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

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

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

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

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

6 Table of Contents Page Board of Directors 1 UNB Network 2 Chairman s Report 6 Chief Executive Officer s Review 9 Independent Auditors Report 16 Consolidated Financial Statements 17 Notes to the Consolidated Financial Statements 22 Basel II - Pillar 3 Disclosure 76

7 BOARD OF DIRECTORS H.H. Sheikh Nahayan Mabarak Al Nahayan CHAIRMAN Mohamed Ahmed Al Bowardi DIRECTOR Ahmed Saeed Al Badi DIRECTOR Rashid Darwish Al Ketbi DIRECTOR Khalifa Sultan Al Suwaidi DIRECTOR Sami Dhaen Al Qamzi DIRECTOR Butti Saeed Al Ghandi DIRECTOR Yousef Abdulaziz Al Harmoudi DIRECTOR 1

8 UNB NETWORK BRANCHES BRANCHES ABU DHABI FAX NO. SHARJAH & NORTHERN EMIRATES FAX NO. 1 Salam Corniche Khalidiya ADGAS City Center Airport Road Najda Al Karamah Al Wahda Mina Mussafah Hazzaa Shahama Mussafah Industrial Area Muroor Sheikh Khalifa City A Zayed University Defence Road Al Dhafra Habshan Baniyas Sharjah Fujairah Ras Al Khaimah Ajman Dibba Al Buhaira Khorfakkan Kalba Al Ta awon Umm Al Quwain Al Arooba Al Dhaid Al Rumaila Al Qasmi To get in touch with us call : from within the UAE and from outside the UAE AL AIN FAX NO. OVERSEAS BRANCH AND REPRESENTATIVE OFFICE 1 Khalifa Street Al Hili UAE University Al Yahar Al Jebel Roundabout Al Ain Mall Bawadi Mall QATAR FINANCIAL CENTRE BRANCH TEL NO. FAX NO. 1 Qatar Financial Centre (+974) (+974) SHANGHAI-CHINA REPRESENTATIVE OFFICE TEL NO. FAX NO. 1 Shanghai World Financial Centre (+8621) (+8621) DUBAI FAX NO. KUWAIT BRANCH TEL NO. 1 Jebel Ali Gold & Diamond Park Al Wasl Jumeirah Sheikh Zayed Road Khalid Bin Walid Street Dubai Health Care City Deira Al Maktoum Al Bustan Rashidiya Mirdiff Al Nahda Abu Hail Kuwait (+965)

9 SUBSIDIARIES UNION BROKERAGE LLC (UBC) BRANCHES TEL NO. FAX NO. 1 Main Office - Abu Dhabi ADX Office Al Ain Office DFM Office AL WIFAQ FINANCE COMPANY BRANCHES TEL NO. FAX NO. 1 Head Office - Abu Dhabi Airport Road Al Ain Dubai Sharjah UNION NATIONAL BANK - EGYPT BRANCHES TEL NO. FAX NO. 1 Head Office Talaat Harb Nasr City Haram Heliopolis Obour Mokatem Shoubra Mohandseen Tagamoa El-Khames El Horya Gleem Saad Zaghloul San Stefano Semouha Lagoun Port Said Suez Ismailia Damietta Sharm El-Sheikh Hurgada Mansoura Zagazig Tanta Kafr El Shiekh Al Mahala Assiut

