Late Sheikh Zayed bin Sultan Al Nahyan Founder of the U.A.E.

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3 Late Sheikh Zayed bin Sultan Al Nahyan Founder of the U.A.E.

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5 H.H. Sheikh Khalifa bin Zayed Al Nahyan President of the U.A.E.

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7 H.H. Sheikh Mohammed bin Rashid Al Maktoum U.A.E. Vice-President, Prime Minister & Ruler of Dubai

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9 H.H. General Sheikh Mohammed bin Zayed Al Nahyan Abu Dhabi Crown Prince & Deputy Supreme Commander of the U.A.E. Armed Forces

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11 Table of Contents Contents Page Board of Directors 1 UNB Network 3 Chairman s Report 6 Chief Executive Officer s Review 8 Corporate Governance 14 Independent Auditors Report 19 Consolidated Financial Statements 20 Basel II - Pillar 3 Disclosure 82

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13 BOARD OF DIRECTORS H.H. Sheikh Nahayan Mabarak Al Nahayan CHAIRMAN H.E. Mohamed Ahmed Al Bowardi DIRECTOR H.E. Ahmed Saeed Al Badi DIRECTOR Mr. Rashid Darwish Al Ketbi DIRECTOR Mr. Khalifa Sultan Al Suwaidi DIRECTOR Mr. Yousef Abdelaziz Al Harmoudi DIRECTOR H.E. Mattar Mohamed Al Tayer DIRECTOR Mr. Abdul Wahid Al Fahim DIRECTOR 1

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15 UNB NETWORK BRANCHES ABU DHABI FAX NO. 1 Salam Corniche Khalidiya ADGAS City Center Airport Road Najda Al Karamah Al Wahda Mina Khalifa Park Mussafah Hazzaa Shahama Mussafah Industrial Area Muroor Sheikh Khalifa City A Zayed University Defence Road Al Dhafra Habshan Baniyas Asab Mohamed Bin Zayed Bein Al Jisrain AL AIN FAX NO. 1 Khalifa Street Al Hili UAE University Al Yahar Al Jebel Roundabout Al Ain Mall Bawadi Mall DUBAI FAX NO. 1 Jebel Ali Gold & Diamond Park Al Wasl Jumeirah Sheikh Zayed Road Khalid Bin Walid Street Dubai Health Care City Dubai Marina Deira Al Maktoum Al Bustan

16 DUBAI FAX NO. 12 Rashidiya Mirdiff Al Nahda Abu Hail Al Garhoud Dragon Mart SHARJAH & NORTHERN EMIRATES FAX NO. 1 Sharjah Fujairah Ras Al Khaimah Ajman Dibba Al Buhaira Khorfakkan Kalba Al Ta awon Umm Al Quwain Al Arooba Al Dhaid Al Rumaila Al Qasim To get in touch with us call : from within the UAE from outside the UAE OVERSEAS BRANCHES AND REPRESENTATIVE OFFICE REGIONAL BRANCHES TEL NO. FAX NO. 1 UNB-Qatar, Qatar Financial Centre (+974) (+974) UNB-Kuwait (+965) (+965) SHANGHAI-CHINA REPRESENTATIVE OFFICE TEL NO. FAX NO. 1 UNB-China, Shanghai Representative Office (+8621) (+8621)

17 SUBSIDIARIES UNION BROKERAGE LLC (UBC) BRANCHES TEL NO. FAX NO. 1 Main Office - Abu Dhabi ADX Office DFM Office AL WIFAQ FINANCE COMPANY BRANCH TEL NO. FAX NO. 1 Head Office - Abu Dhabi Airport Road Al Ain Branch Dubai Branch Al Sharjah Branch UNION NATIONAL BANK - EGYPT BRANCHES TEL NO. FAX NO. 1 Head Office Talaat Harb Nasr City Haram Heliopolis Obour Mokatem Shoubra Mohandeseen Tajamo Al Khamis Tenth of Ramadan Sixth of October El Horya Gleem Saad Zaghloul San Stefano Semouha Lagoon Port Said Suez Ismailia Damietta Sharm el-sheikh Hurghada Mansoura Zagazig Tanta Kafr El Shiekh Assiut Al Mahala

