the terms, the loan is subordinated to all creditors other than junior creditors and the equity
shareholders of the Bank. The loan bears a fixed interest rate of 4% per annum for first two years and steps
up to 4.5% per annum and 5% per annum in the third and fourth years and from fifth year onwards at
5.25% p.a. Interest is payable on a quarterly basis. The loan matures on 31 December 2016.
The agreement contains certain conditions relating to the Banks minimum Tier 1 Capital requirement and
also stipulates that the Lender has the right at its sole discretion to convert the loan amount together with
accrued interest into share capital in case of breach of agreement by the Bank.
The Bank has the option at any time during the option period to repay the loan in whole or in part subject
to meeting certain conditions.
43

31 December 2009
14
OTHER LIABILITIES

Interest payable
Accrued expenses
Provisions for staff benefits and other expenses (Note 15)
Accounts payable and sundry creditors
Advances received on sale of investment properties
Payable in respect of acquisition of investment properties
Negative fair value of derivatives (Note 30)
Others
Total
15
PROVISION FOR STAFF BENEFITS AND OTHER EXPENSES
The movement in the provision was as follows:

At 1 January
Arising during the year
Utilised
At 31 December
16
2008
AED 000
367,571
150,396
219,352
1,427,805
1,071,006
239,872
718,584
192,754
4,387,340
466,284
177,592
190,913
883,215
929,864
504,241
653,346
36,367
3,841,822
2009
AED 000
2008
AED 000
190,913
173,304
(144,865)
123,113
194,246
(126,446)
219,352
190,913
SHARE CAPITAL

Ordinary shares of AED 1 each
17
2009
AED 000
Issued and fully paid

2009
2008
AED 000
AED 000
1,375,000
1,375,000
TREASURY SHARES
During the previous year, the Bank received an approval from the Securities & Commodities Authority of the
United Arab Emirates to buy back up to 137.5 million of its own shares. A total of 21 million shares were
acquired as of 31December 2009 (2008: 5 million shares).
44

31 December 2009
18
CAPITAL NOTES
Following approval of the Extraordinary General Assembly meeting held on 25 February 2009, the Board of
Directors resolved on 26 February 2009 to issue capital notes (the Notes) to the Department of Finance,
Government of Abu Dhabi amounting to AED 4 billion. The Notes are subject amongst other terms, to the
following:

The Notes have a par value of AED 10 million each;

The Notes are perpetual securities in respect of which there is no fixed redemption date;
The Notes constitute direct, unsecured and subordinated obligations of the Bank;
The Notes holder is entitled to a non-cumulative semi-annual fixed interest coupon at the rate
of 6% per annum until February 2014 and floating interest rate of EIBOR plus 2.3% per annum
thereafter. The Bank may at its sole discretion elect not to make an interest coupon payment. Any
interest payment made will be reflected in the statement of changes in equity. During the year,
interest payments amounted to AED 120 million.
19
APPROPRIATIONS
Legal reserve
In accordance with the U.A.E. Commercial Companies Law No. 8 of 1984 (as amended) and the Articles of
Association of the Bank, 10% of profit for the year of the Bank shall be transferred to the legal reserve until
it reaches 50% of the nominal value of the paid up share capital. As of 31 December 2009, the legal reserve
exceeded 50% of the share capital and accordingly, the Board of Directors has proposed that no transfers
from the net profit are made to the legal reserve. The legal reserve is not available for distribution.
Special reserve
As required by Article 82 of Union Law No. 10 of 1980, 10% of the profit for the year shall be transferred to
the special reserve. The Bank may resolve to discontinue such annual transfers when the reserve equals 50%
of the nominal value of the paid up share capital. As of 31 December 2009, the special reserve exceeded
50% of the share capital and accordingly, the Board of Directors has proposed that no transfers from the
net profit are made to the special reserves. The special reserve is not available for distribution.
General reserve
Transfers to the general reserve are made upon the recommendation of the Board of Directors. This
reserve may only be used for the purposes recommended by the Board of Directors and approved by the
shareholders.
No transfers are proposed by the Board of Directors (2008: AED nil) from the profit for the year to the
general reserve.
Dividends

2009
AED 000
2008
AED 000
Cash dividends proposed in respect of 2009:50 fils (2008: Declared 35 fils)

based on outstanding share capital, other than treasury shares
677,000
477,400
Dividend on ordinary shares paid during the year
460,081
233,645
45

31 December 2009
20
MANDATORY CONVERTIBLE BONDS
Following approval of the Extraordinary General Assembly meeting held on 25 February 2008, the Board
of Directors resolved on 21 July 2008 to issue non-redeemable mandatory convertible bonds (the Bonds)
amounting to AED 3.6 billion. The Bonds are subject amongst other terms, to the following:
The Bonds have a par value of AED 10 million each;

These Bonds are subject to compulsory conversion into shares after 3 years from the date of their
issuance, unless converted earlier;
These Bonds would automatically be converted at a conversion price of AED 28.8 at the conversion
date;
The bond holders are entitled to non cumulative interest at the rate of 3 month EBOR plus 1%
which is subject to the approval and declaration of the Board of Directors at each interest due date.
Any interest payment made will be reflected in the statement of changes in equity.
During July 2008, the Bank signed agreements with the bondholders to issue the Bonds with a face value
of AED 3.6 billion and collected the related bond proceeds. During the year, the Board of Directors resolved
to pay the interest of AED 159,791 thousand in respect of the first year.
21
INTEREST INCOME AND INCOME FROM ISLAMIC FINANCING

Interest income
Loans and advances
Deposits with Banks
Income related to subscriptions to initial public offerings (IPOs)
Investment securities
- Available for sale
- Held to maturity
Notional interest on impaired loans and advances (Note 4)
Total
Income from Islamic financing
Interest income and income from Islamic financing
22
2008
AED 000
5,838,842
85,130
-
4,182,260
189,389
23,392
34,280
140,473
1,610
2,210
258,166
5,870
6,100,335
4,661,287
389,638
295,898
6,489,973
4,957,185
INTEREST EXPENSE AND ISLAMIC FINANCING EXPENSE

Interest expense
Customers deposits
Interest expense related to IPO-related deposits
Bank deposits
Term loans
2009
AED 000
2008
AED 000
2,344,503
-
111,785
44,718
1,837,927
2,624
305,367
222,317
Total
2,501,006
2,368,235
155,235
8,450
2,656,241
2,376,685
Islamic financing expense

Interest expense and Islamic financing expense
46
2009
AED 000

31 December 2009
23
OTHER OPERATING INCOME

Investment income:
Gains on disposal of available for sale investments
Gains on disposal of investments carried at fair value
through income statement
Change in fair value of investments carried at fair value
through income statement
Other investment income
2009
AED 000
2008
AED 000
49,683
21,755
28,582
23,332
(32,029)
10,009
(307,521)
9,690
Total investment income (loss)

Commission income
Fee income
Fees and commissions on credit cards
Brokerage and fund management fee income
Foreign exchange income
Derivative income
Gain on revaluation of investment properties (Note 7)
Loss on revaluation of property and equipment (Note 9)
Gain on sale of investment properties (Note 7)
Gain on sale of development properties (Note 8)
(Loss) gain on sale of property and equipment
Rental income (Note 7)
Other income
56,245
360,703
529,324
298,886
18,487
122,501
221,235
221,030
(83,558)
-
459,978
(24,385)
117,438
3,359
(252,744)
273,088
610,447
203,108
27,072
104,058
214,745
288,437
240,119
98,684
115,635
38,357
2,301,243
1,961,006
2009
AED 000
2008
AED 000
579,697
61,424
439,462
559,502
38,810
536,584
1,080,583
1,134,896
969
989
2009
AED 000
2008
AED 000
Provision for impaired loans and advances (Note 4)

Recoveries (Note 4)
1,702,038
(21,572)
592,482
(26,132)
1,680,466
566,350
Total
24
GENERAL AND ADMINISTRATIVE EXPENSES

Staff costs
Depreciation
Other general and administrative expenses
Total
Number of employees
25
PROVISION FOR IMPAIRMENT OF LOANS AND ADVANCES
47

31 December 2009
26
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share amounts for the year are calculated by dividing profit for the year attributable to
ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during
the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary
shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year,
adjusted for the effects of dilutive instruments.
The following reflects the income and share data used in the earnings per share computations:
2009
2008
Profit for the year attributable to ordinary equity holders (AED 000)
Deduct: Interest on mandatory convertible bonds (AED 000)
Deduct: Interest on capital notes (AED 000)
3,310,335
(138,162)
(120,000)
3,005,250
(74,165)
-
Profit attributable to ordinary equity holders (AED 000)
3,052,173
2,931,085
Weighted average number of ordinary shares in issue (000s)
1,482,148
1,430,841
2.06
2.05
Basic and diluted earnings per share (AED)
Shares related to mandatory convertible bonds are included in the weighted average number of ordinary
shares from the date the related bonds were issued. Treasury shares are excluded from the date they were
purchased.
27
Cash and cash equivalents included in the statement of cash flows comprise the following balance sheet
amounts:

2009
2008

AED 000
AED 000
5,546,970
4,626,549
10,173,519
5,005,045
2,837,412
7,842,457
3,200,000
2,700,000
1,083,250
5,890,269
5,142,457
Geographic analysis of due from Banks and financial institutions is as follows:

2009

AED 000
2008
AED 000
Within U.A.E
Outside U.A.E
1,038,250
3,588,299
1,683,943
1,153,469
4,626,549
2,837,412
Cash and balances with U.A.E. Central Bank

Due from Banks and financial institutions

Less: Balances with U.A.E. Central Bank maturing after three
months of placement
Less: Due from Banks and financial institutions maturing after
three months of placement
Cash and cash equivalents
48

31 December 2009
28
RELATED PARTY TRANSACTIONS
In the ordinary course of its activities, the Bank enters into transactions with related parties, comprising
directors, major shareholders, key management and their related concerns, at commercial interest and
commission rates. The Bank obtains collateral, including charges over real estate properties and securities,
the extent of which is dependent on the Banks assessment of the credit risk of the related party. All loans
and advances to related parties are performing advances and are free of any provision for impaired loans
and advances.
The following transactions have been entered into with related parties:

Board members, key management personnel
Loans and advances to customers
Customers deposits
Commitments and contingent liabilities
Interest and commission income
Interest expense
Associates
Loans and advances to customers
Customers deposits
Commitments and contingent liabilities
Interest and commission income
Interest expense and Islamic financing expense
Compensation of key management personnel:
Short term employee benefits
Post employment benefits
2009
AED 000
2008
AED 000
13,178,541
4,007,450
3,957,584
795,259
131,915
12,593,906
2,945,460
5,401,661
584,734
142,754
701,163
305,141
769,522
31,319
4,508
600,000
671,643
771,568
25,570
1,594
74,628
11,621
57,964
10,041
In addition to amounts disclosed above, Board of Directors remuneration amounting to AED 66,000 thousand
(2008: AED 60,000 thousand) has been included in the consolidated statement of other comprehensive
income and is subject to the approval of the shareholders at the forthcoming Annual General Meeting.
49

