Insights on the UAE Banking Sector. SECTOR RESEARCH Research and Advisory CONTENT. Executive Summary 2

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1 CONTENT Executive Summary 2 Hot Topics in UAE s Banking World 1H16 Key Takeaways 4 11 RAMZ Scorecard 12 Annex 13 Certification and Disclosure 15 Sunday, September 4, 2016 Insights on the UAE Banking Sector

2 Executive Summary In the eight months of 2016 that have passed, what was very apparent is the UAE economy s overall resilience to both outside noises and internal issues. That very same thing could be said for the country s Banking Sector. The following shows you the insights thus far into the year gone by: A Merger Tale as Catalyst In a hyper-competitive sector, business consolidation especially in the era of slow business, is a logical conclusion. The FGB-NBAD merger is a very significant transaction in setting an example for and potentially being a pre-cursor to future deals. No matter which way the wind blows, a merger story would likely serve as short to mediumterm catalyst for the banking stocks. Pressure on Liquidity Eases Up The differential between loan and deposit growth has been narrowing practically since the start of the year. In June, when loans grew by 6.68% YoY and deposits by 3.37%, the gap has been scaled down to ca. 300bps. The average differential YTD is around 350bps, significantly lower than 2H15 average differential of ca. 600bps. SME Headache... Away You Go With a GDP contribution of ca. 60%, the SMEs form the backbone of UAE s non-oil economic development, growth, and private sector employment. As such when the industry saw skips and defaults one after another, there was a big commotion in the Banking Sector. But the gentlemen club of banking, the UAE Banks Federation, took a number of steps to neutralize the pain. Sector Research UAE Banking Sector Page 2

3 Executive Summary Looming Bankruptcies Cast a Shadow The case of Saudi Oger, Bin Ladin Group, and even the financial difficulties of the Al Jaber Group cast a shadow on the recovering state of the UAE banks asset quality. A number of UAE s Big Boys such as Emirates NBD, NBAD, DIB, and ADCB have some exposures to these troubled businesses. Regulatory Changes to Shift Paradigm Many regulatory reforms and accounting policy shifts are either being rolled out or currently underway. The switch to IFRS 9 is the biggest of these. Among other things, IFRS 9 accelerates the recognition of losses by requiring provisions to cover both already-incurred losses and some future expected losses. A potentially major issue for banks and their stakeholders will be how the new standard affects regulatory capital ratios. Expo 2020: An Opportunity Waiting to Happen Developments are going full steam ahead in the countdown to Those developments involve massive amounts of funding. Part of this requirement will be sourced through bank loans or debt issuances. Bottomline: banks stand to generate generous profits from the lending business and from the fee-based component. Sector Research UAE Banking Sector Page 3

4 Hot Topics in UAE s Banking World Let s Talk about Mergers Is Liquidity Pressure Easing Up? The Headache Named SME The Specter of Regional Giants Bankruptcy Are We Ready for Changes...Regulatory Changes? Here Comes...Expo 2020! Let s Talk about Mergers One of the hottest topics in UAE s banking world is the ensuing merger of Abu Dhabi mega-banks, FGB and NBAD. In July, the boards of FGB and NBAD approved the merger of FGB and NBAD, forming what will be considered the biggest bank in the Middle East and North Africa, with AED661bn 1 in assets and a combined market capitalization of approximately AED102.59bn 2. The statutory merger remains subject to certain conditions, including approval by the Securities and Commodities Authority and approval of shareholders. By the banks estimation, the merger process could probably be completed by the first quarter of This development could be a game changer for the banking sector. At the moment, UAE s banking system could be characterized as hyper-competitive, over-banked market as 50 banks scramble to serve just a relatively minute population of ca. 9mn 3 in an oil economy with high consumer and corporate debt loads. Many banks have neither the scale nor the credit underwriting sophistication to compete in the markets. This prevailing picture of the sector encourages industry insiders and market watchers alike to believe that a consolidation should happen, especially in light of the current business slump. Hence, the FGB-NBAD merger is a very significant transaction in setting an example for and potentially being a pre-cursor to future deals. When the announcements for the proposed business combination came around, the markets went crazy. Once the merger talks were confirmed by the banks, share prices went through the roof! During the month of the merger announcement, NBAD share price surged by more than 30% while FGB s by more than 13%. Market attention was extended to other banks as well. Most especially, to banks such as ADCB and UNB, which are prey to speculations of a similar fusion. To this day, there has been no confirmation to such rumors. However, it is easy to understand the rationale behind such a move. Strategically, this could sound plausible given that both banks are each owned by the Abu Dhabi Investment Council (ADIC) by more than 50%. One that could be less far-fetched is the potential combination of Khaleeji Commercial Bank and Bank al Khair (BAK). Though these banks are not domiciled in the UAE, GFH Financial Group which is a current majority owner of Khaleeji and potential major shareholder of BAK plans to list Khaleeji Bank at the DFM. No matter which way the wind blows, a merger story would likely serve as short to medium-term catalyst for the banking stocks. 1 The figure is based on the pro-forma balance sheet disclosed by FGB and NBAD. 2 Market capitalization is based on the provided number of shares in the proforma statements and the latest market price of NBAD, the surviving bank. 3 According to the United Nations latest estimate (9,284,892) Sector Research UAE Banking Sector Page 4