18 CHAIRMAN S REPORT On behalf of the Board of Directors, I am pleased to present to you the 2012 financial statements for Union National Bank (UNB) Group. The year saw a continuation of the consistent strategy being pursued by the Group which ensured that the UNB Group continues to build on its strong foundation by recording superior financial and non financial performance year on year. Global Economy Economic uncertainties continued to besiege policy makers around the world to find apolitical solutions to the ongoing crisis being faced globally in terms of anemic economic growth, fiscal imbalances and elevated unemployment levels. During 2012, European Union took several measures which included injection of long term liquidity, buying debts of countries facing sovereign debt crisis, fiscal discipline and introduction of broad based banking reforms, with the object of avoiding potentially catastrophic threat of sovereign debts crisis of the European Union member states and restoring confidence in the Euro as one of the bench mark international currencies. In the United States, similarly action was taken by the law makers to moderate the threat of fiscal cliff, the overhang of which continues to pose a significant risk to the global economic growth. The economic headwinds have impinged on emerging economies, dwindling demand for their goods and services resulting in lower GDP growth rates along with attendant challenges. In summary, the prevailing global economic scenario continues to present an opportunity to countries to pursue economic reforms so as to emphatically emerge from the unprecedented global economic crisis and build an economic framework to support sustainable growth in the future. Gulf Cooperation Council (GCC) and the UAE The economic activity in the GCC has continued on an uptrend supported by oil prices, expanded oil production, government measures and policies and low interest rates. The real GDP growth for the region is projected to be around 5% for In the broader Middle East and North Africa region, many countries are going through excruciating transitions. This period of change has in certain cases been accompanied by varying degrees of social unrest and associated disruptions to economic activity. Amidst continued sanctions on Iran and geo-political uncertainty, the United Arab Emirates has retained its safe haven status for the international and regional investors. As per the economic data from the International Monetary Fund, the UAE economy is estimated to have grown by around 4.0% in 2012 and remains largely resilient. Higher crude supply and oil prices have provided a fillip to the government revenues. The non-oil economy has continued to recover over the past year driven by strong growth in tourism, trade, logistics and manufacturing. Amid the backdrop of uncertain global outlook, the United Arab Emirates has continued to strengthen the foundations for sustainable growth and diversification. Some of the key initiatives have included growth-enhancing investments in what is already a world class infrastructure, bolstering the financial sector, enhanced supervision and macro prudential policy frameworks. It is noteworthy that the Global Competitiveness Report for of the World Economic Forum assessing the competitive landscape in over 140 economies ranked the United Arab Emirates 24th in the Global Competitive Index and part of the top 35 innovation driven economies of the world. UNB Group The UNB Group posted another set of solid financial results, maintaining a positive growth trend in profits as has been the case in each of the last three years since the onset of the global crisis. The Group reported a record profit of AED 1,602 million for the financial year ended (2011: AED 1,500 million), up by 6.8% compared to the previous year. The operating profit for 2012 was AED 2,304 million (2011: AED 2,109 million), an increase of 9.2% compared to the preceding year. The operating income for the fiscal increased by 8.9% in 2012 to AED 3,091 million (2011: AED 2,838 million). The higher operating income was driven by a growth in net interest income and net income from Islamic financing which was up by 6.2% in 2012 to reach AED 2,539 million (2011: AED 2,389 million) and an increase in non-interest income which was up by 23.2% in 2012 to reach AED 552 million (2011: AED 448 million). The higher average interest earning assets coupled with an improved net interest margin resulted in a continuing growth of net interest income and net income from Islamic financing. Tight balance sheet management led to an increase in the net interest margin to 3.20% in 2012 (2011: 3.08%). The increase in non-interest income was mainly due to an increase in income from dealing in foreign currencies and trading and non-trading financial instruments which increased significantly in 2012 to AED 133 million (2011: AED 33 million). The net loans and advances declined marginally to AED 57.3 billion as at (31 December 2011: AED 57.6 billion), as the Group maintained a cautious approach to lending. The customers deposits increased by 5.2% in 2012 to reach AED 63.4 billion as at 31 December 2012 (31 December 2011: AED 60.3 billion). The credit to deposit ratio, which for the Group has largely been well below the 100% mark 6