31 December 2009
29
COMMITMENTS AND CONTINGENT LIABILITIES
The Bank has the following commitments and contingent liabilities at 31 December:
2009
AED 000
2008
AED 000
Contingent liabilities:
Acceptances
Letters of credit
Guarantees
1,215,516
13,885,093
40,954,811
1,731,160
13,547,741
33,348,390
56,055,420
48,627,291
Commitments:
Commitments to extend credit maturing within one year
Commitments for future capital expenditure
Commitments for future private equity investments
13,117,474
3,581,014
586,729
12,643,378
5,525,779
643,881
17,285,217
18,813,038
Total commitments and contingent liabilities
73,340,637
67,440,329
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.
Letters of Credit, guarantees and acceptances commit the Bank to make payments on behalf of customers
in the event of a specific act such as the export or import of goods or upon the failure of the customer to
perform under the terms of a contract. These contracts would have market risk if issued or extended at a
fixed rate of interest. However, these contracts are primarily made at a floating rate.
Commitments to extend credit represent contractual irrevocable commitments to make loans and revolving
credits. Commitments generally have fixed expiry dates, or other termination clauses. Since commitments
may expire without being drawn upon, the total contract amounts do not necessarily represent future cash
requirements.
30
DERIVATIVES
The table below shows the positive and negative fair values of derivative financial instruments, together
with the notional amounts analysed by term to maturity. The notional amount is the amount of a derivatives
underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives
are measured. The notional amounts indicate the volume of transactions outstanding at year end and are
neither indicative of the market risk nor credit risk.
50

31 December 2009
30
DERIVATIVES continued
Positive
fair
value
Negative
fair
value
Notional
Notional amounts by term to maturity
amount
Within More than
Total 3 months 3-12 months 1-5 years
5 years
AED 000
AED 000
At 31 December 2009
Derivatives held for trading:
Forward foreign exchange contracts
Interest rate swaps, caps and collars
Credit default swaps
Cross currency interest rate swaps
Equity swaps
Swaptions
Options
Futures

41,864
468,431
-
98,949
43,018
5,615
1,227
2,671
39,096 4,197,659 1,690,999

481,811 28,752,573
-
6,486
173,460
-
98,949
830,531
-
43,018
635,454 203,636
6,746 3,360,795 2,846,575
1,457
378,860 378,860
-
383,056 383,056
2,506,660
-
497,527 6,739,413 21,515,633
- 173,460
830,531
-
- 431,818
- 514,220
-
-
-
-
-
661,775
677,563 38,712,388 5,503,126
3,834,718 7,858,911 21,515,633
Derivatives held as a fair value hedge:

Interest rate swaps
2,258
41,021
AED 000
657,143
AED 000
AED 000
AED 000
257,143
AED 000
400,000
Total
664,033
718,584 39,369,531 5,503,126
3,834,718 8,116,054 21,915,633
At 31 December 2008
Derivatives held for trading:
Equity swaps
Options
Futures
91,026
150,602
-
111,476
168,612
54,211
13,286
127,130 10,630,253 5,713,272

126,085 26,199,225 1,377,782
-
298,460
-
111,476
840,255
-
168,612
912,229
26,923
54,211
316,424
26,674
945
272,643 272,643
4,916,981
-
- 3,893,952 20,927,491
125,000 173,460
- 840,255
363,555 521,751
289,750
-
-
-
-
589,213
588,459 39,469,489 7,417,294
5,695,286 5,429,418 20,927,491
Derivatives held as a fair value hedge:

Interest rate swaps
Total
5,842
595,055
64,887
815,495
180,739
653,346 40,284,984 7,598,033
34,756
200,000
400,000
5,730,042 5,629,418 21,327,491
Derivative product types

In the ordinary course of business the Bank enters into various types of transactions that involve financial
instruments. A derivative financial instrument is a financial contract between two parties where payments
are dependent upon movements in price in one or more underlying financial instrument, reference rate or
index. Derivative financial instruments, which the Bank enters into, include forwards, options and swaps,
futures and swaptions.
Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or
financial instrument at a specific price and date in the future. Forwards are customised contracts transacted
in the over-the-counter market.
51

31 December 2009
30
DERIVATIVES continued
Derivative product types continued

Swaps are contractual agreements between two parties to exchange interest or foreign currency differentials
based on a specific notional amount. For interest rate swaps, counterparties generally exchange fixed and
floating rate interest payments based on a notional value in a single currency. For currency swaps, fixed or
floating interest payments as well as notional amounts are exchanged in different currencies.
Credit default swaps transfer the credit exposure of debt securities between parties. The buyer of a credit
default swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of
the product. Accordingly, the risk of default is transferred from the holder of the debt security to the seller
of the swap.
Options are contractual agreements that convey the right, but not the obligation, to either buy or sell
a specific amount of a commodity or financial instrument at a fixed price, either at a fixed future date or at
any time within a specified period.
Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default
on its contractual obligations and is limited to the positive fair value of instruments that are favourable to
the Bank. The Bank enters into derivative contracts with a number of financial institutions of good credit
rating.
Derivatives held for trading purposes
Most of the Banks derivative trading activities relate to offering products to customers at competitive prices
in order to enable them to transfer, modify or reduce current and expected risks and manage their market
positions with the expectation of making profit from favourable movements in prices or rates.
Derivatives held for hedging purposes
As part of its asset and liability management the Bank uses derivatives for hedging purposes in order to
reduce its exposure to interest rate risks.
The total gain on interest rate swaps held as fair value hedges amounted to AED 20,282 thousand
(2008: loss of AED62,336 thousand). A corresponding gain / loss has been adjusted against the carrying
value of the related hedged asset.
52

31 December 2009
31
SEGMENTAL INFORMATION
A segment represents a distinguishable component of the Bank that is engaged either in providing
products or services (business segment), or in providing products or services within a particular economic
environment (geographical segment), which is subject to risks and rewards that are different from those of
other segments.
Operating segment information
For management purposes the Bank is organised into five operating segments:
Corporate Banking Principally handling loans and other credit facilities and deposit and current accounts
for corporate and institutional customers and high net worth individuals.
Treasury, including Investment operations Principally providing money market, trading and treasury
services, as well as the management of the Banks funding operations by use of government securities and
placements and deposits with other Banks.
Retail Banking Principally handling individual customers deposits, and providing consumer type loans,
overdrafts, credit cards facilities and funds transfer facilities.
Real Estate activities Principally the acquisition, leasing, brokerage, management and resale of properties
carried out through its subsidiaries and associate companies.
Other operations comprising mainly the Head Office including unallocated costs, subsidiaries and associates
other than above categories.
Operating segmental information for the year ended 31 December 2009 was as follows:

Corporate
Retail
Real
Other

Banking
Treasury
Banking
Estate Operations
Total

AED 000
AED 000
AED 000
AED 000
AED 000
AED 000

Assets
63,406,123 22,012,894 27,052,053 7,065,561
5,935,912 125,472,543

Liabilities
72,355,198 9,330,598 11,116,360 1,389,789
8,377,830 102,569,775

Operating income
excluding associates
2,126,579
754,909 2,405,484
797,808
50,195 6,134,975
Net interest income and
income from Islamic financing 1,586,487
430,034
1,715,093
102,118
3,833,732

-
-
-
57,566
(28,527)
29,039

loans and advances
(886,230)
- (614,236)
-
(180,000) (1,680,466)
Impairment of available for
sale investments
(90,000)
Profit attributable to
equity holders of the Bank
938,977
609,312 1,295,290
842,435
(375,679)

Other segment information
-
-
-
324,237
237,218

Capital expenditure
-
-
-
638,515
84,424

Depreciation
-
-
-
324
61,100
(90,000)
3,310,335
561,455
722,939
61,424
53

31 December 2009
31
SEGMENTAL INFORMATION continued
Operating segment information for the year ended 31 December 2008 was as follows:

Corporate
Retail
Real
Other

Banking
Treasury
Banking
Estate
Operations
Total

AED 000
AED 000
AED 000
AED 000
AED 000
AED 000

Assets
59,220,532 18,483,131 19,481,367 5,830,671
4,506,007 107,521,708

Liabilities
67,526,484 10,872,417 8,626,025 1,502,580
2,374,592 90,902,098

Operating income
excluding associates
1,478,822
436,901 1,865,725
755,534
4,524 4,541,506
Net interest income and
income from Islamic financing 1,006,279
(67,732)
2,580,500

-
-
-
116,790
40,153

loans and advances
(275,114)
(6,336) (284,900)
-
-

Profit attributable to
equity holders of the Bank
953,672
376,265 1,044,943
863,209
(232,839)

Other segment information
-
-
-
272,665
280,365

Capital expenditure
-
-
- 2,269,359
343,551

Depreciation
-
-
-
104
38,706
156,943
32
474,096
1,167,857
(566,350)
3,005,250
553,030
2,612,910
38,810
RISK MANAGEMENT
32.1 Introduction
Risk is inherent in the Banks activities but it is managed through a process of ongoing identification,
measurement and monitoring, subject to risk limits and other controls. This process of risk management is
critical to the Banks continuing profitability and each individual within the Bank is accountable for the risk
exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk and market
risk, the latter being subdivided into trading and non-trading risks. It is also subject to operating risks.
Risk management structure
In line with the best practice followed in world-class financial institutions the overall risk management
responsibility lies with the Board of Directors of the Bank under which there is a Risk and Compliance
Committee (RCMC) comprising of three board members and the Chief Risk Officer who take the responsibility
for identifying and controlling the risks.
Board of Directors
The overall risk management responsibility lies with the Board of Directors of the Bank. They provide the
direction, strategy and oversee all the activities through various committees.
Audit Committee
The Audit Committee comprises three independent members who represent the Board of Directors of
the Bank. The committee has the overall responsibility of assessing the internal audit findings, directing
implementation of audit recommendations and overseeing the internal audit activities undertaken within the
internal control environment and regulatory compliance framework of the Bank. Duties and responsibilities
of the Audit Committee are governed by a formally approved Audit Committee Charter which is in line with
best practice and control governance.
54