5 Hot Topics in UAE s Banking World Is Liquidity Pressure Easing Up? The banking system manifested the first signs of liquidity pressure back in October 2014, about four months after oil price started what is now its protracted price decline. It will not be until after five months that it became clearer that liquidity pressure on UAE banks was mounting. 2Q15 and 3Q15 saw the worst of it. In August 2015, especially, there was nearly 800bps gap in credit and deposit growth. At the same time, Loans-to-Deposits Ratio (LDR) was escalating and reached a peak of more than 103% in October As of June 2016, LDR has gone up again in the region of 103% and EIBOR continues to rise, registering at 1.18% (last quote, 23 August). Combined, they imply that the liquidity pressure remains. However, the silver lining is that the differential between loan and deposit growth has been narrowing practically since the start of the year. In June, when loans grew by 6.68% YoY and deposits by 3.37%, the gap has been scaled down to ca. 300bps. The average differential YTD is around 350bps, significantly lower than 2H15 average differential of ca. 600bps. The silver lining is that the differential between loan and deposit growth has been narrowing. Deposit growth for most of the first six months of 2016 is decent (3.37% by June), especially compared to a trough of 0.62% recorded in August Deposit generation was one of the key focus of the banking sector in 1H16 to address the liquidity squeeze. Partly providing the impetus for deposit growth could be government intervention. As of June, government deposits increased by more than 14% YoY versus contractions of 15% in March 2016 and 17% in December In the meantime, banks actively entering the debt markets also helped in easing the pressure on liquidity (and beefing up Tier II capital at the same time). As the US federal Reserve kept interest rate hikes on hold and global rates remained benign, corporates are taking advantage. They are locking in fresh financing or refinancing at moderate borrowing costs. This year, banks looking to or have tapped the debt markets include: UNB (of benchmark size which is typically USD500mn and part of its USD3bn bond program), NBAD is issuing Mid-east s first green bond of benchmark size, SIB has embarked on a roadshow for a benchmark-sized sukuk offering, Emirates Islamic Bank opens its books for tap of USD750mn sukuk, and other banks have sough shareholder approvals to increase their respective bond programs (BOS, Emirates NBD, FGB, etc.). Sector Research UAE Banking Sector Page 5