19 improved further to 90.4% as at (31 December 2011: 95.5%). The liquidity position remained very comfortable with liquid assets to total assets being 23.0% as at (31 December 2011:19.8%). In last quarter of 2012, the Bank raised USD 300 million of medium term financing in order to diversify its funding base. The consolidated assets for the Group were up by 5.7% in 2012 to reach AED 87.1 billion as at (31 December 2011: AED 82.5 billion). The UNB Group continued to invest for future growth resulting in an increase in operating expenses by 8% for 2012 to AED 787 million (2011: AED 729 million). Nevertheless, the cost to income ratio improved by 20 bps to 25.5% for 2012 (2011: 25.7%) and remains consistently amongst the best in the UAE banking sector. During 2012, the Bank opened a branch in the State of Kuwait and the Group now has presence in five countries which includes China, Egypt, Kuwait, Qatar and the United Arab Emirates. The increase in the ratio of non-performing loans and advances to gross loans and advances to 4.7% as at (31 December 2011: 3.7%) was due to the transition of certain exposures to the non-performing category. However, the loan loss coverage improved to 78.6% as at (31 December 2011: 74.7%). The UNB Group further topped up the general provisions in 2012 and this reached AED 995 million as at (31 December 2011: AED 783 million). The general provision constituted 1.4% of the credit risk weighted assets as at (31 December 2011: 1.07%), against a requirement of 1.5% set by the Central Bank of the UAE to be met by 31 December The profitability measures like return on average equity and return on average assets remained satisfactory and in line with the profitability trend for The capital adequacy was particularly strong with overall Basel II Capital Adequacy ratio being 23.2% as at 31 December 2012 (31 December 2011: 21.9%) and the Basel II Tier 1 Capital Adequacy ratio being 18.5% as at (31 December 2011: 16.7%). Both these ratios remained well above the thresholds stipulated by the Central Bank of the UAE. The Board of Directors is pleased to recommend a dividend distribution of 10% cash dividend (AED 0.10 per share) and 5% bonus shares, leading to an increase in the paid-up share capital of the Bank to AED 2.6 billion. Accolades and recognition Over the last many years the Bank has won a multitude of awards and recognition both locally and across the world, from various renowned bodies in the industry. During 2012, some of the noteworthy awards and recognition won by the Bank are: Sheikh Khalifa Excellence Award Diamond Category 2012 becoming the first ever Bank to receive such a prestigious award UNB recognized as a Superbrand in 2012 by the UAE Superbrand Council International Socrates Award for the Best Enterprise from the Europe Business Assembly in the United Kingdom Best Savings Product for the UNB Smart Account Product at the Banker Middle East Product Awards 2012 Best SME Product for the UNB Medic Loan at the Banker Middle East Product Awards 2012 The European Award for Best Practices 2012 in the Gold Category from the European Society for Quality Research at an Award ceremony held in Amsterdam, Netherlands Mohammad Bin Rashid Al Maktoum Business Award 2011 in the finance category for the second time, having earlier received this honour for the 2008 cycle Inaugural UNB Sustainability Report rated Level A+ by Global Reporting Initiative (GRI) International Diamond Prize for Customer Satisfaction 2012, presented by the European Society for Quality Research in Rome, Italy 2012 Golden Europe Award for Quality and Commercial Prestige, presented by OMAC Otherways Management Association Club, Paris Best Banking Group in the UAE at the World Finance Banking Awards 2012 Asia s Most Preferred Brand in Banking & Financial Sector and Lifetime Achievement Award to the CEO, UNB at the 2nd Asian Leadership Awards International European Quality Award from the Europe Business Assembly in Oxford, United Kingdom Global Award for Perfection, Quality & Ideal Performance organized by Otherways International Research & Consultants at an award ceremony held in Italy International Diamond prize for Excellence in Quality 2012 in Platinum Category by European Society for Quality Research at an award ceremony held in Belgium Leadership Programme Award at Middle East HR Excellence Awards Appreciations On behalf of the Board of Directors, I would like to thank our valued customers for their continued patronage, the top management and employees for their unstinted commitment and dedication and to various governmental bodies for their guidance and support. I wish to also acknowledge the contribution of the Central Bank of the UAE in regulating and supporting the UAE banking sector. In conclusion, we express our gratitude to the Government of the UAE under the visionary leadership of His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, Ruler of Abu Dhabi Emirate, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai and His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces as well as Their Highnesses, the Rulers of the various Emirates. Their continuing wisdom, assured leadership and progressive guidance contribute to the bright outlook, security and opportunities that both the United Arab Emirates and Union National Bank can look forward to. Nahayan Mabarak Al Nahayan Chairman 7

20 CHIEF EXECUTIVE OFFICER S REVIEW I am pleased to present the Review Report for 2012 for Union National Bank (UNB) Group. The year saw the successful completion of the three-year Mission Period covering the period 2010 to The focus for the UNB Group has been on consistency of growth keeping in view the uncertain environment with limited future predictability. It is gratifying that amid this backdrop the Group continues to build on its financial strengths and has been at the forefront of various Quality and Business Excellence initiatives with a view to drive and enhance customer experience. These initiatives have been recognized by leading industry bodies at an international, regional and local level as is evident from the multitude of awards and recognitions that have been conferred on the Bank. The year witnessed global economy overcoming significant challenges as reflected in the economic data and the performance of the financial markets which has continued into It would appear that the global economy is responding positively to the highlighted challenges, albeit lot of work remains to be done with respect to long-term structural changes so as to ensure sustainable economic growth. The Euro zone break-up risk reduced considerably following the positive Greek election outcome and various measures taken by the ECB. In order to ensure sustainable economic recovery whilst keeping inflation and unemployment under acceptable levels, policy makers may need to take measures to mitigate significant risks associated with the structural imbalances in Euro zone and finding viable solutions to slowing growth in the emerging markets, which may pose as an impediment to the sustained global recovery. The Gulf Co-operation Council (GCC) countries witnessed continued improvement in external financing conditions bolstered by oil related revenues. Economic indicators continued to respond positively to the expansionary fiscal policies and low interest rates. Due to the ongoing social unrest in some of the Arab countries and intensified conflict in Syria and continued sanctions on Iran and geo-political uncertainty, the UAE has continued to remain a safe destination for the investors. The country has continued to focus on strengthening the foundations for longer-term growth and diversification. This includes growth-enhancing investments in infrastructure, strengthening fiscal frameworks and institutions, bolstering the financial sector, enhanced supervision and macro prudential policy frameworks, deepening domestic debt markets and advancing private sector job creation. In the local context, regulatory framework and supervision has been further strengthened to ensure that the financial and banking system remains strong to partner the other sectors of the economy for the growth of the UAE. Financial Review In line with its consistent approach over the last many years, the UNB Group in 2012 continued to grow its business and profit in a sustainable manner. The focused approach resulted in the consolidated profit increasing by 6.8% to AED 1,602.4 million for the year ended (2011: AED 1,500.4 million). The operating income for 2012 registered an increase of 8.9% compared to the previous year to reach AED 3,090.9 million (2011: AED 2,837.8 million). The combination of higher average Profit* Total Assets AED Million AED Million 1,600 1,200 1,405 1,359 1,160 1,507 1, ,000 80,000 60,000 65,225 81,780 75,726 82,469 87, , , * Profit attributable to Equity holders of the Bank As of 31st December of each year 8