31 December 2009
32
RISK MANAGEMENT continued
32.1
Introduction continued
Risk & Compliance Management Committee (RCMC)

The objective of RCMC is to assist the Board of Directors in fulfilling its corporate governance and oversight
responsibilities by establishing, monitoring and reviewing internal control, compliance and risk management
processes and systems within the Bank.
Asset Liability Committee
Asset Liability Management (ALM) process is an act of planning, acquiring, and directing the flow of funds
through an organisation. The ultimate objective of this process is to generate adequate and stable earnings
and to steadily build an organizations equity over time, while taking measured business risks. The Bank has
a well defined ALM policy duly describing the objective, role and function of Asset Liability Committee (ALCO).
This process revolves around ALCO, the body within the Bank that holds the responsibility to make strategic
decisions to manage balance sheet related risks. The ALCO consisting of the Banks senior management
including the Managing Director (MD) and Chief Executive Officer (CEO) meets at least once a month.
Credit Committee
All the business proposals of clients are approved through a committee empowered by the Executive
Committee of the Bank through the CEO. The Bank has a Credit Committee which approves all the funded
and non funded limits. The committee consists of senior management personnel including the CEO. The
approval process and the authorities vested with the committee members are well defined in a credit policy
manual. The policy manual enumerates various procedures to be followed by a relationship manager in
bringing a relationship to the Bank. Various aspects of the credit approval process have been defined in the
policy which enables efficient approval of the proposals.
Investment and Management Committee
Investment and Management Committee (IMCO) is a management level committee with representations
from investment, financial control and risk management functions. This committee is entrusted with the
responsibility of approving limits for investments and in approving individual investment proposals within
those limits. It ensures that the investment decisions conform to the guidelines laid down in the investment
policy of the Bank and are within overall limits prescribed by the Board of Directors. The committee meets
to discuss new proposals for investments as well as analyse the performance of existing investments. The
committee also sets guidelines for investments.
Risk Management Unit (RMU)
RMU is an independent unit reporting to the CEO and the RCMC. RMU is responsible for identifying,
measuring, monitoring and controlling the risks arising out of various activities in the Bank by the different
business units. The process is through partnering with the units in identifying and addressing the risks by
setting limits and reporting on the utilisation thereof.
RMU also monitors compliance with the regulatory procedures and anti-money laundering monitoring
procedures of the Bank.
Bank Treasury
Bank Treasury is responsible for managing the Banks assets and liabilities and the overall financial structure.
It is also primarily responsible for managing the funding and liquidity risks of the Bank.
Internal Audit
Risk management processes throughout the Bank are audited annually by the internal audit function that
examines both the adequacy of the procedures and the Banks compliance with the procedures. Internal Audit
discusses the results of all assessments with management, and reports its findings and recommendations
to the Audit Committee. The Head of Internal Audit has direct reporting lines to the Audit Committee in
securing his independence and objectivity in all audit engagements undertaken within the Bank.
55

31 December 2009
32
32.1
Introduction continued
Risk measurement and reporting systems

Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits
reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is
willing to accept, with additional emphasis on selected industries. In addition, the Bank monitors and measures
the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities.
Information compiled from all the businesses is examined and processed in order to analyse, control and
identify early risks. This information is presented and explained to the RCMC, and the head of each business
division. The report includes aggregate credit exposure, limit exceptions and risk profile changes. On a monthly
basis detailed reporting of industry, customer and geographic risks takes place. Senior management assesses
the appropriateness of the provision for credit losses on a quarterly basis. RCMC receives a comprehensive
risk report once a quarter which is designed to provide all the necessary information to assess and conclude
on the risks of the Bank.
For all levels throughout the Bank, specifically tailored risk reports are prepared and distributed in order to
ensure that all business divisions have access to extensive, necessary and up-to-date information.
Risk mitigation
As part of its overall risk management, the Bank uses derivatives and other instruments to manage exposures
resulting from changes in interest rates and foreign currencies.
The risk profile is assessed before entering into hedge transactions, which are authorised by the appropriate
level of seniority within the Bank. The effectiveness of hedges is assessed by the RMU. The effectiveness of
all the hedge relationships is monitored by the RMU monthly. In situations of ineffectiveness, the Bank will
enter into a new hedge relationship to mitigate risk on a continuous basis.
The Bank actively uses collateral to reduce its credit risks.
Risk concentration
Concentrations of credit risk arise when a number of counter-parties are engaged in similar business
activities, or activities in the same geographic region, or have similar economic features that would cause
their ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations of credit risk indicate the relative sensitivity of the Banks performance to
developments affecting a particular industry or geographic location.
The Bank seeks to manage its credit risk exposure through diversification of lending activities to avoid undue
concentrations of risks with individuals or groups of customers in specific industries or businesses.
Details of the composition of the loans and advances portfolio are provided in Note 4. Information on credit
risk relating to investments is provided in Note 5.
56

31 December 2009
32
32.2 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss. The Bank attempts to control credit risk by monitoring
credit exposures, limiting transactions with specific counter-parties, and continually assessing the credit
worthiness of counter-parties. In addition to monitoring credit limits, the Bank manages the credit exposure
relating to its trading activities by entering into master netting agreements and collateral arrangements with
counter-parties in appropriate circumstances, and limiting the duration of exposure. In certain cases, the
Bank may also close out transactions or assign them to other counter-parties to mitigate credit risk.
The Bank has established a credit quality review process to provide early identification of possible changes
in the credit worthiness of counterparties, including regular collateral revisions. The credit quality review
process allows the Bank to assess the potential loss as a result of the risks to which it is exposed and take
corrective action.
Derivative financial instruments
Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair
values, as recorded in the balance sheet.
Credit-related commitments risks
The Bank makes available to its customers guarantees which may require that the Bank makes payments on
their behalf. Such payments are collected from customers based on the terms of the letters of guarantee. They
expose the Bank to similar risks to loans and these are mitigated by the same control processes and policies.
57

31 December 2009
32
32.2
Credit risk continued
Maximum exposure to credit risk without taking account of any collateral and other credit
enhancements
The table below shows the maximum exposure to credit risk for the components of the balance sheet,
including derivatives. The maximum exposure is shown gross, before the effect of mitigation through the
use of master netting and collateral agreements.
Gross
maximum
exposure
2009
AED 000
Gross
maximum
exposure
2008
AED 000
3
27
4
5
8
5,310,347
4,626,549
90,385,885
11,914,949
4,092,635
4,767,198
2,837,412
79,362,996
7,957,960
3,592,975
Total
116,330,365
98,518,541
29
29
56,055,420
13,117,474
48,627,291
12,643,378
Total
69,172,894
61,270,669
Total credit risk exposure
185,503,259
159,789,210

Notes

Balances with U.A.E. Central Bank
Due from Banks and financial institutions
Loans and advances
Other assets
Contingent liabilities
Commitments
Where financial instruments are recorded at fair value the amounts shown above represent the current
credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes
in values.
Credit risk concentration
Concentration of risk is managed by customer/counterparty, by geographical region and by industry
sector. The funded and non-funded credit exposure to the top 5 borrowers as of 31 December 2009 was
AED 18,855,094 thousand (2008: AED 16,362,564 thousand) before taking account of collateral
or other credit enhancements and AED9,328,980 thousand (2008: AED 7,525,611 thousand) net of
such protection.
58

31 December 2009
32
32.2
Credit risk concentration continued

The distribution of the Banks financial assets by geographic region and industry sector is as follows:
2009
AED 000
2008
AED 000
Geographic region
U.A.E.
Other Arab countries
Europe
U.S.A.
Rest of the world
100,782,613
3,063,536
3,899,769
7,961,941
622,506
88,201,799
1,313,847
4,200,910
4,313,673
488,312
Financial assets subject to credit risk

Other assets
116,330,365
9,142,178
98,518,541
9,003,167
Total assets
125,472,543
107,521,708
62,643,622
27,051,409
14,823,540
9,552,316
2,259,478
57,881,595
19,481,367
11,793,197
7,551,756
1,810,626
Financial assets subject to credit risk

Other assets
116,330,365
9,142,178
98,518,541
9,003,167
Total assets
125,472,543
107,521,708
Industry sector
Commercial and business
Personal
Government
Banks and financial institutions
Others
Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty.
Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are as follows:

For repurchase and reverse repurchase transactions, cash or securities;

For commercial lending, charges over real estate properties, inventory, trade receivables and securities;

For personal lending, assignment of salaries in favour of the Bank.
The Bank also obtains guarantees from parent companies for loans to their subsidiaries, but the benefits are
not included in the above table.
Management monitors the market value of collateral, requests additional collateral in accordance with
the underlying agreement, and assesses the market value of collateral obtained during its review of the
adequacy of the provision for impairment losses.
It is the Banks policy to dispose of repossessed assets, other than investment properties, in an orderly
fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not
occupy repossessed properties for business use.
The Bank also makes use of master netting agreements with counterparties.
59

31 December 2009
32
32.2
Credit quality per class of financial assets

The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below
shows the credit quality by class of asset, based on the Banks credit rating system. The amounts presented
are gross of impairment provisions.

Neither past due nor impaired

Sub- Past due or

standard individually

Pass grade Watch grade
grade
impaired

Cash and balances with
U.A.E. Central Bank
Due from Banks and
financial institutions
Loans and advances
Other assets
Total
2009
AED 000
2009
AED 000
2009
AED 000
2009
AED 000
2009
AED 000
5,310,347
5,310,347
4,626,549
86,609,755
4,092,635
11,914,949
112,554,235
-
1,197,455
-
-
1,197,455
-
235,417
-
-
235,417

Neither past due nor impaired

Pass grade Watch grade

Cash and balances with
U.A.E. Central Bank
Due from Banks and
financial institutions
Loans and advances
Other assets
Total
60
Total
-
4,626,549
4,873,040 92,915,667
-
4,092,635
- 11,914,949
4,873,040 118,860,147
Sub-
standard
grade
Past due or
individually
impaired
Total
2008
AED 000
2008
AED 000
2008
AED 000
2008
AED 000
2008
AED 000
4,767,198
4,767,198
2,837,412
76,995,137
3,592,975
7,957,960
96,150,682
-
826,538
-
-
826,538
-
1,498
-
-
1,498
-
2,837,412
2,680,614 80,503,787
-
3,592,975
-
7,957,960
2,680,614 99,659,332

31 December 2009
32
32.2

Past due loans and advances include those that are only past due by a few days. An analysis of past due
loans, by age, is provided below.
Aging analysis of past due but not impaired loans
Past due but not impaired loans and advances
Less than 30
days
2009
AED 000
31 to 60
days
2009
AED 000
61 to 90 More than 91
days
days
2009
2009
AED 000
AED 000
1,048,595
460,690
265,936
1,647,006
Impaired loans (Note 4)
Impaired loans (Note 4)

Total past due and impaired loans
3,422,227
1,450,813
Total past due and impaired loans
Past due but not impaired loans and advances
Total
2009
AED 000
4,873,040
Less than 30
days
2008
AED 000
31 to 60
days
2008
AED 000
61 to 90
days
2008
AED 000
More than 91
days
2008
AED 000
Total
2008
AED 000
995,827
329,886
203,699
661,326
2,190,738
489,876
2,680,614
See Note 4 for more detailed information with respect to the provision for impairment losses on loans and
advances.
Renegotiated loans
The total carrying amount of loans and advances whose terms have been renegotiated as of 31 December
2009 amounted to AED 2,455,742 thousand (2008: AED 836,329 thousand).
61

31 December 2009
32
32.3
Liquidity risk and funding management
Liquidity risk is the risk that an institution will be unable to meet its funding requirements. Liquidity risk can be caused by market
disruptions or a credit downgrade which may cause certain sources of funding to dry up immediately. To guard against this risk,
management has diversified funding sources and assets are managed with liquidity in mind, maintaining a healthy balance of
cash, cash equivalents, and readily marketable securities.
Analysis of financial assets and financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Banks financial assets and liabilities at 31 December
2009 based on contractual maturities.