6 Hot Topics in UAE s Banking World The Headache Named SME The Small and Medium Enterprise (SME) sector is a vital component of the UAE economy. By various accounts, SMEs contribute ca. 60% to the UAE s gross domestic product (GDP). With around 300,000 SMEs (of which ca. 30% are eligible for banking services), the sector is considered a true backbone of national production. In late 2015, it came to light that banks were starting to suffer from a headache collectively called SME. By November of that year, HE Abdul Aziz Al Ghurair, the Chairman of the UAE Banks Federation was quoted to have ballparked the expected impairment from the SME portfolio to be between AED5bn to AED7bn. Put in the context of the credit portfolio of the banking system at that time, which was ca. AED1,485.50bn, the exposure to the SME sector seemed miniscule (ca. 4% to 5% 1 ). However, as the frequency of delinquencies and skips piled up, those in the authority started to take pro-active steps. Faced with rising non-performing loans, many UAE banks had begun reviewing their SME loan portfolios. De-leveraging and consolidation were already underway in the SME sector as banks were tightening lending norms. The Federation had to step in to ensure that banks, collectively, will not overdo the de-leveraging from the SME portfolio and to ensure that the sub-sector remains healthy. In March 2016, the Federation announced that the country s 49 banks had agreed not to initiate legal and criminal action for 90 days against SMEs facing loan payment difficulties. Banks would instead coordinate drawing up standstill agreements, a restructuring plan and information sharing within that period to determine how best to manage clients indebtedness. The 90-day moratorium helped stem the number of skips as expatriate owners of SMEs saw value in creating payment solutions with their banks. In a way, that initiative serves as a mini-bankruptcy law. At present, the UAE does not have a bankruptcy law and individuals can be imprisoned for bounced checks, which leads many defaulters to flee the country. In July 2016, the UAE government supplemented the prior action by removing the required bank guarantee for some SMEs. In a statement, the country s minister of human resources and Emiratization, Saqr Ghobash, said that some SMEs in the country will no longer require a bank guarantee to continue their operations from the beginning of October. the move would apply to all SMEs either owned by an Emirati or with an Emirati director. The exemption will also apply if that Emirati runs or partners in a maximum of five companies. In order to qualify for the exemption, the company will also need to be a member of the Youth Project Development Organization. Smaller firms in the UAE typically require bank guarantees in order to sign contracts with suppliers or larger companies, a process that requires money to be frozen against the transaction. Despite these baby steps in institutionalizing the process for the SMEs, the impact seems to be positive as a study by online consumer site, compareit4me.com, showed that clamor for business loans jumped by 115% in 1Q16 versus the same period in The stronger demand for SME financing is an opportunity for banks such as the likes of Emirates NBD, DIB ADCB, and NBAD which have not exactly shied away from the sector. These banks instead have imposed strict selection criteria to acquire modest to great quality SME portfolios. 1 The figure is based off the study by Cedar Consulting. The same study puts the contribution of SME to the banking system s total deposits at ca. 6%. Sector Research UAE Banking Sector Page 6

7 Hot Topics in UAE s Banking World The Specter of Regional Giants Bankruptcy In early August 2016, Saudi Oger Ltd. was reported to be filing for bankruptcy to get over its acute finical problems, after it was unable to pay salaries and renew medical insurance for its 20,000 employees for the past eight months. Similarly, its competitor the Saudi Binladin Group is facing financial troubles, strains of hefty debts, and delayed government projects and payments. The looming bankruptcies of these contracting giants could probably see negative ripple effects extending to UAE banks. Some of the banks in the UAE may have current exposures to these companies. For instance, Saudi Binladin Group has asked for an extension on an SAR817mn (USD217.8mn) Islamic loan that matured in early July and which was being used to fund construction on the kingdom's Grand Mosque site. Various reports claim that Binladin Group has SAR1.071bn of approved payments on work completed on the project up until December 2015 which are still outstanding. It has filed a further SAR1.3bn of claims for work covering the period January-April 2016, for which approval is still needed. In lieu of these receivables being paid, Binladin Group has asked the banks to accept an extension to 31 August 2016 on the murabaha facility, a cost-plus-profit arrangement which is compliant with Islamic financing standards. DIB originally arranged the facility along with a host of eight to nine other banks, mostly from the UAE. Some of those named by reports include: Emirates NBD, Ajman Bank and Noor Bank. For its part, Saudi Oger faces liabilities reaching USD800mn in alleged unpaid payroll and outstanding debts. Saudi Oger is indebted to the likes of local banks such as Emirates NBD and other banking giants such as Deutsche Bank and Qatar National Bank. These three banks were the Lead Arrangers and Bookrunners which have signed the deal to refinance Saudi Oger s debts in 2013 amounting to USD1.03bn. This potential for massive defaults exists even as the dust has not settled yet on the debt restructuring of other problem-laden corporate titans such as Al Gosaibi Group. In July 2016, creditors of Al Gosaibi agreed to a lock-up deal over the latter s USD6bn debts. The Al Gosaibi Group announced the deal with with members of the steering committee of creditors that represents more than 90 banks and other creditors. 90% of creditors by number and 56% by value had agreed to the terms, which potentially allow then to recover around 50% of their loans. Members of the steering committee include Emirates NBD, Standard Chartered, Arab Banking Corporation of Bahrain, the French group BNP and the US hedge fund Fortress Investment. Other UAE banks reported to have exposure to this group include ADCB and Mashreq. Anecdotal accounts put the initial (ca. 2009) indebtedness at USD15.7bn, 30% financed by Saudi banks, 30% by other Mid-east banks and the rest by global banks. Closer to home, there is the saga of the embattled Al Jaber Group. The firm in March 2016 missed a repayment (debt and interests) on its USD4.5bn restructuring. Even after a 2014 restructuring was secured, the firm continues to grapple with servicing its financial obligations. Reports are saying that creditors include NBAD, ADCB, HSBC, Royal Bank of Scotland and UNB. The specter of these potential asset quality bombs is casting a dark shadow on the UAE banks, which were enjoying improving asset quality in the last three years. The looming bankruptcies of these contracting giants could likely see negative ripple effects extending to UAE banks. Banks such as DIB, Emirates NBD, and Ajman Bank were reported to have current exposures to these companies. Sector Research UAE Banking Sector Page 7