21 Loans and Advances Customers Deposits AED Million AED Million 60,000 75,000 40,000 50,429 56,573 57,581 50,769 57,344 60,000 45,000 49,473 57,941 60,315 51,279 63,438 20,000 30,000 15, As of 31st December of each year As of 31st December of each year interest earning assets along with an improvement in the net interest margin led to an increase of 6.2% in the net interest income and income from Islamic financing to AED 2,538.6 million in 2012 (2011: AED 2,389.4 million). Ongoing balance sheet management led to the net interest margin improving by 12 bps from 3.08% in 2011 to 3.20% in The noninterest income increased by 23.2% in 2012 to AED million (2011: AED million) mainly due to an increase in the gains from trading and non-trading financial instruments, higher foreign exchange income and reduction in the fair value loss on investment properties. The operating profit for 2012 of AED 2,304.2 million (2011: AED 2,109.1 million), maintained its upward trajectory, growing by 9.2% compared to that for the prior year. The basic and diluted earnings per share increased to AED 0.59 per share in 2012 (2011: AED 0.56 per share), up by 5.4% year-on-year. The loans and advances declined nominally by 0.4% in 2012 to reach AED 57.3 billion as at (31 December 2011: AED 57.6 billion). The customers deposits registered a growth of 5.2% to reach AED 63.4 billion as at 31 December 2012 (31 December 2011: AED 60.3 billion). The credit to deposit ratio, further improved reaching 90.4% as at (31 December 2011: 95.5%), a significant improvement of over 500 bps over the prior year-end. Liquidity remained strong with liquid assets (comprising of cash and balances with central banks and inter-bank placements) to total assets being 23.0% as at (31 December 2011: 19.8%). The advances to stable resources at around 78.0% (31 December 2011: 86.0%) was well below the Central Bank of the UAE requirement of a maximum of 100%. As part of its strategy to optimize returns, the Group increased its portfolio of non-trading investments to AED 6.0 billion as at (31 December 2011: AED 5.0 billion). The consolidated assets of the UNB Group as at reached AED 87.1 billion (31 December 2011: AED 82.5 billion), increasing by 5.7% during the fiscal The Group recognized an impairment charge of AED million for 2012 (2011: AED million), an increase of 13.7% compared to the prior year mainly due to an increase in specific provisions and to top-up the general provisions. The ratio of non-performing loans to loans and advances was 4.7% as at (31 December 2011: 3.7%), with the loan loss coverage being 78.6% as at (31 December 2011: 74.7%). The general provision was enhanced by 27.1% in 2012 to reach AED million as at 31 December 2012 (31 December 2011: AED million), with the general provision constituting 1.4% of credit risk weighted assets as at (31 December 2011: 1.07%), against a requirement of 1.5% set by the Central Bank of the UAE to be met by 31 December In order to support the Group s business and operations, UNB continues to invest in distribution network, infrastructure and technology in addition to its human capital. The various initiatives led to the operating expenses increasing by 8.0% in 2012 to AED million (2011: AED million). However, the efficiency ratio improved by 20 bps to 25.5% for ,500 2,000 Net Interest Income & Income from Islamic Financing AED Million 1,951 2,389 2,539 14,000 Total Equity AED Million 11,931 10,668 13,068 14,121 1,500 1,498 1,648 7,000 7,696 1, As of 31st December of each year 9

22 Cost to Income Ratio Loans & Advances by Economic Sector 40% 30% 20% 10% 0% 30.6% 27.9% 28.0% 25.7% 25.5% Consumer Real estate Financial institutions Sovereign Services Construction Trade Manufacturing Energy Others As of 31st December of each year 7% 2% 6% 3% 8% 5% 7% 7% 7% 9% 8% 6% 12% 12% % 20% 12% 20% 20% % (2011: 25.7%) continuing to be amongst the best in the UAE banking sector. The return on average equity, excluding the Tier 1 capital notes, was 14.0% for 2012 (2011: 14.6%) and the return on average assets was 1.9% for 2012 (2011: 1.8%). The capital position of the UNB Group remained particularly strong with the overall Basel II capital adequacy ratio, computed in accordance with the Central Bank of UAE guidelines, being 23.2% as at (31 December 2011: 21.9%), well above the minimum ratio of 12% set by the UAE Central Bank and among the best in the UAE banking sector. The Basel II Tier 1 capital adequacy ratio was 18.5% as at (31 December 2011: 16.7%). The Board of Directors, subject to necessary approvals has recommended a dividend distribution of 10% cash dividend and 5% stock dividend i.e. cash dividend of AED 0.10 per share, aggregating to AED million and stock dividend of 1 share for every 20 shares held. Following the issuance of the bonus shares the paid-up share capital of the Bank would increase by AED million to AED 2,620.4 million. Corporate Banking Corporate banking continued to remain a key contributor to the Group s profit, assets and liabilities. In line with the Group s broader strategy of prudent lending, the corporate banking witnessed slight reduction in the asset portfolio as the Group positions itself to secure higher risk adjusted return. During 2012, the sector specific teams in corporate banking continued to provide innovative and customer-centric products 20% 15% 10% 5% 0% 19.9% Return on Average Equity 14.5% 14.9% 14.6% 14.0% and services to their customers. Some of the key financing transactions secured during the year included financing of facilities for the Strategic Tunnel Project enhancement in Abu Dhabi, Khalifa Port, development of Zakum offshore oil field development in Abu Dhabi and participation in the syndication facility for the expansion of Abu Dhabi International Airport Midfield Terminal Building. In order to hone the credit skills of staff from corporate banking and credit management, forty corporate banking and credit management staff were accredited after successfully completing a rigorous assessment facilitated by an external training provider. Retail Banking Retail banking was the second highest contributor to the Group s net profit, with both loans and advances and customers deposits increasing during the year. In spite of the Central Bank of the UAE regulation governing lending to individuals and related fees that became effective from May 2011, the Retail banking operating income was steady in 2012 compared to the previous year. Consumer loans at 20.3% of the gross loans and advances as at (31 December 2011: 19.6%) represented the single highest exposure to any economic sector, with the overall pan UNB Group loan book being well-diversified across various economic sectors. Retail banking continued to enhance its product and service offerings to the customers. In 2012, the Bank launched an attractive mortgage promotion which was well received in the market. Considerable focus on the credit card business, led to a significant increase in the portfolio increasing by over 30% in Additionally, the Bank entered into various tie-ups with merchant establishments to increase value to the customers. Some of the other innovative promotions and offers in the liabilities area centred around Al Awwal Saving Certificate, Accelerating Rate Deposit and an innovative liability promotion called the Gold Rush. There was also a concerted effort to expand the SME business with the implementation of the SME sales strategy, introduction of specialized desks at select branches to service customers as also to leverage the existing distribution strength. The SME business is well positioned to benefit from the growth in the market and become a key contributor to Retail banking. 10