Less than
3 months
1 year to
Over

3 months
to 1 year
5 years
5 years
Total

AED 000
AED 000
AED 000
AED 000
AED 000
ASSETS
Cash and balances
with U.A.E. Central Bank
2,346,970
3,200,000
-
-
5,546,970
Due from banks
and financial institutions
4,626,549
-
-
-
4,626,549
Loans and advances, net
27,079,486
9,670,901 23,890,298 29,745,200 90,385,885
7,773,597
1,149,349
1,626,391
2,932,641 13,481,978
Other assets
4,230,602
-
-
-
4,230,602
Financial assets
46,057,204
14,020,250
25,516,689
32,677,841 118,271,984
Non-financial assets
7,200,559
Total assets 125,472,543

LIABILITIES
Due to banks
Customers deposits
Term loans
Other liabilities
1,390,567
550,000
-
-
-
68,981,077
8,362,910
2,205,032
6,872,887
-
-
5,309,875
4,510,087
4,387,340
-
-
-
Total liabilities
74,758,984
8,912,910
7,514,907
11,382,974 102,569,775
The maturity profile of the financial assets and liabilities at 31 December 2008 was as follows:

Less than
3 months
1 year to
Over

3 months
to 1 year
5 years
5 years

AED 000
AED 000
AED 000
AED 000
ASSETS
Cash and balances
with U.A.E. Central Bank
5,005,045
-
-
-
Due from banks
and financial institutions
2,837,412
-
-
-
Loans and advances, net
30,539,831
9,678,325 18,084,996 21,059,844
3,660,278
643,724
811,977
4,863,597
Other assets
3,780,048
-
-
-
Financial assets
45,822,614
10,322,049
18,896,973
1,940,567
86,421,906
9,819,962
4,387,340
Total
AED 000
5,005,045
2,837,412
79,362,996
9,979,576
3,780,048
25,923,441 100,965,077
Non-financial assets
6,556,631
Total assets 107,521,708
62
LIABILITIES
Due to banks
Customers deposits
Term loans
Other liabilities
3,012,642
4,200,000
55,928,914
2,754,750
3,841,822
100,000
-
5,943,977
-
-
-
-
4,522,136
3,030,225
-
-
-
7,567,632
-
-
3,112,642
4,200,000
73,962,659
5,784,975
3,841,822
Total liabilities
69,738,128
6,043,977
7,552,361
7,567,632
90,902,098

31 December 2009
32
32.3
Liquidity risk and funding management continued
The table below summarises the maturity profile of the Banks financial liabilities at 31 December 2009
based on contractual undiscounted repayment obligations, including cash flows pertaining to principal
repayment and interest payable to maturity.

Less than
3 months
AED 000
3 months
to 1 year
AED 000
1 year to
5 years
AED 000
Over
5 years
AED 000
2009
LIABILITIES
Due to banks
Customers deposits
Term loans
Other liabilities
1,401,802
-
69,355,260
52,876
4,387,340
568,028
-
8,773,350
227,965
-
-
-
2,244,620
6,339,834
-
Total liabilities
75,197,278
9,569,343
8,584,454 11,860,853 105,211,928
2008
LIABILITIES
Due to banks
Customers deposits
Term loans
Other liabilities
3,013,510
4,201,438
56,442,393
2,773,285
3,841,822
100,776
-
6,163,349
25,925
-
-
-
5,025,449
3,181,386
-
- 3,114,286
- 4,201,438
8,480,101 76,111,292
- 5,980,596
- 3,841,822
Total liabilities
70,272,448
6,290,050
8,206,835
8,480,101 93,249,434
Total
AED 000
- 1,969,830
-
6,877,207 87,250,437
4,983,646 11,604,321
- 4,387,340
The disclosed financial instruments in the above table are the gross undiscounted cash flows. However, those amounts
may be settled gross or net. The following table shows the reconciliation of the carrying amounts of derivatives and
their future cash flows.

2009
Inflows
Outflows
Net
Less than 3
months
AED 000
3 to 12
months
AED 000
1 to 5
years
AED 000
Over
5 years
AED 000
Total
AED 000
2,493,869 2,429,419 1,397,994 1,194,823 7,516,105

(2,505,500) (2,432,113) (1,297,365) (1,364,160) (7,599,138)
(11,631)
(2,694)
100,629
(169,337)
(83,033)
63

31 December 2009
32
32.3
Liquidity risk and funding management continued
The table below shows the contractual expiry by maturity of the Banks contingent liabilities and commitments.

2009
Commitments
Less than 3
months
AED 000
3 to 12
months
AED 000
1 to 5
years
AED 000
Over
5 years
AED 000
38,795,565
10,214,911
7,353,160
5,515,385
9,906,695
1,554,921
- 56,055,420
- 17,285,217
Total
49,010,476 12,868,545 11,461,616
- 73,340,637
2008
Commitments
33,940,227 10,718,719
10,285,865 4,329,968
3,968,345
4,197,205
- 48,627,291
- 18,813,038
Total
44,226,092 15,048,687
8,165,550
- 67,440,329
Total
AED 000
The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of
the commitments.
32.4
Market risk
Market risk is the risk that the fair value and future cash flows of financial instruments will fluctuate due to
changes in market variables such as interest rates, foreign exchange rates, and equity prices.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the
fair values of financial instruments. Effective hedging strategies are in place to ensure that interest rate
fluctuations do not cause significant changes in future cash flows or fair value of financial instruments.
The following table estimates the sensitivity to a reasonable possible change in interest rates on the Banks
income statement. The sensitivity of the income statement is the effect of the assumed changes (whether
increase or decrease) in interest rates on the net interest income for one year, based on the floating rate
financial assets and financial liabilities, denominated in various currencies, held at 31December 2009, with
all other variables held constant.
Currency
Assumed change in interest rates
AED
USD
EUR
GBP
Others
0.50%
0.50%
0.50%
0.50%
0.50%
Impact on net interest income from

increase in interest rates:
2009 (AED 000)
76,738
(1,789)
(7,452)
(619)
(3,474)
2008 (AED 000)
76,779
(10,116)
3,688
(151)
405
1,789
7,452
619
3,474
2008 (AED 000)

(76,779)
10,116
(Amounts in brackets reflect decreases in net interest income.)
(3,688)
151
(405)
Impact on net interest income from

decrease in interest rates:
2009 (AED 000)
64
(76,738)

31 December 2009
32
32.4
Market risk continued
Interest rate risk continued

The sensitivity of equity is calculated by revaluing fixed rate available for sale financial assets, including the
effect of any associated hedges, and swaps designated as cash flow hedges, for the effects of the assumed
changes in interest rates. At 31 December 2009, the effect of the assumed changes in interest rates on
equity is as follows.
Currency
Assumed change in interest rates
USD
0.50%
Impact on equity from increase in interest rates:

2009 (AED 000)
(14,823)
Impact on equity from decrease in interest rates:

2009 (AED 000)
15,168
As 31 December 2008, the effect of the assumed changes in interest rates on equity is insignificant.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates. The Board has set limits on positions by currency. Positions are monitored on a daily basis
and hedging strategies are used to ensure positions are maintained within established limits.
The tables below indicate the currencies to which the Bank had significant exposure at 31 December 2009
on its monetary assets and liabilities and its forecast cash flows. The analysis estimates the effect of a
reasonably possible movement of AED against other currencies, with all other variables held constant on
the consolidated income statement.
Currency
USD
EUR
GBP
Libyan
Assumed change in exchange rates
1%
1%
1%
1%
2009 (AED 000)
24,824
(74)
(18)
(3,821)
2008 (AED 000)
64,183
(133)
(40)
(3,824)
(24,824)
74
18
3,821
2008 (AED 000)

(64,183)
(Amounts in brackets reflect decreases in operating income.)
133
40
3,824
Impact on operating income from increase in

exchange rates:
Impact on operating income from decrease in

exchange rates:
2009 (AED 000)
At 31 December 2009 and 2008, the effect of the assumed changes in exchange rates on equity is insignificant.
65

31 December 2009
32
32.4
Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the
levels of equity indices and the value of individual stocks. The equity price risk exposure arises from
the Banks investment portfolio.
The following table estimates the sensitivity to a possible change in equity markets on the Banks income
statement. The sensitivity of the income statement is the effect of the assumed change in the reference
equity benchmark on the fair value of investments carried at fair value through the income statement.
Assumed level
of change
%
Impact on
net income
2009
AED 000
Impact on
net income
2008
AED 000
Investments carried at fair value through the income

statement
Reference equity benchmarks:
Abu Dhabi Securities Market Index
5%
7,814
11,068
Dubai Financial Market Index
5%
281
954
Net asset value of managed funds
5%
10,169
26,025
Other equity exchanges
5%
1,912
Unquoted
5%
959
The effect on equity (as a result of a change in the fair value of equity instruments held as available for sale at
31December 2009) due to a reasonably possible change in equity indices, with all other variables held constant,
is as follows.
Assumed level
of change
%
Impact on
equity
2009
AED 000
Impact on
equity
2008
AED 000

Reference equity benchmarks:
Other equity exchanges
5%
287
Net asset value of private equity funds
5%
51,148
56,740
Prepayment risk
Prepayment risk is the risk that the Bank will incur a financial loss because its customers and counterparties repay or
request repayment earlier or later than expected, such as fixed rate mortgages when interest rates fall.
The effect on profit for one year, assuming 10% of repayable financial instruments were to prepay at the beginning
of the year, with all other variables held constant, is estimated at AED 408,386 thousand (2008: AED 334,396
thousand).
66