8 Hot Topics in UAE s Banking World Are We Ready for Changes...Regulatory Changes? The constantly evolving regulatory regime has been piling pressure on global banks, and domestic banks are not immune to this. Many regulatory reforms and accounting policy shifts are either being rolled out or currently underway. Definitely, this is significant challenge to the banks. However, this could be an opportunity to long-lasting improvements on the banking system. Among the changes either happening or about to happen include: Introduction of the Credit Bureau. The Al Etihad Credit Bureau launched in 2014 has begun covering retail customers and plans to extend its work to companies subsequently. Governance and Control Framework for EIBOR Submissions. Concerned over the variation of quotes for rates, the UAE Central Bank in April announced plans to standardize EIBOR calculations. Changes are already in place. Reforms Courtesy of Basel III. These areas include the definition of capital; countercyclical buffers; enhanced risk coverage; new leverage ratio; new liquidity standards; and other general risk guidelines. Among these areas, the new liquidity standards have received the lion s share of attention, because they are new to the Basel guidelines. These requirements place greater emphasis on banks to hold high-quality liquid assets such as government debt. The new capital reform will likely increase the quality and level of required capital and build buffers outside stress periods which can be drawn upon if losses are incurred. Internationally, a full implementation is planned in the run up to 01 January The Central Bank of the UAE (UAE CB) has not yet published requirements or a timeline for UAE banks but is most likely to follow the international timeline. Fresh Disclosure Requirements. In particular, relating to, among others, regulatory capital, remuneration packages, leverage ratios, buffer requirements, exposures to securitization and other off-balance sheet vehicles, and liquidity. International authorities will enforce these disclosure requirements from the end of The UAE CB has not yet published requirements or a timeline for the UAE. New Regulations Tasked to Curb Excessive Risktaking. In February 2016, the UAE CB was reported to be rolling out new regulations to make sure that banks are not taking the kind of risks that led to the financial crash in The new set of rules is slated to be released towards the end of All these noted, the biggest focus seems to be on the impending implementation of the International Financial Reporting Standard 9 (IFRS 9). IFRS 9 replaces International Accounting Standard 39 (IAS 39), and will impact banks financial statements, with loss calculations the most affected. IFRS 9 will cover financial institutions across Europe, Middle East, Asia, Africa, and Oceania. The compliance deadline for all the banks will be January For UAE banks, an IFRS 9 impact and gap assessment to identify a road map for full implementation by 2018 is already in focus. IFRS 9 Explained. In general, financial instruments include loans, investments, debts, receivables, credits, payables and derivative instruments like forwards, swaps and options. As these instruments become progressively more complex, their accounting has increasingly baffled many, including auditors and accountants. The new standard revises guidance on the classification of financial assets, and supplements the new hedge accounting principles published in Guidance on impairment that is, provisions for loan losses are significantly different from current practice. In the past, observers have suggested that provisioning for loan losses was 'too little, too late'. The new expected credit loss model which recognizes and measures impairment should address most, if not all, of these concerns. It accelerates the recognition of losses by requiring provisions to cover both already-incurred losses and some future expected losses. The new standard requires banks to provide for expected credit losses over the lifetime of the loan on the date the loan is first recognized, based on the level of default expected over the next 12 months. Where credit risk is assumed to significantly increase, loan loss provisioning must be recognized based on the level of defaults expected over the expected life of the loan. This should lead to higher provisions, more complexity and deeper risk management involvement. Many are already looking at this shift to IFRS 9 reporting as a game changer for the global banking industry. All banks now may have to report higher provisions. This would potentially raise Provision Charges further, especially if asset growth could not accelerate at a similar rate. IFRS 9 could completely re-align the banking paradigm. Sector Research UAE Banking Sector Page 8