10 On behalf of the Board of Directors, it gives me great pleasure to present to you the consolidated financial statements for the financial year ended for Union National Bank (UNB) Group. Globally 2011 continued to be an extremely challenging year with the consumer and business confidence being restrained by the prolongation of the incessant financial and credit crisis. It is indeed noteworthy that against this backdrop of ongoing turmoil in the economic landscape, UNB Group set a new record with the consolidated profit touching the AED 1.5 billion mark for the first time. As was the case in the previous year, the Group reported a double digit increase in profit, a testimony to the strong leadership and commitment of management and staff who under the guidance of the Board of Directors have relentlessly pursued the objective of sustainable growth in business and profits, ensuring customer-centricity and enhancing the Group s engagement with the community where it operates. Global Economy The global economy which intermittently appears to be on the mend principally due to policy actions and buttressed by the large doses of monetary and fiscal stimulus, was adversely impacted in 2011 by the strong headwinds as the stimulus effect started to wane. The structural issues of unsustainable debt, inadequate revenues for debt servicing and increasingly reduced or negative growth resurfaced in 2011 with the latest economic estimates indicating a sharp moderation in the growth of the global gross domestic product. Unresolved structural fragilities, as also a barrage of shocks, to list a few prominent ones - the United States of America (USA) debt ceiling crisis, loss of AAA status for USA, spate of ratings downgrades and the ongoing European debt problems, has led to a considerably weakened near term economic outlook. Recently, the downside risks to growth have increased with the World Bank and the International Monetary Fund CHAIRMAN S REPORT projecting feeble growth forecast of the world economy with fragile economic condition and uncertainty as to how financial markets will evolve over the medium term. However, many economists and financial experts expect that policymakers particularly in the Euro zone would fight the financial turmoil with appropriate measures and actions with European Central Bank continuing to provide back support which should limit contagion to other countries. The challenge in the current times remains to adopt policy measures that strike a judicious balance between supporting the economy and fiscal consolidation which over the medium term should enable the global economy to recover stronger from this financial crisis. Gulf Cooperation Council (GCC) and the UAE The year 2011 was marked by the Arab Spring, with many countries in the Middle East and North Africa region witnessing unprecedented social instability and political upheavals. The UAE clearly emerged as a safe haven given its long history of domestic political stability, strong relations with most neighboring countries and the major global powers. During these uncertain times, the UAE solidified its safe haven appeal, resulting in an influx of capital. Higher oil prices, continued investment in infrastructure and other projects including oil production, strong trade flows and consumer confidence have given a fillip to the economic fundamentals leading to an estimated GDP growth of circa 3.3% for the UAE in The slow-down in the emerging markets and sluggish growth in the western world is expected to lead to lower global oil prices in 2012 which could regionally affect the real GDP growth in However, the UAE s astute leadership has over the years taken various steps to increase oil production and have initiated additional measures for diversification projects to ensure that the country diversifies its sources of revenue. UNB Group Following a double digit growth in profit in 2010 over the preceding year, the UNB Group posted another consistent increase in consolidated profit for fiscal 2011, a profit of AED 1,500.4 million (2010: AED 1,350.0 million), up by 11.1% compared to the prior year. As mentioned earlier in my report the profit figure of AED 1.5 billion is a new record for the UNB Group, a remarkable achievement given the prevailing challenging and uncertain market conditions. The operating profit for the year ended was AED 2,109.1 million (2010: AED 1,839.9 million), higher by 14.6% over that in the previous year. Similarly, the operating income was up by 11.1% in 2011 and reached AED 2,837.8 million (2010: AED 2,554.8 million). The increased operating income was due to the higher net interest income and net income from Islamic financing for 2011 of AED 2,389.4 million (2010: AED 1,950.9 million), up by a solid 22.5% over that for the prior year. Improved net interest margin due to a reduction in the cost of funds, optimization of liquidity levels and higher average interest earning assets resulted in an improved performance of the net interest income and net income from Islamic financing in the current year. The non-interest income in 2011 was negatively impacted by the implementation of Central Bank of the UAE guidelines that regulate the lending to individuals and govern the attendant fees and commission. Resultantly, in 2011, the non interest income decreased by 25.7% to AED million (2010: AED million), principally due to a reduction in net fee and commission income which declined to AED million (2010: AED million). The non-interest income was also impacted by the loss on trading and non-trading financial instruments due to the poor trading environment and recognition of the fair value loss on investment properties given the subdued nature of the local property markets. There was a modest increase in the net loans and advances by 1.8% in 2011 to reach AED 57.6 billion as at 31 December 2011 (31 December 2010: AED 56.6 billion). The muted growth in loans and advances reflects the Group s cautious approach to lending focusing on selectively increasing the loan book as the underlying demand remains soft. The customers deposits increased at a more rapid pace of 4.1% in 2011 compared to the loan growth rate mentioned earlier, thereby reaching AED 60.3 billion as at 31 December 2011 (31 December 2010: AED 57.9 billion). The loan to deposit ratio further improved to 95.5% as at 31 December 2011 (31 December 2010: 97.6%). Consistent with the Group s strategy to maintain strong liquidity before and during the financial crisis, the liquid assets, comprising of cash and balances with central banks and inter-bank placements accounted for 19.8% (31 December 2010: 21.2%) of the total assets as at the 2011 year-end. On inclusion of investments as liquid assets, the proportion of liquid assets to total assets exceeded twenty five percent as at both and In 2011, the Bank repaid a syndicated loan of US Dollars one billion from its normal sources without resorting to any refinancing. As part of the conscious strategy to diversify funding sources and mix, the Bank raised US Dollars 400 million by issuing 5 year bonds, which were well received by the investors. The total assets of the Group reached AED 82.5 billion as at (31 December 2010: AED 81.8 billion), posting a growth of 0.8% year-on-year. In view of the difficult market conditions, the Group is taking all necessary measures to guard and proactively manage asset quality. The ratio of non-performing loans to gross loans and advances remains at 3.7% as at 31 December 2011 (31 December 2010: 4.3%) with the loan loss coverage being 74.7% (31 December 2010: 47.5%). The last quarter of 2011 saw an increase in the non-performing loans and advances as the Bank classified its exposures to certain entities that are part of the Dubai Holding Group and certain other credit exposures. The provisions have been taken in accordance with the International Financial Reporting Standards and the guidelines issued by the UAE Central Bank. The general provisions were significantly increased in 2011 to reach 1.07% of the credit risk weighted assets as at (31 December 2010: 0.65%), against a requirement of 1.5% by 31 December 2014 set by the Central Bank of the UAE. In absolute terms the general provisions was AED million as at (31 December 2010: AED million), an increase of 65.8% compared to prior year-end. The operating expenses increased slightly by 1.9% in 2011 to AED million (2010: AED million), whilst the cost to income ratio further improved to 25.7% for 2011 (2010: 28.0%). Investments commensurate with the Group s future plans continue in all the relevant areas like infrastructure, technology, distribution network and human capital so that the Group is well positioned to grow its franchise and businesses. In 2012, the Bank would expand its presence in the GCC by establishing a full service branch in the State of Kuwait. The Group is also present in China through a Representative Office and in Egypt through a majority owned bank. The return on average equity, after excluding Tier 1 capital notes for 2011 was 14.6% (2010: 14.9%) and the return on average assets was 1.8% for 2011 (2010: 1.7%). Both these key performance indicators are satisfactory maintaining a stable trend. The overall Basel II capital adequacy ratio was strong at 21.9% as at (31 December 2010: 20.1%) well above the minimum regulatory requirement of 12% set by the UAE Central Bank. The Tier 1 Basel II capital adequacy ratio was 16.6% as at 31 December 2011 (31 December 2010: 15.2%). The Board of Directors is pleased to recommend to the shareholders a distribution of cash dividend of 15% (cash dividend of AED 0.15 per share) amounting in aggregate to AED million. 6 7