31 December 2009
32
32.4
Operational risk
Operational risk is the risk of direct or indirect loss arising from inadequate or failed internal processes, systems
failure, human error, fraud or external events. When required controls fail, operational risks can cause damage to
reputation, have legal or regulatory implications, or lead to financial loss. While the Bank cannot expect to eliminate
all operational risks, through a control framework and by continuous monitoring and responding to potential risks, the
Bank is able to manage these risks. Controls include effective segregation of duties, appropriate access, authorisation
and reconciliation procedures, staff training and robust assessment processes. The processes are reviewed by risk
management and internal audit on an ongoing basis.
33
FAIR VALUE OF FINANCIAL INSTRUMENTS
While the Bank prepares its financial statements under the historical cost convention modified for
measurement to fair value of investment securities (other than held to maturity investments and certain
unquoted investments), investment properties and derivative financial instruments, in the opinion of
management, the estimated carrying values and fair values of those financial assets and liabilities, other
than the Government deposit referred to in Note 12, that are not carried at fair value in the financial
statements are not materially different, since assets and liabilities are either short term in nature or in the
case of deposits and performing loans and advances, frequently repriced. For impaired loans and advances,
expected cash flows, including anticipated realisation of collateral, were discounted using the original
interest rates, considering the time of collection and a provision for the uncertainty of the cash flows.
The carrying value of unquoted investments stated at cost and fair value of held to maturity investments
are disclosed in Note 5. The fair value of the Government deposit cannot be reliably estimated as this is
dependent on the amounts and timing of future loan disbursement under the housing loans scheme.
Details of the Government deposit are disclosed in Note 12.
The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments
by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
67

31 December 2009
33
FAIR VALUE OF FINANCIAL INSTRUMENTS continued
The following table shows the analysis of financial instruments recorded at fair value by level of the fair
value hierarchy:

Level 1
AED 000
Level 2
AED 000
Level 3
AED 000
Total
AED 000
Carried at fair value through income statement

Investments in managed funds
Investments in equities Quoted
-
195,753
203,374
19,175
-
-
203,374
214,928

Investments in equities Unquoted
Investments in private equity funds
Debt securities
-
-
751,912
-
1,022,968
20,000
61,226
-
-
61,226
1,022,968
771,912
947,665
1,265,517
61,226
2,274,408
-
-
-
-
-

2,671
41,864
468,431
5,615
98,949
43,018
1,227
-
-
-
-
-
-
-
-
41,864
468,431
5,615
98,949
43,018
1,227
2,671
2,258
2,258
2,671
661,362
664,033
Derivatives held for trading

Swaptions
Equity swaps
Options
-
-
-
-
-
-
-
39,096
481,811
6,746
6,486
98,949
43,018
1,457
-
-
-
-
-
-
-
39,096
481,811
6,746
6,486
98,949
43,018
1,457
Derivatives held as fair value hedge

Interest rate swaps
41,021
41,021
718,584
718,584
FINANCIAL ASSETS

NON TRADING INVESTMENTS
DERIVATIVES Positive fair value

Derivatives held for trading
Swaptions
Equity swaps
Options
Futures
Derivatives held as fair value hedge
Interest rate swaps

DERIVATIVES Negative fair value
68

31 December 2009
33
FAIR VALUE OF FINANCIAL INSTRUMENTS continued
The following is a description of the determination of fair value for financial instruments which are recorded
at fair value using valuation techniques. These incorporate the Banks estimate of assumptions that a market
participant would make when valuing the instruments.
Investments carried at fair value through income statement are listed equities in local as well as international
exchanges, and hedged funds. Equity valuations are based on market prices as quoted in the exchange
while funds are valued on the basis on Net Asset Value (NAV) statements received from fund managers.
AFS investments, revaluation gain / loss of which is recognised through equity, comprises long-term strategic
investments in companies, private equity funds and Eurodollar or AED denominated debt securities. For
companies and funds, the financial statements provide the valuations of these investments which are arrived
primarily by discounted cash flow analysis. For debt securities, the applied valuation is quoted prices by key
market players.
Derivatives
Derivatives are mainly interest rate and currency swaps, asset swaps, options on equities, swaptions and
FX forward contracts. The valuation techniques used are models which use observable market data like FX
forward rates, interest rate curves of different currencies, the deduced zero curves and forward rates and
volatilities of the underlying factors
Transfers between categories
During the reporting period ending 31 December 2009, there were no transfers between Level 1 and Level 2
fair value measurements, and no transfers into and out of Level 3 fair value measurements.
The following table shows a reconciliation of the opening and closing amount of Level 3 financial asset
recorded at fair value.

AED 000
At 1 January 2009
Total gain recorded in equity
55,870
5,356
At 31 December 2009
61,226
69

31 December 2009
34
CAPITAL ADEQUACY
Capital management
The primary objective of the Banks capital management is to ensure that the Bank maintains healthy capital
ratios in order to support its business, to maximise shareholders value and to ensure that the Bank complies
with externally imposed capital requirements.
The Bank manages its capital structure and makes adjustments to it in the light of changes in economic
conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the
Bank may adjust the amount of dividend payment to shareholders or issue capital securities. No changes
were made in the objectives, policies and processes from the previous years.
The capital adequacy ratio calculated in accordance with the guidelines of the U.A.E. Central Bank is as follows:
2009
AED 000
2008
AED 000
Total capital base
26,126,246
15,550,279
Risk weighted assets:

Balance sheet items
Off-balance sheet exposures
89,851,255
25,833,538
86,898,553
23,451,404
115,684,793
110,349,957
22.6%
14.1%
Total risk weighted assets

Total assets ratio (%)
70
Basel II Pillar III Reports
71
1. ADDITIONAL NOTE ON RISK MANAGEMENT AND BASEL II DISCLOSURES