9 Hot Topics in UAE s Banking World Regulatory Capital Ratios??? A potentially major issue for banks and their stakeholders will be how the new standard affects regulatory capital ratios. Banks will need to factor into their capital planning the scenario of not just bigger provisions but more volatile provisions too. Stakeholders will be looking for information on expected capital impact in financial statements. Various third-party studies appear one in saying that IFRS 9 is not an issue that affects only the finance or risk functions. The ripple effect of IFRS 9 will be likely felt across the organization. The prospect of higher provision charges will force banks to review their capital requirements. Product mixes and business models will also need to be evaluated. On the operational side, systems, processes and other infrastructure will need to adapt to a new paradigm. Since significant judgment and estimates are required, banks must set up an appropriate governance mechanism. Again, all of this is likely to need time and money. Although the standard is applicable to accounting periods beginning on or after 01 January 2018, the changes are so pervasive and far reaching that institutions should start acting now to comply with their requirements. Many, if not most, banks will require all of the time left to prepare for the expected credit loss requirements. Most UAE banks have at least started studying the impact of IFRS 9. A few local banks have begun preparing for implementation. While most UAE banks do not have particularly complex portfolios or operations, there is now only a very limited period of time to adopt the new standard. Any errors in preparation or implementation will likely compromise a bank s ability to comply with the Classification and Measurement: IFRS 9 uses a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. Impairment: The forward-looking expected credit loss (ECL) model to recognize loan losses more quickly applies to all financial instruments subject to impairment accounting. Hedging: The standard includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment. Sector Research UAE Banking Sector Page 9

10 Hot Topics in UAE s Banking World Here Comes... Expo 2020! Source: Dubai A World of Opportunities, November 2013 With the mega event that is the Expo 2020 just three years away, related developmental projects are going full steam ahead. In our report, Dubai 2020: A World of Opportunities, published in November 2013, we noted that based on the Economic Impact study conducted by Oxford Economics for the Dubai Government, the emirate is seen to spend between USD6.0 to USD7.0bn for infrastructure investment. The Dubai Government is not expected to carry all the expenses as the foreign governments are seen to contribute about USD1.0bn from their country exhibits. Further, an estimated USD1.70bn of operating expenses could be funded by short-term bank facilities, which then could be repaid from ticket sales and other exhibit receipts. This still leaves between USD3.0bn+ to USD4.0bn+ to be financed. In all likelihood, the funding for this balance could be sourced from the capital markets (term loans, bond and/or sukuk issuances) as well as from proceeds on potential asset sales. These required funds plus the required funds from the private sector could fuel domestic credit growth. While credit growth has decelerated with the long-running dip in oil prices, it could likely accelerate and potentially reach double-digits in the succeeding years preceding 2020 as demand for credit increases. An alternative and/or complement to bank loans would be the issuance of debt securities (bonds, sukuk). As has been happening in the last few years, homegrown UAE banks are taking a much more leading role in bankrolling big projects. This will likely continue in the next few years as Western banks continue to address their own bad loans and deleveraging dilemma. Domestic banks with deep pockets and solid capital bases such as NBAD-FGB, ENBD, DIB, ADCB etc. are just some of the names that will be most likely be at the forefront when financing is raised for mega-projects. Sector Research UAE Banking Sector Page 10