23 Financial Institutions and Structured Finance, Private Banking and Wealth Management and Treasury and Investments. There was a marked improvement in the performance of International and Investment banking with a significant increase in profit being reported for 2012 mainly driven by an increase in assets, gains from trading and non-trading financial instruments and reduction in the impairment charge. The Bank continued to be active in the area of syndications and improved its rank in the league tables for syndications and UNB won two awards at the Banker Middle East Product Awards 2012 for the Best Savings Product for the UNB Smart Account Product and for Best SME Product for the UNB Medic Loan. Islamic Banking The Group offers Shari a compliant Islamic products and services through a window within the UNB in addition to providing such products and services through Al Wifaq Finance Company, its majority owned subsidiary. The strategy of the Islamic banking business is to focus on expanding the distribution network and increase the market share by providing quality service. In 2012, the contribution of the Islamic banking business increased to 8.6% from 6.6% in structured finance in the UAE. Several landmark deals were successfully lead arranged by the Bank such as Dolphin Energy, DP world, Midfield project and Dubai Duty Free which led to a significant increase in the Bank s market share of this business. In the second half of the year, the Bank successfully raised USD 300 million of medium term financing under its USD 3 billion EMTN program, with USD 50 million being raised as a three year bilateral and USD 250 million tap on an existing USD 400 million bond issuance done in The tap issuance received encouraging response from the investor community. Treasury and Investments continued to actively manage liquidity to optimize returns in the current low rate environment while registering growth in return on investments from its high quality fixed income and equity portfolios. The foreign exchange dealing operation was enhanced further with the integration of 360T - a multi-provider FX trading platform, ensuring best market prices for UNB customers. As a strategy to broaden customers current risk management tools for foreign exchange and interest rates, commodity hedging solutions were introduced for corporate customers enabling them to hedge their related exposures. With a view to keep our customers abreast a number of seminars were hosted for corporate customers covering areas such as GCC and Global market developments as well as on investment and hedging solutions. Systems and Improvements As part of the Group s strategy to attain Quality and Business excellence, Al Wifaq Finance Company during the year achieved Integrated Management System certification comprising of ISO 9001, ISO and OHSAS standards making it the first Islamic Finance Company in the region to achieve this certification. International and Investment banking International and Investment banking, primarily comprises of During the year a number of new initiatives were undertaken to improve internal controls, increase productivity and optimally utilize resources. Some of the key projects that were implemented during the year to strengthen back-end infrastructure and enhance customer experience included UAEFTS, upgrade of cheque printing software, reward redemption, straightthrough-processing of foreign currency inward remittances and installation of process mining tool. The state of art Chip n Pin technology was implemented for cards issued by UNB which should result in higher customer satisfaction and better controls. 11

24 other bank in the country. Some of the other prominent awards won by the Bank are as follows: International Socrates Award for the Best Enterprise from the Europe Business Assembly in London, United Kingdom The European Award for Best Practices 2012 in the Gold Category from the European Society for Quality Research at an Award ceremony held in Amsterdam, Netherlands International Diamond Prize for Customer Satisfaction 2012, presented by the European Society for Quality Research in Rome, Italy With a view to enhance coverage, the Integrated Management System certification comprising of ISO 9001, ISO and OHSAS standards was expanded to cover UNB subsidiaries in the UAE - Al Wifaq Finance Company, Union Brokerage Company and Injaz Marketing Management Company. Also, UNB became the first commercial bank in the region to be certified to ISO 10002:2004 standards on handling of customer complaints in organizations. Ratings During 2012, the three credit rating agencies that rate UNB affirmed the ratings of the Bank as follows: Fitch Ratings: A+ Long-term and F1 short-term Moody s: A1 Foreign Currency Long term and P1 Foreign Currency Short-term Capital Intelligence: A+ Long-term and A1 Short-term Recognition and Corporate Social Responsibility (CSR) The Bank won several international, regional and local awards and accolades throughout the year. Singularly noteworthy was the conferment of the Sheikh Khalifa Excellence Award Diamond Category 2012, a feat which has been achieved by no 2012 Golden Europe Award for Quality and Commercial Prestige, presented by OMAC Otherways Management Association Club, Paris, France International European Quality Award from the Europe Business Assembly in Oxford, United Kingdom Global Award for Perfection, Quality & Ideal Performance organized by Otherways International Research & Consultants at an award ceremony held in Italy International Diamond prize for Excellence in Quality 2012 in Platinum Category by European Society for Quality Research at an award ceremony held in Belgium Recognized as a Superbrand for 2012 by the UAE Superbrand Council Ranked amongst the Top 10 companies in the UAE in the Forbes Top listed companies in the UAE 12