1.1
Introduction
The role of Risk Management is increasingly becoming more and more important towards sustenance of
business growth and avoidance of unpleasant shocks and major losses. At First Gulf Bank, we believe that
effective Enterprise Risk Management is of primary importance to its success. Accordingly, First Gulf Bank has
set up a robust Enterprise Risk Management framework that spans across all business and support units as
well as its subsidiaries, associates and foreign offices including representative offices and overseas branches.
First Gulf Banks Enterprise Risk Management framework is designed to balance corporate oversight with a
well-defined Independent Enterprise Risk Management Group. This Enterprise Risk Management framework
facilitates a composite view of risk at each succeeding level of the organisation enabling First Gulf Bank to
make a determination whether the overall risk portfolio is commensurate with its risk appetite. The need for
including all entities within the Enterprise Risk Management framework arises from the fact that while risks
for individual entities may be within its risk tolerance limits, the overall risk for First Gulf Bank may exceed the
risk appetite as a whole. Conversely, potential events may represent an otherwise unacceptable risk in one
business entity, but with an offsetting effect in another. First Gulf Bank identifies and acts upon interrelated
risks so that the entirety of risk is consistent with its overall risk management principles.
1.2
Enterprise Risk Management Policy Framework
First Gulf Banks Enterprise Risk Management Policy (ERMP) framework aims to accomplish its core values
and purpose of being a world-class organisation maximising its risk adjusted returns for all stakeholders by
establishing an enterprise-wide Risk Management framework across the First Gulf Bank Group including its
local and international branches, subsidiaries, associates and foreign representative offices. The core objective
of ERMP is to provide a reasonable degree of assurance to the Board of Directors that the risks threatening
the Banks achievement of its core purpose are being identified, measured, monitored and controlled through
an effective integrated Risk Management system covering credit, market, operational, interest rate, liquidity
and all other material risks including Strategic risk, Country risk, Reputation risk, Regulatory and Compliance
related risks, etc. First Gulf Banks ERMP framework covers the following risks within its ambit: Credit risk
in the Banking Book, Market risk in the Trading Book, Operational risk across the Bank, Interest rate risk in
the Banking Book, Liquidity risk across the Trading and Banking Book, Country risk across the Trading and
Banking Book and other material risks namely Strategic risk, Reputation risk and Regulatory & Compliance
related risks. This framework is cascaded in a hierarchy of policy manuals throughout the First Gulf Bank
Group and communicates standards, instructions and guidance to employees.
1.3
Risk Appetite
Risk Appetite of a Bank is the single-most important factor in setting exposure and risk limits for various
dimensions and levels across streams of risk. First Gulf Bank plans to establish, follow and use a Risk Appetite
statement established through a dialogue between risk taking functions after a careful consideration of
risk-return trade-off and through a top-down approach to incorporate differing requirements of various
stakeholders namely shareholders, debt holders, regulator etc. Further First Gulf Bank plans to synchronise
the Risk Appetite defined at bank level for setting of exposure and risk limits across various risk streams
namely Credit risk, Market risk, Operational risk, Strategic risk, etc.
1.4
Risk Identification and Assessment
Credit Risk: In a Banks portfolio, losses stem from outright default due to inability or unwillingness of a
customer or counter-party to meet commitments in relation to lending, trading, settlement and other financial
transactions. Alternatively, losses result from reduction in portfolio value arising from actual or perceived
deterioration in Credit Quality. Currently, First Gulf Bank follows an obligor rating mechanism for identification
72
of credit risk; going forward First Gulf Bank will follow a dual risk rating framework for identification of credit
risk, wherein each borrower is assigned an obligor level credit rating and each facility to the borrower is
assigned a facility level rating. This two-dimensional rating framework will separately assess customer risk
from transaction risk. This will involve estimation of credit risk parameters namely Probability of Default (PD)
to estimate default risk, Loss Given Default (LGD) to estimate recovery risk and Exposure at Default (EAD) to
estimate exposure risk. First Gulf Bank has already put in place various models across its Corporate and Retail
Banking portfolios to estimate the above mentioned parameters; these models are currently under testing
phase. First Gulf Bank currently undertakes credit risk measurement (calculation of credit risk RWA) as per the
Basel II standardised approach of credit risk. First Gulf Bank plans to gradually move towards Internal Ratings
Based approach for calculation of credit risk weighted assets by 2011.
Credit Concentration Risk: Please refer to Note 32.2 of the Financial Statements.
Market Risk: Please refer to Note 32.4 of the Financial Statements.
Operational Risk: Please refer to Note 32.4 of the Financial Statements.
Interest Rate Risk/Liquidity Risk: Please refer to Notes 32.3 and 32.4 of the Financial Statements.
Country Risk: Country risk is the likelihood of economic, social, and political events in a foreign country
negatively influencing the willingness or ability of state owned and/or privately owned customers in that
country to pay their debts on time. First Gulf Bank can get exposed to country risk in numerous ways namely
International lending operations, on balance sheet activities such as overseas investments, placements etc.
Off-balance sheet exposures such as letters of credit, guarantees/bonds, foreign exchange contracts etc.
Foreign Currency Lending to domestic obligors, exposure to domestic entities that have significant cross
border exposures, Secured Lending to a Domestic Borrower where collateral is located in a foreign country,
etc. First Gulf Bank identifies and assesses country risk through a combination of quantitative and qualitative
analysis. First Gulf Bank undertakes a detailed quantitative analysis of economic factors such as exchange
rate, inflation rate, interest rate, public debt, short-term debt, GDP growth, unemployment rate, liquidity
factors, governments capability in generating revenue, and other relevant statistics along with obligor and
facility specific factors as a part of business (credit decision, investment decision, etc.) decision process.
First Gulf Bank also undertakes a detailed qualitative analysis pertaining to country risk as a part of the
business decision process. These factors include economic, social and political stability in each country, the
monetary policy, the foreign exchange control measure, the transparency of information, the financial and
market structure, such as commercial banks supervision policy of the supervisory authority in that country,
the legal system, and the accounting standards, etc.
Strategic Risk: Strategic risk refers to the risk of current or prospective impact on First Gulf Banks earnings,
capital, reputation or standing arising from changes in the environment First Gulf Bank operates in and from
adverse strategic decisions, improper implementation of decisions, or lack of responsiveness to industry,
economic or technological changes. It is a function of compatibility of First Gulf Banks strategic goals,
strategies developed to achieve those goals, resources deployed to meet those goals and the quality of
implementation. First Gulf Bank uses several factors to identify and assess impact of strategic risk on its
books. These factors include level of integration of Risk Management policies and practices in the strategic
planning process, aggressiveness of strategic goals and compatibility with developed business strategies,
capital support for the strategic initiatives to take care of earnings volatility, effectiveness of communication
and consistency of application of strategic goals, objectives, corporate culture, and behaviour throughout
First Gulf Bank, effectiveness of MIS to support strategic direction and initiatives, etc.
Reputation Risk: Reputation risk is the risk to earnings or capital arising from negative public opinion. This
can be due to external or internal events. First Gulf Bank identifies and assesses reputation risk by clearly
defining types of risk to be captured, establishing key sources of reputation risk it may be exposed to based
73
on individual circumstances, describing the risks identified in terms of the nature of risk and the potential
consequences that the risks may bring to First Gulf Banks reputation. First Gulf Bank also refers to other
relevant information for risk identification purposes. Such information may, for example, be sourced from
media reports, stakeholder analysis reports, internal audit and compliance reports, management exception
reports, or other early warning indicators. First Gulf Bank facilitates assessment of the likelihood and impact
of the risks identified, using techniques and tools such as Risk and Control assessment, Stakeholders Impact
Assessment and Stress Testing.
Regulatory and Compliance Related Risks: Regulatory risk and compliance related risks pertain to risk of
material impact on the Banks business due to changes in regulations and/or non-compliance with certain
regulatory requirements.A change in lawsor regulations made by the government or any other regulatory
body may diminish the Banks operating margin, may reduce the attractiveness of investmentand/or change
the competitive landscape. Similarly, penalty imposed by a regulatory body may have a direct impact on
the Banks margins and its competitiveness. Such risks can lead to diminished reputation, reduced franchise
value, limited business opportunities, reduced expansion potential, and an inability to enforce contracts.
First Gulf Bank, on a continuous basis, identifies and assesses such risks inherent in all new and existing
material products, activities, processes and systems. Appropriate resource and technology allocations are
made to perform ongoing measurement and management of such risks. As a part of the overall Enterprise
Risk Management structure, First Gulf Bank has an independent compliance function that develops internal
controls to manage such risks and it is supported by First Gulf Banks Internal Audit and Legal teams.
1.5
Risk Monitoring and Control
Risk Monitoring and Control are essential to ensure that the overall risk assumed by the Bank is in conformity
with Enterprise Risk Management policy parameters. Monitoring and controlling risks is primarily performed
based on established exposure limits and risk limits established. These limits reflect the business strategy and
market environment of the Bank as well as the level of risk that the Bank is willing to accept. In addition, the
Bank monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across
all risk types and activities. Information compiled from all the businesses is examined and processed in order
to analyse, monitor and control risks. This information is presented and explained to the Risk and Compliance
Committee (RCMC), and the head of each business division. The report includes aggregate risk exposures,
limit exceptions and risk profile changes. On a monthly basis, detailed reporting of industry, customer and
geographic risks takes place. For all levels throughout the Bank, specifically tailored risk reports are prepared
and distributed in order to ensure that all business divisions have access to extensive, necessary and up-todate information.
As a part of the credit risk monitoring and control framework First Gulf Bank undertakes regular risk monitoring
and provides Senior Management and Board of Directors assurance that established controls in the form of
exposure limits are functioning properly. Risk Monitoring is to be carried out at both individual and portfolio
level by appropriate authorities along several parameters which include Credit Portfolio Quality, Exposure
and Risk Limits, Provisioning Levels, Financial & Operating Performance, Account Conduct, End use of Funds,
Adequacy of Collaterals and other Credit Risk Mitigants, adherence to financial and non-financial covenants,
Credit Review Mechanism, Recovery Performance, Rating System Performance, etc. First Gulf Bank is also in
the process of setting up risk limits for its credit portfolio.
For market risk, exposure limits are monitored on a daily basis which allows First Gulf Bank to identify the
concentration levels of exposures and risk to a number of dimensions such as asset classes, risk factors etc.
These limits are checked for adherence prior to sanctioning of any fresh limits and enhancement of existing
limits. Monitoring of these limits is undertaken across several dimensions: limit utilisation versus the set
exposure and risk limits, concentration of exposures, frequency of breaches of limits, size of breaches over
the set exposure and risk limits, etc. In addition First Gulf Bank has also set up stop loss limits which are
monitored on an on-going basis in order to identify positions which are closer to breaching their loss limits.
74
The necessary decisions of exiting from the position or holding are made on the basis of these limits. From
a risk control perspective these limits play a crucial role in controlling risk at a transaction level; at the same
time First Gulf Bank uses all necessary strategies pertaining to hedging, diversification, reshuffling of portfolio
for a portfolio-wide risk control.
First Gulf Bank monitors and controls operational risk across its processes through a framework comprising
setting and monitoring of Key Risk Indicator (KRI) thresholds and breaches and monitoring of operational
losses. In case KRI thresholds are breached or exceeded; concerned business/support unit draws-up risk
mitigation plans to effectively address the underlying risk. First Gulf Bank plans to adopt the Risk and Control
Self Assessment (RCSA) mechanism shortly to monitor level of risk and control associated with key processes
in the Bank. First Gulf Bank also adopts the four-eye principle to limit and control operational risks in bankwide activities. This principle advocates the need for a maker and checker for all key transactions performed
by the Bank.
For liquidity and interest rate risks, First Gulf Bank has set exposure limits and is in the process of setting up
risk limits. These limits have been set across several dimensions that include level of capital, level of earnings,
changes in interest rates, level of current and projected liquidity, etc.
Strategic risks are monitored and controlled as part of the strategic planning process wherein First Gulf Bank
reviews the progress on strategic initiatives vis--vis the plan and considers whether the progress is in line
with the plan and the external business environment. The strategic plan is periodically reviewed (at least
annually) to update any changing circumstances and ensure that the plan remains appropriate.
Country risks are monitored and controlled using country limits set by First Gulf Bank; these limits are in
accordance with First Gulf Banks overall business strategy, capital adequacy and provisions for potential risks,
risk rating of each country, acceptable level of risk, and business opportunities in each country. Country limits
set by First Gulf Bank are further broken down across multiple dimensions namely limits by region, type of
business, type of counter-party, currency, type of transaction and collateral.
For reputation risks, apart from the regular monitoring of external and internal events that can result in
possible reputation risks, First Gulf Bank is putting in place an effective early warning system to help track the
risks affecting reputation and provide red flags before a risk starts to develop into a direct threat to reputation.
These systems will allow the Board of Directors and Senior Management to take prompt corrective actions to
address any emerging threat, and be better prepared for any anticipated reputation event in advance.
First Gulf Banks compliance function sets up internal controls in the form of policies, procedures and product
manuals to manage regulatory and compliance related risks in close coordination with First Gulf Banks
Internal Audit and Legal teams. It monitors adherence of these policies and procedures by various business
and support units on a regular basis.
1.6
Risk Mitigation
Please refer to Note 32.1 of the Financial Statements.

1.7
Risk Reporting
Please refer to Note 32.1 of the Financial Statements.

1.8
Stress Testing
First Gulf Bank has put in place a comprehensive stress testing methodology and a detailed stress testing of
First Gulf Banks entire portfolio is undertaken on a regular basis. The stress testing methodology includes
75
all the major business activities of First Gulf Bank and assesses the impact of a combination of sensitivities
on each area of risk that is perceived as being material to the Bank. First Gulf Bank has also initiated the
Pillar II process in the form of Internal Capital Adequacy Assessment Process (ICAAP), thereby assessing its
material risks and highlighting its risk bearing capacity vis--vis these risks. Stress testing is being undertaken
on an annual basis as a part of the ICAAP process mandated by the U.A.E. Central Bank. At First Gulf Bank,
detailed portfolio stress testing is also being undertaken on a regular basis for internal management using
similar methodologies. Owing to the fact that capital calculation at First Gulf Bank is currently undertaken
as per the standardised approach of Basel II, no advanced risk models are used in the stress testing process.
However, best practices based on guidelines and illustrations issued by leading global financial institutions
are followed consistently.
2 BASEL II PILLAR III DISCLOSURES
Please refer to the tables in the next few pages, which set out disclosures required in connection with Basel II.
76
REPORTS
Name of the Report

1.
Information on Subsidiaries & Significant Investments
2.
Consolidated Capital Structure
3.
Capital Adequacy
4. (a) Qualitative Disclosures - Risk Management

4. (b) Gross Credit Exposure by Currency
4. (c) Gross Credit Exposure by Geographical Distribution
4. (d) Gross Credit Exposure by Industry Segment
4. (e) Gross Credit Exposure by Residual Contractual Maturity
4. (f) Impaired Loans by Industry Segment
4. (g) Impaired Loans by Geographical Distribution
4. (h) Reconciliation of Changes in Provisions for Impaired Loans
4. (i) Credit Risk Portfolio as per Standardised Approach
5.
Credit Risk Portfolio as per Standardised Approach (Rated/Unrated)
6.
Credit Risk Mitigation - Standardised Approach Disclosures
7.
Market Risk - Standardised Approach Capital Requirements
8.
Equity Position in the Banking Book
9.
Interest Rate Risk in the Banking Book
77
78
U.A.E.
U.A.E.
Libya
Mismak Properties Co. LLC (Mismak)
Ramdan Properties Co. LLC (Subsidiary of Mismak)
First Gulf Libyan Bank