11 1H16 Key Takeaways Bank Earnings Remain Pressured by Weak Loan Growth, Lower Margins and Higher Provisions Aggregate Reported Earnings Retreated by ca.9% in 1H16 versus 1H15 The chart above provides a one-shot depiction of the sector s Earnings narrative: (1) Growth has slackened; (2) Loan Volume Growth remains weak; (3) Margins remain under fire. In line with our expectation, the sector s performance has remained soft thus far this year. Of the 19 banks included in this report (which collectively has ca. 90% of the asset share of the UAE banking system, as of December 2015), seven (7) banks posted positive YoY reported earnings performance. Interestingly, of the seven only three were from the big league, namely: ADIB (+3.79%), DIB (+11.31%) and ENBD (+12.09%). The rest: BOS, CBI, Ajman Bank and SIB are next-tier names. Average Annualized Net Interest Margin for the period ended 30 June 2016 was at 3.22%, a drop of 30bps YoY. Banks continue to be hampered by a combination of higher Cost of Funds and a bit of pressure on the Yield on Earning Assets. The 3-mo EIBOR has risen by more than 40bps YoY as banks factor in the potential of the Fed rate adjustment and as the sector juggles with liquidity pressure. Rising EIBOR plays a significant role in pushing CoF higher. Aggregate Loan YTD Growth as of end-june at ca. 4% is still on the low side, as is mostly anticipated. Overall credit growth for the year is expected to remain sluggish in the context of lower credit demand from the private sector and the ongoing deleveraging from the small- and medium- enterprise (SME) sector. The latest Credit Sentiment report by the UAE Central Bank showed demand for both business credit and personal loans slowed down across the UAE in 2Q16, particularly in Dubai. A nice surprise to all this is DIB, which continues to confound as its gross credit portfolio managed to grow in double-digits once again (ca. 12% YTD). Despite significant inroads to better asset quality in the last two years, there remains some headwinds. As noted, some banks continue to deleverage from the problem-laden SME market. As of June 2016, the average NPL ratio of the banks (with disclosed data) included here averaged at 4.49%. ADCB at 2.78% and FGB at 3.05% posted the lowest NPL ratios. Meanwhile, Emirates Islamic Bank at 8.05% and Commercial Bank International at 7.04% recorded the worst asset quality metrics. The challenge on the sector s liquidity levels could be moderating by now. Though liquidity pressure remains to be a major concern, management reps of the biggest banks in the country seem to be unanimous in saying that the worse as far the liquidity pressure is concerned, appears to be over. As of June 2016, Net LDR of the 19 banks averaged at 95.89% compared to 96.90% for the same period in Sector Research UAE Banking Sector Page 11

12 RAMZ Banking Scorecard The UAE Banking Scorecard was created to provide our valued readership with a quick and easy rating system that monitors relative valuation measures on both Fundamental and Technical fronts along with selected proxies of market liquidity, size, and trading activity. For the banking sector, scores are driven by four (4) major value indicators: (1) Earnings Power and Quality of Assets, (2) Income Generation, (3) Technical Situation, and (4) Size, Float, and Trading Activity. The table to the right summarizes the scores of each bank on each criterion set out by our internal scoring system. DIB, ADCB Retain Top Two Spots on Favorable Multiples and Active Trading Our covered banks, DIB (Rated Overweight, with a 12-mo FVE of AED6.65, 03 August 2016 Update) and ADCB (Rated Overweight, with 12-mo FVE of AED7.54, 21 July 2016 Update) retained the top two ranks in this scorecard. DIB secured the top ranking two months in a row primarily due to: more attractive price multiples and better technical (%K) and liquidity metrics (float rate). DIB s headline numbers in 2Q16 continue to speak of its core strength: DIB is one of the big banks to show modest growth both in banking income and profits. Healthy asset growth partially neutralized squeezed margin, while fee-based and trading income provided a stronger push. Healthy liquidity levels at a time when the industry still regards it as major concern, enable DIB to expand its asset base without considerable pressures on funding. FGB and NBAD retained their position from the last issue at Numbers 3 and 10, respectively. These banks have seen increased trading activities owing to the proposed business combination. NBAD in particular, posted the highest YTD price appreciation at nearly 17% outperforming the ADI index which is up 3.80% YTD. Note though that the rankings of these two banks hold a bias following the ongoing merger process. Ajman Bank and Emirates NBD rose one notch each to the 7 th and 8 th positions, respectively, pushing ADIB to the 9th slot. Ajman Bank s ranking was pushed higher by better scores on technical (%K) and liquidity (market share of sector turnover) metrics. ENBD s stance is neutral but it managed to elbow out ADIB as the latter s scores on technical and share liquidity worsened. Sector Research UAE Banking Sector Page 12