25 Mohammad Bin Rashid Al Maktoum Business Award 2011 in the finance category for the second time, having earlier received this honor for the 2008 cycle Best Banking Group in the UAE at the World Finance Banking Awards 2012 the society at large in an inclusive, engaged and responsible manner. Conclusion Brand Excellence Award for UNB and Lifetime Achievement Award to the CEO, UNB at the Asian Leadership Awards Leadership Programme Award at Middle East HR Excellence Awards In 2012, UNB launched its inaugural Sustainability Report becoming the first bank in the region to achieve a Level A+ rating certified by the Global Reporting Initiative (GRI). The Sustainability Report is an integral part of the UNB s overall CSR strategy in embedding sustainability consciousness and responsibility within the organization. UNB s sustainability report has been developed using GRI s G3 Guidelines, the most internationally recognized and used sustainability reporting framework. UNB also undertook several CSR and Community initiatives during Some of the salient initiatives undertaken in 2012 included - signing of the Memorandum of Understanding with the Ministry of Environment & Water as a strategic partner supporting the Ministry s environmental activities, Paperless I take this opportunity to thank our employees for their unequivocal dedication and commitment and our shareholders and customers for their confidence in our ability to create value for them. I would also like to thank H.H. The Chairman and the Board of Directors for its direction and stewardship and the various Government agencies for their guidance and support. As we embark on the next three-year Mission Period , we remain confident that the UNB Group is strongly and firmly positioned to realize opportunities and create value on a sustainable basis for all its stakeholders. Mohammad Nasr Abdeen Chief Executive Officer Day initiative, Earth Hour 2012, partnering with the Ministry of Social Affairs on the Lakumsanad forum, participation in the Environment Day and Autism Awareness campaign initiatives to support children with special needs. Also, the Bank signed an Endowment Agreement with the Zayed University to establish a Professorship at the Zayed University titled Union National Bank Professorship in Banking. The CSR initiatives mentioned in this Review is by no means exhaustive and only underpins the Group s commitment to serve 13

26 CORPORATE GOVERNANCE for the year ended Introduction The Board and the senior management of the Bank recognize that good governance alongwith relevant and timely transparent disclosures are the principal constituents to safeguard the stakeholders interest and enhancing shareholders value in a sustainable manner. The Bank s governance practices are codified in its Corporate Standards Manual. With the objective of adopting international leading practices and the guidelines issued by the regulatory and market authorities of the United Arab Emirates, the Bank reviewed its governance framework and updated the Manual which was reviewed and validated by an independent external consultant. The strategic vision of the Board to position the Bank as the best in class for the banking industry in the UAE underpins the Bank s governance dictum. In 2012, the Bank launched its inaugural Sustainability Report which was certified by the Global Reporting Initiative (GRI) to a Level A+ earning the Bank the unique distinction of being the first bank in the region to achieve this recognition. Truly noteworthy, the Bank achieved the unique recognition of being the first bank in the country, to earn the prestigious quality award of the United Arab Emirates, the Sheikh Khalifa Excellence Award Diamond (SKEA-Diamond). The Bank earned many international awards and accolades during the year that would demonstrate the Bank s commitment towards quality and service excellence. The Board and Board Committees Board composition and election The Board of Directors of the Bank is responsible for the overall governance of the Bank. Key responsibilities of the Board include providing strategic direction, guidance and supervision, setting up Vision and Mission, approving medium and long-term business strategies, ensuring robust control functions and reviewing the financial and non-financial performance of the Bank and senior management on an ongoing basis. In accordance with the provisions of the Articles of Association, the overall management of the Bank is vested with the Board of Directors consisting of not less than five and not more than eleven Directors, majority of whom shall be UAE nationals. The Directors are appointed in the Annual Ordinary General Meeting for a term of three years and are eligible for re-election upon completion of their term. As at the end of December 2012, UNB s Board comprised of eight members and all the members are UAE nationals. They were appointed in the Annual Ordinary General Meeting held on March 27, 2012 for a period of ensuing 3 years, of which 6 members were re-elected. The directors have diverse range of experience from different backgrounds and collectively provide required expertise and skills to effectively manage the affairs of the Bank in the long term interest of all the stakeholders. Directors independence disclosure In the Board s composition of eight directors, six members represent the strategic investors (viz. four by the Abu Dhabi Investment Council and two by the Investment Corporation of Dubai) with the remaining two Directors representing other shareholders. All the directors are non-executive and five are independent. While determining independence principle, the directors nominated by the strategic shareholders but otherwise conform to the independence criteria stipulated by the Security Commodity Authority in their individual capacity, have been reckoned as independent. Board Meetings Aspects relating to the proceedings of the Board meetings are defined in the Articles of Association. Board meetings are valid only when attended by majority of directors. A director may appoint another director to represent and vote for him in his absence and in such situations any director may not have more than one proxy. Board decisions are made by majority of votes of those present or represented in the meeting. In the case of equality of votes, the Chairman has the casting vote. The dissenting voice of a board member, if any, is recorded in the minutes of the Board meeting. Directors fee As per the provision of the Articles of Association, the Directors remuneration, after providing for legal reserve and setting aside 5% as first share of profit to the shareholders, should not exceed 10% of remaining net profit. For the fiscal year 2012, the shareholders approved the remuneration for each director. The Board Committees: The Board has constituted two committees - (i) Audit Committee and (ii) Remedial Asset Committee and delegated certain responsibilities to them which are delineated in their respective charters. The Board ensures that directors with appropriate balance of skills, knowledge and independence are appointed to the Committees. Audit Committee The Audit Committee consists of three members. All the members of the Committee are non-executive with two members being independent. This Committee assists the Board in exercising due care and diligence while discharging the monitoring responsibilities in respect of internal controls, financial reporting, risk management, compliance with internal policies, external regulations and findings of examination by the regulatory bodies and appointing External Auditors. The Audit Committee periodically reviews the internal control system of the Bank s control procedures to ensure adequacy and reasonableness of the Bank s internal control system. Remedial Asset Committee The Remedial Asset Committee consists of three Board members; all the members are non executive and majority independent. This Committee assists the Board in exercising due care and diligence 14