U.A.E.
U.A.E.
U.A.E.
First Gulf Financial Services LLC
Green Emirates Properties PJSC
Aseel Finance PJSC
Significant Investments
U.A.E.
First Merchant International LLC
Subsidiaries
Country of
Incorporation
Description
40% Islamic Financing
40% Real Estate Management/Investment
45% Equity Brokerage
50% Banking Services
80% Real Estate Investments
100% Real Estate Investments
100% Merchant Banking Services
% Ownership
1. INFORMATION ON SUBSIDIARIES & SIGNIFICANT INVESTMENTS
Deduction
Deduction
Deduction
Full Consolidation
Full Consolidation
Full Consolidation
Full Consolidation
Accounting
Treatment
79
Note 19 of the Financial Statements for 2009

b. Special reserve
c. General reserve

c. Subordinated perpetual notes
d. Interest paid perpetual notes
Less: Other deductions from capital
Total Eligible Capital After Deduction
Tier 3 Capital
Note 13 of the Financial Statements for 2009, (Loan 5) Cumulative Changes in Fair Value and General Provisions
Capped at 1.25% of RWA
Tier 2 Capital
Tier 1 Capital - Sub Total
Less: Deductions from tier 1 capital
Less: Deductions from regulatory calculation
Sub Total
Treasury Shares & Foreign Currency Translation Reserve
b. Interest paid convertible bonds
6. Surplus capital from insurance companies
27,635,729
(561,455)
5,943,982
22,253,202
(213,341)
22,466,543
(120,000)
4,000,000
(159,791)
3,600,000
a. Mandatory convertible bonds
5. Other capital instruments
384,931
7,114,645
120,000
846,648
5,305,110
1,375,000
Amount
4. Innovative capital instruments
a. Deffered tax equity
3. Minority interest in the equity of subsidiaries
d. Retained earnings
Summary Terms & Conditions of Main Features of all Capital Instruments
a. Statutory reserve
2. Reserves
1. Paid-up share capital/common stock
Tier 1 Capital
All numbers are in AED 000
2. CONSOLIDATED CAPITAL STRUCTURE
80
c. Advanced IRB
OR
c. Advanced Measurement Approach
OR
c. Total for each significant bank subsidiary
18.0%
13,406,945
637,751
684,413
315,168
12,454,026
b. Tier 1 ratio only for top consolidated group
123,910,670
5,797,740
6,221,940
3,939,606
114,173,324
Capital Charge
22.3%
RWA
a. Total for top consolidated group
Capital Ratio
Total Capital Requirements
b. Standardised Approach/ASA
OR
a. Basic Indicator Approach
3. Operation Risk
b. Models Approach
a. Standardised Approach
2. Market Risks
b. Foundation IRB
OR
OR
Capital Requirements
a. Standardised Approach
1. Credit Risk
3. CAPITAL ADEQUACY
81
As per Basel II categorisation
Planned as per Basel II categorisation
Planned as per Basel II categorisation
Foundation IRB
Advanced IRB
Description of exposures
Standardised Approach
Approach
Partial adoption of foundation IRB/advanced IRB
First Gulf Bank has developed generic models for LGD and EAD for the wholesale banking portfolio and retail
banking portfolio.
First Gulf Bank plans to move towards FIRB in 2010; the PD models for wholesale banking are ready and are in
the process of use testing. First Gulf Bank has developed 12 PD models (5 hybrid corporate models - contracting,
manufacturing, real estate, services and trading, hybrid model for banks, expert judgement model for High Net-worth
Individuals, Sovereign, Non-Banking Financial Institutions and Specialised Lending Classes - Project Finance, Object
Finance and Income Producing Real Estate). First Gulf Bank also plans to carry out external validation of these models
simultaneously. First Gulf Bank has also developed statistical and expert judgement models for the retail portfolio
which are under testing. These include statistical models for Credit Cards, Personal Loans, Personal Installment Loans,
Small Business Loans and expert judgement models for Auto Loans, Mortgage Loans and Small & Medium Enterprises.
First Gulf Bank is already on Standardised Approach.
Plans and timing of migration to implement fully higher approach
First Gulf Banks credit risk management policy is being revised and in the process of finalisation. The risk policy includes definitions and guidelines from the Basel II framework. The credit risk policy includes policy parameters on:
- Risk Organisation
- Credit Risk Strategy
- Risk Identification & Measurement
- Risk Structuring
- Risk Mitigation
- Risk Monitoring
- Asset Grading
- Risk Control
- Document Administration
Discussion of Banks credit risk management policy
First Gulf Bank makes a collective impairment provision against loans and advances which although not specifically identified as requiring a specific provision have a greater risk of default than when originally granted.
General
While credits are tracked on a daily basis, First Gulf Bank re-assesses its problem loans and advances on a quarterly basis to assess whether a provision for impairment should be recorded in the consolidated income statement. In particular,
considerable judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors
involving varying degrees of judgement and uncertainty, and actual results may differ resulting in future changes to such provisions.
Specific
Description of approaches followed for specific and general allowances and statistical methods
First Gulf Bank considers any overdue payment as Past Due and 180 days past due as Impaired
Definition of past due and impaired (for accounting purposes)
4. (a) QUALITATIVE DISCLOSURES RELATED TO CREDIT RISK
82
Loans
16,509,856
76,405,811
92,915,667
Currency
Foreign Currency
AED
Total
11,914,949
2,040,399
9,874,550
Debt Securities
14,029,531
7,371,937
6,657,594
Other Exposures
118,860,147
85,818,147
33,042,000
Total Funded
4. (b) Gross Credit Exposures by Currency
13,117,474
10,261,575
2,855,899
Commitments
664,033
71,560
592,473
1,536,389
213,626
1,322,763
56,055,420
30,808,340
25,247,080
27,298,048
16,697,097
10,600,951
With ccf
Without ccf
MTM
Credit Risk Exposure
Other Off-Balance Sheet Exposures
OTC Derivatives Exposure
28,834,437
16,910,723
11,923,714
(Credit Risk Exposure)
Total Non-Funded
147,694,584
102,728,870
44,965,714
Total
83
92,915,667
Total
5,398
Australia
18,501
Europe
Others
98,911
South America
Caribbean
3,666
169,502
Africa
North America
228,417
Asia
5,729
513,853
GCC excluding UAE
Arab League (excluding GCC)
91,871,690
Loans
Geographical Region
11,914,949
918,250
7,343,514
15,687
319,808
3,317,690
Debt Securities
14,029,531
1,947
644,409
128
624,565
242
80,167
1,516,925
751,763
10,409,385
Other Exposures
118,860,147
7,345
1,581,160
99,039
7,971,745
169,744
324,271
1,522,654
1,585,424
105,598,765
Total Funded
13,117,474
14,133
304,973
89,487
12,708,881
Commitments
4. (c) Gross Credit Exposures by GeographICAL DISTRIBUTION
664,033
45,467
3,816
1,536,389
449,587
13,870
68,569
1,004,363
OTC Derivatives
614,750
MTM
56,055,420
3,000
1,388,596
62,261
36,369
2,694,840
388,012
800,122
50,682,220
Without ccf
27,298,048
1,500
694,323
30,922
19,116
1,205,145
94,006
292,718
24,960,318
With ccf

Total Non-Funded
28,834,437
1,500
1,143,910
44,792
19,116
1,273,714
94,006
292,718
25,964,681
147,694,584
8,844
2,725,070
99,039
8,016,537
188,860
1,597,985
1,616,660
1,878,142
131,563,447
Total
84
438,106
6,700,939
27,830,909
11,968,247
92,915,667
Government (including public sector)
Retail/Consumer Banking
All Others
Total
15,050,687
Services
Financial Institutions
785,054
3,635,260
Transport, Storage & Communication
23,598,360
Trade
Real Estate & Construction
Electricity & Water
2,670,168
Crude Oil, Gas, Mining & Quarrying
Manufacturing
237,937
Loans
Agriculture, Fishing & Related Activities
Industry Segment
11,914,949
8,523,485
1,489,942
1,627,569
229,264
44,689
Debt Securities
14,029,531
3,645,680
110,244
6,684,840
20,634
3,482,103
9,768
20,682
37,191
3,065
13,532
1,248
544
Other Exposures
118,860,147
15,613,927
27,941,153
21,909,264
15,071,321
4,972,045
794,822
3,655,942
25,263,120
232,329
2,683,700
484,043
238,481
Total Funded
4. (d) Gross Credit Exposures by Industry Segment
13,117,474
1,525,886
7,359
1,554,622
2,091,499
946,677
69,249
761,556
5,331,001
46,000
589,893
149,902
43,830
Commitments
664,033
173,164
20,595
95,761
179,073
9,262
41,773
128,234
13,759
1,536,389
242,754
23,075
122,791
907,565
13,118
68,513
135,791
489
19,728
2,565
OTC Derivatives
2,412
MTM
56,055,420
2,321,016
2,092
4,011,635
4,841,981
8,047,205
185,630
4,120,053
27,402,174
173,494
4,336,018
194,615
419,507
Without ccf
27,298,048
2,117,983
1,808
802,425
1,967,608
4,456,261
85,765
1,828,989
13,486,163
78,645
2,219,401
46,634
206,366
With ccf

Total Non-Funded
28,834,437
2,360,737
24,883
802,425
2,090,399
5,363,826
98,883
1,897,502
13,621,954
79,134
2,239,129
49,199
206,366
147,694,584
17,974,664
27,966,036
22,711,689
17,161,720
10,335,871
893,705
5,553,444
38,885,074
311,463
4,922,829
533,242
444,847
Total
85
27,079,486
9,670,901
23,890,298
32,274,982
92,915,667
3 months to 1 year
1 to 5 years
Over 5 years
Grand Total
Loans
Less than 3 months
Period
11,914,949
1,914,674
2,372,386
301,667
7,326,222
14,029,531
3,200,000
10,829,531
Debt Securities Other Exposures
118,860,147
34,189,656
26,262,684
13,172,568
45,235,239
Total Funded
13,117,474
3,538,147
9,579,327
Commitments
664,033
346,834
173,137
130,237
1,536,389
753,831
571,387
148,451
62,720
OTC Derivatives
13,825
MTM
4. (e) Gross Credit Exposures by Residual Contractual Maturity
56,055,420
9,906,695
7,353,160
38,795,565
Without ccf
27,298,048
3,076,706
3,440,765
20,780,577
With ccf