13 Annex: Key Metrics Latest Quarter Earnings Performance Bank Reporting Currency Reported Profits, 2Q16 % Change, YoY % Change, QoQ Attributable EPS 1, 2Q16 % Change, YoY % Change, QoQ % Surprise 2 ADCB AED 1, % 10.26% 1, % 10.25% -5.16% ADIB AED % 5.29% % 5.37% 12.91% AJMANBANK AED % 9.04% % 9.04% BOS AED % 17.91% % 16.40% CBD AED % 1.75% % 1.75% % CBI AED Recovery % Recovery % DIB AED 1, % 0.17% % 6.13% 2.56% EIB AED % % % % EMIRATESNBD AED 1, % 5.66% 1, % 5.66% 0.06% FGB AED 1, % -0.65% 1, % -2.03% -2.68% INVESTB AED % -1.91% % -1.91% MASQ AED % 2.55% % 1.43% NBAD AED 1, % 8.31% 1, % 8.31% 1.52% NBF AED % % % % NBQ AED % % % % RAKBANK AED % % % % % SIB AED % -4.44% % -4.44% UAB AED % % % % UNB AED % 4.93% % 4.98% 22.32% Sector Average % 2.99% % 3.12% Sector Median % 1.75% % 1.75% 1 Adjusted for the effect of the interest payments on Tier 1 Capital Notes. 2 Positive or Negative Surprise from Consensus Estimate taken from Bloomberg and Thomson Reuters Bank Earning s Yield Net Interest Margin Profitability and Efficiency Key Growth Liquidity Asset Quality Cost Efficiency Ratio Dividend Payout Ratio ROAE ROAA Loan Growth Deposit Growth Loans-to- Deposits Ratio Earning Assets/ Total Assets Liquid Assets/ Total Assets NPL Ratio NPL Coverage Ratio Capital Adequac y Ratio ADCB 4.05% 2.91% 31.05% 48.64% 18.81% 1.90% 6.22% 13.23% % 88.54% 26.97% 3.17% % 19.76% ADIB 3.31% 2.89% 45.01% 45.86% 21.10% 1.69% 6.91% 9.31% 81.83% % 20.51% 3.39% 77.11% 15.14% AJMANBANK 4.30% 2.52% 49.16% 0.00% 8.13% 0.85% 11.43% 17.99% % 92.39% 13.25% 1.25% % 13.39% BOS 4.61% 2.40% 38.89% 29.06% 8.03% 1.41% 0.62% -2.31% 85.46% 87.92% 26.49% 8.62% % 21.13% CBD 3.95% 3.00% 34.25% 52.57% 12.17% 1.63% 6.88% 15.96% 98.25% 92.95% 27.55% 6.28% 87.68% 16.62% CBI 4.86% 3.40% 54.23% 0.00% 6.95% 0.74% 5.83% 6.79% % 86.43% 10.73% 7.99% 81.36% 14.80% DIB 4.27% 3.06% 35.05% 55.78% 24.42% 2.38% 25.01% 14.16% 87.41% 88.70% 15.68% 4.21% % 15.74% EIB 3.64% 2.81% 46.18% 0.00% 7.07% 0.65% 28.23% 20.17% 93.72% 97.77% 28.83% 8.25% 89.54% 13.22% EMIRATESNBD 3.75% 2.61% 32.26% 34.03% 18.56% 1.82% 11.65% 8.44% 96.10% 93.05% 26.50% 7.03% % 20.74% FGB 4.11% 3.11% 21.94% 75.98% 17.72% 2.33% 3.32% -0.46% % 89.57% 22.28% 2.78% % 17.51% INVESTB 6.08% 4.19% 26.68% 47.23% 11.82% 2.20% 9.47% 7.95% % 83.52% 13.25% 8.10% 97.13% 18.03% MASQ 5.02% 3.62% 36.59% 29.56% 11.93% 1.94% 5.65% -2.63% 84.20% 82.56% 27.24% 3.19% % 16.90% NBAD 3.23% 2.45% 36.55% 46.50% 15.53% 1.34% -6.86% 5.74% 83.39% 75.98% 39.72% 3.23% 88.98% 16.74% NBF 4.20% 2.80% 35.93% 17.57% 14.77% 1.55% 14.63% 16.25% 93.36% 91.26% 26.67% 4.72% % 18.36% NBQ 3.73% 3.47% 29.40% 57.88% 9.50% 2.70% 11.12% 7.07% 97.72% 92.56% 26.93% 7.31% 62.89% 34.68% RAKBANK 8.67% 7.84% 35.30% 59.85% 10.18% 1.91% 4.56% 7.47% % 88.35% 25.97% 3.20% 81.43% 22.27% SIB 3.43% 2.25% 40.74% 59.17% 10.76% 1.67% -0.62% 14.41% 90.60% 79.24% 25.16% 6.39% 80.24% 22.00% UAB 4.65% 3.09% 36.94% 0.00% 3.90% 0.46% % % 97.57% 90.46% 27.89% 4.01% % 14.73% UNB 4.13% 2.67% 30.06% 30.78% 11.86% 1.87% 3.63% 0.12% 95.61% 94.49% 25.24% 3.53% % 19.42% Sector Average 4.42% 3.22% 36.64% 36.34% 12.80% 1.63% 6.78% 7.54% 95.89% 89.97% 24.05% 5.09% % 18.48% Sector Median 4.13% 2.91% 35.93% 45.86% 11.86% 1.69% 6.22% 7.95% 96.10% 89.57% 26.49% 4.21% % 17.51%