27 CORPORATE GOVERNANCE for the year ended while discharging the monitoring responsibilities in respect of provisioning policy, specific provisions for individual credit facilities and proprietary investments and monitoring the recoveries. Details of the Board and Board committees and attendance are provided in the appendix. Governance performance During the fiscal 2012 four Board meetings were convened and the Board maintained close liaison with the work of the Board committees. Board Audit Committee held six meetings and Board Remedial Assets Committee held three meetings during the year. The interval between board meetings was less than four months. All the board and board committee meetings had majority attendance by members participation in person. The Board meeting agenda included forward looking strategic issues with a balance of performance reporting review, approval of risk management policies and other operating decisions. Board discussions were supported by relevant and focused papers distributed in advance of the meetings. Insider trading restriction The Bank considers that the Directors, the CEO, Senior Management and Deputy Heads of Divisions, by the virtue of their functional positions may have privileged access to price sensitive material information about the Bank. Such persons are identified and treated as Insiders and market authorities are advised accordingly. As per the Bank s disclosure policy Insiders are prohibited from trading in the securities of the Bank, fifteen days prior to the end of financial reporting period (quarterly/half-yearly/annual) till the disclosure to the public / market authorities and also ten working days prior to the declaration of any substantive information that may affect the Bank s share price. All Insiders are regularly notified of this requirement to ensure compliance. Role of H.H. The Chairman, CEO and management committees Bank s Corporate Standards Manual delineates the segregation of responsibilities between the roles of the Chairman and the CEO. The Chairman is responsible for the leadership of the Board ensuring that the Board members are collectively discharging the responsibilities effectively. The CEO has the functional responsibility for the day to day management of the Bank in accordance with the strategic direction and policies approved by the Board. The Board has delegated certain authorities to the CEO and management committees whose responsibilities are delineated in their charters. The CEO maintains close liaison with the work of the management committees. Investment Committee Leadership Forum Remedial Asset Committee Risk Management Committee Internal Control Framework The Bank maintains effective internal control framework that constitute Internal Audit, Risk Management and Compliance functions. The Bank has established robust Internal Capital Adequacy Assessment Process (ICAAP) and conducts stress testing on a half-yearly basis based on prudent risk policies approved by the Board. The Bank submits annual ICAAP report to the Central Bank of the UAE. External Auditors In accordance with the provisions of the Article of Association M/s Ernst & Young were appointed as the External Auditors for the year 2012 by the shareholders in the Annual Ordinary General Meeting held on March 27, The external auditors were selected by conforming to the Statutory Auditors Appointment Rules promulgated by the Abu Dhabi Accountability Authority and the scope and coverage of the audit related assurance work are defined in the engagement agreement between the Statutory Auditors and the Bank. The external auditors did not provide any consultative or administrative service to the Bank during the year that would conflict with the independence principle. Major shareholders of UNB The shareholders holding more than five percent of the share capital of the Bank as at the end of are provided below: Abu Dhabi Investment Council % Investment Corporation of Dubai 10 % In conclusion, the Board of Directors and the senior management believe that the Bank s governance practice will serve and safeguard the interests of all stake holders. Nahayan Mabarak Al Nahayan Chairman Management committees chaired by the CEO are: Assets and Liability Committee Crisis Management Team Head Office Credit Committee 15