Total Non-Funded
28,834,437
753,831
3,648,093
3,589,216
20,843,297
147,694,584
34,943,487
29,910,777
16,761,784
66,078,536
Total
86
5,412
Transport, Storage & Communication
Total
All Others
Retail/Consumer Banking
Government
Services
1,775,221
20,040
1,619,702
18,525
35,409
Trade
Financial Institutions
24,000
50,818
297
1,018
Less than 90 days
Real Estate & Construction
Electricity & Water
Manufacturing
Crude Oil, Gas, Mining & Quarrying
Agriculture, Fishing & Related Activities
Industry Segment
1,647,006
494,521
343,955
145,900
108,013
116,342
99,832
338,442
90 days and above
Overdue
4. (f) IMPAIRED LOANS BY INDUSTRY SEGMENT
3,422,227
514,561
1,963,657
164,425
113,425
151,751
123,832
389,260
298
1,018
Total Funded
-
368,545
54,536
193,897
18,459
27,794
23,028
48,558
2,273
IIS
-
584,155
112,265
140,911
17,730
53,064
150,758
109,427
Specific
Provisions
1,945,627
1,166,126
779,501
General
289,865
289,865
Write Backs
Adjustments
Write-offs
1,450,813
45,094
699,566
174,861
17,879
90,742
330,146
92,525
Total Impaired Assets
87
Africa
North America
South America
Caribbean
Europe
Australia
Others
1,775,221
Asia
Total
958
1,774,260
Less than 90 days
Arab League (excluding GCC)
GCC excluding UAE
Geographical Region
1,647,006
1,647,006
90 days and above
Overdue
3,422,227
958
3,421,266
Total Funded
4. (g) Impaired Loans by Geographical Distribution
368,545
1,776
135
12,620
354,014
IIS
584,155
13,961
202,286
367,908
Specific
Provisions
1,945,627
1,945,627
General
289,865
289,865
Write Backs
Adjustments
Write-offs
1,450,813
27,778
378,090
1,044,945
Total Impaired Assets
88
-
Write-back of provisions for loans
Adjustments of loan loss provisions
Less:
Closing Balance of Provisions for Impaired Loans
Recovery of loans previously written-off
Less:
2,529,782
(1,113)
(20,459)
Recovery of loan loss provisions
Less:
(289,865)
1,335,564
364,864
1,140,791
Amount
Write-off of impaired loans to income statement
Corporate & Retail general provisions
Corporate specific provisions
Charge for the year
Description
Add:
Add:
Opening Balance of Provisions for Impaired Loans
4. (h) RECONCILIATION OF CHANGES IN PROVISION FOR IMPAIRED LOANS FOR THE PERIOD 2009
89
CRM includes collateral in the form of cash, equities and financial guarantees.
Total Claims
952,700
13,244,382
Other Assets
127,809,414
1,024,551
Higher-Risk Categories
939,633
3,485,736
Past Due Loans
9,004
23,340,125
Claims Secured by Commercial Real Estate
Credit Derivatives (Banks Selling Protection)
8,336,484
Claims Secured by Residential Property
18,607,616
Claims Included in the Regulatory Retail Portfolio
2,288
1,775
Claims On Securitised Assets
32,971,005
19,674
4,805,610
6,410,481
15,563,750
Specific
Outstanding
Provisions
Suspense and
Interest in
On Balance Sheet
Gross
Claims On Corporates
Claims On Securities Firms
Claims On Banks
Claims On Multi Lateral Development Banks
(PSEs)
Claims On Non-Central Government Public Sector Entities
Claims On Sovereigns
Central Bank National Discretions
See Basel II, June 2006, Para 50 to 81, and
Asset Classes
Net
126,856,714
13,244,382
1,024,551
2,546,103
23,331,121
8,336,484
18,607,616
32,971,005
19,674
4,803,322
6,410,481
15,561,975
Outstanding
4. (i) CREDIT RISK PORTFOLIO AS PER STANDARDISED APPROACH
29,269,285
173,460
104,072
586,729
8,197,666
21,131
17,025,107
560,075
1,729,250
869,067
2,728
Factors (CCF)
Conversion
After Credit
Net Exposure
Sheet
Off-Balance
156,125,999
173,460
13,348,454
1,611,280
2,546,103
31,528,787
8,336,484
18,628,747
49,996,112
579,749
6,532,572
7,279,548
15,564,703
Before CRM
Exposure
17,457,186
256,347
3,192,499
6,406,056
89,737
7,508,051
2,547
1,948
CRM
138,668,813
173,460
13,348,454
1,611,280
2,289,756
28,336,288
1,930,428
18,539,010
42,488,061
577,202
6,532,572
7,277,600
15,564,702
After CRM
Credit Risk Mitigation (CRM)
114,173,324
50,000
11,682,185
2,416,920
3,430,938
28,336,288
854,638
14,424,135
42,488,061
577,202
2,923,285
6,492,704
496,968
Assets
Risk Weighted
90
Grand Total
Credit derivatives (Banks selling protection)
Claims on securitised assets
Other assets
High risk category
Past due assets
27,875,503
100,000
1,955,640
28,049
1,421,430
Residential retail exposure
Commercial real estate
1,660,728
Claims on corporate
Regulatory & other retail exposure
5,439,723
Claims on Banks
Claims on securities firms
2,044,698
15,225,235
Rated
Claims on multilateral development banks
Claims on public sector entities
Claims on sovereigns
Asset Class
341,243
129,203,196
73,460
11,392,814
1,611,280
3,457,687
30,116,361
8,336,484
18,628,747
48,335,384
1,095,137
579,749
5,234,850
Unrated
Gross Credit Exposure
157,078,699
173,460
13,348,454
1,611,280
3,485,736
31,537,791
8,336,484
18,628,747
49,996,112
6,534,860
579,749
7,279,548
15,566,478
Total
5. CREDIT RISK PORTFOLIO AS PER STANDARDISED APPROACH (RATED/UNRATED)
138,668,813
173,460
13,348,454
1,611,280
2,289,756
28,336,288
1,930,428
18,539,010
42,488,061
6,532,572
577,202
7,277,600
15,564,702
Post CRM
114,173,324
50,000
11,682,185
2,416,920
3,430,938
28,336,288
854,638
14,424,135
42,488,061
2,923,285
577,202
6,492,704
496,968
RWA Post CRM
91
Quantitative Disclosures
Exposures covered by Eligible Financial Collateral
Exposures covered by Guarantees
Exposures covered by Credit Derivatives
Less:
Less:
Less:
Net Exposures after Credit Risk Mitigation
Exposure covered by on-balance sheet netting
Less:
Gross Exposure prior to Credit Risk Mitigation
6. CREDIT RISK MITIGATION: STANDARDISED APPROACH DISCLOSURES
Exposures
138,668,813
7,186,336
10,270,850
156,125,999
114,173,324
Risk Weighted Assets
Total Capital Requirement
Options risk
315,168
1,054
199,642
Foreign exchange risk
Commodity risk
62,818
Equity position risk
Amount
51,654
Market Risk
Interest rate risk
7. MARKET RISK - STANDARDISED APPROACH CAPITAL REQUIREMENTS
93
214,928
214,928
Publicly Traded
Current Year
1,352,101
1,226,342
125,759
Privately Held
Total capital requirement
194,946
72,232
Available for sale
Held for trading
122,714
Amount
Strategic investments
Grouping
(5,364)
Total
4. CAPITAL REQUIREMENTS BY EQUITY GROUPINGS:
(33,034)
(5,364)
(33,034)
27,670
1,775,447
Amount included in Tier II capital
Amount
Amount
120,162
1,655,285
Privately Held
27,670
246,169
246,169
Publicly Traded
Previous Year
Amount included in Tier I capital
3. ITEMS IN (2) ABOVE INCLUDED IN TIER 1/TIER 2 CAPITAL:

Tier capital
Total
Latent revaluation gains (losses) for investment recorded at cost but not recognised in balance sheet or profit and loss account
Unrealised gains (losses) recognised in the balance sheet but not through profit and loss account
Realised gains (losses) from sales and liquidations
2. REALISED, UNREALISED AND LATENT REVALUATION GAINS (LOSSES) DURING THE YEAR:
Gains (Losses)
Total
Any other investment
Collective investment schemes
Equities
1. QUANTITATIVE DETAILS OF EQUITY POSITION:

Type
As at 31 December 2009, the Bank's total equity investment portfolio in the banking book amounted to AED 1,567 Mn, 13.7% of which represents quoted investments. For details of the accounting policies and
valuation methodology, please refer to Note 2 to the consolidated financial statements under 'Significant Accounting Policies.' Details of cost, market and fair value are reported in Note 5 to the consolidated financial
statements under the heading of "Non- Trading investments."
8. EQUITY POSITION IN THE BANKING BOOK

31 December 2009
93
94
(253,616.0)
-200 basis point
movements.
(253,616.0)
Regulatory Capital
The above interest rate sensitivities are illustrative only and adopt simplified scenarios. The sensitivities do not incorporate actions that could be taken by management to mitigate the effect of interest rate
253,616.0
Net Interest Income
+200 basis point
Shift in Yield Curves
the year of an immediate and permanent movement in interest yield curves as at:
Interest rate risk is also assessed by measuring the impact of defined movements in interest yield curves on the Banks net interest income. The following impact on the net interest income and regulatory capital for
a daily basis to ensure they are maintained within established limits. Adherence to these limits is monitored by ALCO.
setting limits on the interest rate gaps for stipulated periods. The Bank manages interest rate risk by matching the repricing of assets and liabilities through risk management strategies and monitors the positions on
mismatches or gaps in the amounts of assets and liabilities and off-balance sheet instruments that mature or reprice in a given period. The Board of Directors has established acceptable levels of interest rate risk by

Interest rate risk arises from the possibility that changes in interest rates will affect future profitability, cash flows or the fair values of financial instruments. The Bank is exposed to interest rate risk as a result of
9. INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)

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ANNUAL REPORT | 2009

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

General Sheikh Mohammad Bin Zayed Al Nahyan

His Highness Sheikh Hazza Bin Zayed Al Nahyan

CHA IRMA N S REPORT

FINA N CIA L STATEM EN TS

BAS E L II PIL L A R III REPORT S

Board M em ber & M anaging D irec t or

Ah med Darw ish D a g h e r A l M a r a r

Hazza Bin Zayed Al Nahyan

EXECUTIVE MANAGEMENT REPORT

Customer Loans and Advances

INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF

CONSOLIDATED BALANCE SHEET

5,546,970 5,005,045 1,510,201 1,362,659

125,472,543 107,521,708 34,160,778 29,273,539

102,569,775 90,902,098 27,925,339 24,748,733

Total equity and liabilities

125,472,543 107,521,708 34,160,778 29,273,539

The attached notes 1 to 34 form part of these consolidated financial statements.

CONSOLIDATED INCOME STATEMENT

Interest expense and Islamic financing

NET INTEREST INCOME AND

Share of profits of associates

General and administrative expenses

PROFIT FROM OPERATIONS BEFORE

PROFIT FOR THE YEAR

Basic and diluted earnings per share

Provision for impairment of

The attached notes 1 to 34 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

PROFIT FOR THE YEAR

Net unrealised losses on available for sale investments

Impairment of available for sale investments

Realised gains on available for sale investments

Board of directors remuneration

Share of changes recognised directly in associates equity

Other comprehensive loss for the year

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

Equity holders of the Bank

OTHER COMPREHENSIVE INCOME:

Foreign exchange translation

Total comprehensive income attributable to:

The attached notes 1 to 34 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash from (used) in operations

Net cash from (used) in operating activities

Net cash from financing activities

NET INCREASE (DECREASE) IN

Net cash used in investing activities

Cash and cash equivalents at 1 January

Operating cash flows from interest and Islamic financing

The attached notes 1 to 34 form part of these consolidated financial statements.

Transfer to dividends payable

Capital contribution by minority shareholders

Issuance of mandatory convertible bonds (note 20)

Net purchase of treasury shares (note 17)

Proposed cash dividends (note 19)

Interest on mandatory convertible bonds (note 20)

Interest on capital notes (note 18)

Net purchase of treasury shares (note 17)