14 Annex: Key Market Data and Score Card Attributes Stock Price Performance Price Multiples Bank Latest Market Price Market Cap (AEDmn) Ave. 90d Ave. 90d Volume Value Turnover Turnover ( 000) (AED 000) 1-mo (%) 3-mo (%) 12-mo (%) YTD (%) 52-w High 52-w Low (AED) (AED) (%K) Historic PE Trailing PE Forwar d PE Price to Book Dividen d Yield ADCB , , , (4.85) 9.11 (17.68) (1.82) % % ADIB , , (3.10) (0.27) (16.67) (4.82) % % AJMANBANK , , (4.29) (5.45) (1.88) (11.36) % % BOS , (0.67) (3.25) % % CBD , (1.85) (19.70) (15.87) % % CBI , (1.49) % (6.89) (8.43) % DIB , , , (13.75) (2.86) % % EIB , % EMIRATESNBD , , (4.97) (2.14) (9.07) % % FGB , , , (2.48) (1.67) (15.11) (6.72) % % INVESTB , , , (26.42) % % MASQ , (13.33) (44.44) (20.73) % % NBAD , , (4.52) (9.71) % % NBF , (7.31) (7.31) % % NBQ , (2.90) % % RAKBANK , , (4.28) (26.53) (17.60) % % SIB , (3.13) % % UAB , (11.29) (14.40) (60.71) (59.11) % (44.52) (6.88) % UNB , , (4.64) (28.00) (7.69) % % Sector Average (1.62) 1.68 (14.27) (5.46) 46.91% % Sector Median (2.69) (0.88) (14.43) (3.06) 48.92% % Market data are courtesy of Thomson Reuters. Taken as of 31 August. Scorecard Attributes (Scorecard Points) Bank PE PB DY Dividend Status NPL Ratio 1 NPL Coverage 1 %K Trading Value Share Free Float Total Score ADCB ADIB AJBNK BOS CBD CBI DIB EIB ENBD FGB INVB MASQ NBAD NBF NBQ RAKB SIB UAB UNB NPL Ratio and NPL Coverage Ratio are calculated based off end-2015 data. Several of the banks do not disclose non-performing loans on an interim-basis. Hence, interim ratios are not complete for the banks in this universe. As such, the Scorecard took the lagging indicators for Asset Quality. 2 EIB has not traded in the last 52 weeks. Further, its results are consolidated into ENBD, its parent company.

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