28 CORPORATE GOVERNANCE for the year ended APPENDIX Dividend Distribution Cash Dividend 10% 15 % 10 % - 10 % 20 % Stock Dividend 5% - 10 % 10 % 10 % 20 % Details on UNB s share price as at the end of Current Price to Earnings Price to market Book value Book per share Earnings Dividend price value (EPS) (PE) yield UNB Share price details (face value AED 1 per share) AED 3.03 AED AED % Board of Directors details Membership capacity in the Sl. No. Name of the Board Member Representative of Position in the Board viz. Board Independent (IND) / Non-Executive (NEX) Membership in Board committees Audit Committee Remedial Asset Committee 1 H.H. Sheikh Nahayan Mabarak Al Nahayan Abu Dhabi Investment Council Chairman NEX 2 H.E. Ahmed Saeed Al Badi Minority shareholders Director NEX Chairman 3 Mr. Khalifa Sultan Al Suwaidi Abu Dhabi Investment Council Director NEX & IND Member 4 H.E. Mohamed Ahmed Al Bowardi Abu Dhabi Investment Council Director NEX & IND 5 Mr. Rashid Darwish Al Ketbi Minority shareholders Director NEX Chairman 6 Mr. Yousef Abdelaziz Al Harmoudi Abu Dhabi Investment Council Director NEX & IND Member 7 Mr. Abdul Wahid Al Fahim Investment Corporation of Dubai Director NEX & IND Member [From 27 March 2012] 8 H.E. Mattar Mohamed Al Tayer Investment Corporation of Dubai Director NEX & IND Member [From 27 March 2012] Note: Members under Sl. No. 1 to 6 were re-elected and members under Sl. No. 7 & 8 were newly elected by the shareholders in the AGM held on 27 March 2012 The below were members until 26 March 2012 Mr. Buti Saeed Mohamed Al Ghandi H.E. Sami Ahmad Dhaen Al Qazmi 16

29 CORPORATE GOVERNANCE for the year ended Board meeting attendance Number of Board meetings held during 2012 Four [4] Membership capacity in the Board Number of meetings Number of meetings Sl. No. Name of the Board Member Position in the viz. Independent held during the tenure attended during the Board (IND) / Non- of the Membership tenure of the Executive (NEX) in 2012 Membership in H.H. Sheikh Nahayan Mabarak Al Nahayan Chairman NEX H.E. Ahmed Saeed Al Badi Director NEX Mr. Khalifa Sultan Al Suwaidi Director NEX & IND 4 4 [2 by person 2 by proxy] 4 H.E. Mohamed Ahmed Al Bowardi Director NEX & IND Mr. Rashid Darwish Al Ketbi Director NEX Mr. Yousef Abdelaziz Al Harmoudi Director NEX & IND Mr. Abdul Wahid Al Fahim Director NEX & IND 3 3 [From 27 March 2012] 8 H.E. Mattar Mohamed Al Tayer Director NEX & IND 3 2 [From 27 March 2012] Note: The below were members until 26 March 2012 and attended one meeting held during their tenure H.E Sami Ahmad Dhaen Al Qamzi by proxy Mr. Buti Saeed Mohamed Al Ghandi by person Audit Committee meeting attendance Number of Audit Committee meetings held during 2012 Six [6] Member capacity Number of meetings Number of meetings Sl. No. Name of the Audit Committee Member Position Independent held during the tenure attended during the (IND) / Non- of the Membership tenure of the Executive (NEX) in 2012 Membership in H.E. Ahmed Saeed Al Badi Chairman NEX Mr. Khalifa Sultan Al Suwaidi Member NEX & IND Mr. Yousef Abdelaziz Al Harmoudi Member NEX & IND 5 4 Note: Member under Sl. No. 2 was re-appointed and members under Sl. No. 1 & 3 were newly appointed in the Board Meeting held on 22 April 2012 The below were members until 26 March 2012 and attended one meeting during their tenure H.E. Sami Ahmad Dhaen Al Qamzi Mr. Rashed Darwish Al Ketbi 17

30 CORPORATE GOVERNANCE for the year ended Board Remedial Asset Committee meeting attendance Number of Board Remedial Asset Committee meetings held during 2012 Three [3] Member capacity Number of meetings Number of meetings Sl. No. Name of the Remedial Asset Committee Member Position Independent held during the tenure attended during the (IND) / Non- of the Membership tenure of the Executive (NEX) in 2012 Membership in Mr. Rashid Darwish Al Ketbi Chairman NEX Mr. Abdul Wahid Al Fahim Member NEX & IND H.E. Mattar Mohamed Al Tayer Member NEX & IND 3 3 Note: Above Members were newly appointed in the Board Meeting held on 22 April 2012 Union National Bank - Share Price Movement Summary (01-Jan Dec-2012) UNB Share Price Summary (as per closing price published by ADX) UNB Share Price Monthly Summary (as per closing price published by ADX) UNB Share Price Monthly Summary (as per closing price published by ADX) Closing Price (As on 31-Dec-2012) 3.03 Month Average Price Highest Price Lowest Price Month Average Price Highest Price Lowest Price Highest Price during the year 3.26 Lowest Price during the year 2.77 Median Price during the year 3.02 Total number of trades during the year 3,258 Total volume traded during the year 127,999,542 Total traded value during the year AED 385,769,891 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec UNB Share Closing Price Vs Abu Dhabi Security Market Index (ADSMI) UNB Share Closing Price Vs Abu Dhabi Security Market Index Bank (ADBFI) ADSMI 2, , , , , , , Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec Closing Price 9UNB) ADBFI 4,800 4,700 4,600 4,500 4,400 4,300 4,200 4,100 4,000 3,900 3,800 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec Closing Price 9UNB) ADSMI (Bloomberg) Closing Price (UNB) ADBFI (Bloomberg) Closing Price (UNB) 18