11 Accolades and recognition In 2011, the Bank was the recipient of various industry awards and recognition. Some of the prominent awards / accolades won by the Bank are: Best Domestic Retail Bank at the The Banker Middle East Industry Award 2011 Best Savings Account Award for UNB s Everyday Interest Saving account at the 2011 Banker Middle East Product Awards Golden Award for excellence and Quality in the Arab World from the Arab Administrative Development Organization, member of the Arab League and Tatweej Academy 2011 Brand Leadership Award at the Global Awards for Brand Excellence Event Prestigious People s Choice Stevie Award for Favorite Companies in the Financial Services Category and a Stevie distinguished Honoree in two categories namely, Company of the year and Executive of the Year under Financial services category. Top 50 Safest banks in Emerging markets as per Global Finance in 2011 Dream Company to Work For by 2011 Asian Leadership Awards Superbrand for 2012 Also, in 2011 UNB became the first commercial bank in the world to be certified by M/s Lloyd s Register Quality Assurance Ltd. to the Integrated Management System (IMS) comprising of three standards, ISO Quality Management Systems (QMS), ISO Environmental Management Systems (EMS) and OHSAS Occupational Health & Safety Management Systems (OHSAS). Appreciations On behalf of the Board of Directors, I would like to thank our valued customers for their continued patronage, the top management and the 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 all 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 I am pleased to present the Review report for 2011, a year which saw the Union National Bank (UNB) Group achieving a new record profit. The global recovery which appeared to be gaining some traction in 2010 and the early part of 2011 has been severely hit by the Euro Debt crisis. Slow down in many of the emerging economies, fiscal consolidation and waning of the affect of the unprecedented policy measures and stimulus, furthermore impinged on the rather faltering recovery. Some tumultuous events that underscored the year were the earthquake and tsunami in Japan, debt ceiling crisis in the USA, loss of AAA status for USA, flurry of rating downgrades and the ongoing European debt crisis. These events have led to weakened global activity and downside risks being elevated. As per the World Economic Outlook projections by the International Monetary Fund the global growth is expected to moderate sharply in The assumption behind the growth is contingent on how the European governments and especially the European Central Bank instil investor confidence as also how U.S. policy makers strike a judicious balance between supporting the economy and medium-term fiscal consolidation. The Gulf Co-operation Council (GCC) economies continued to benefit from oil related revenues on the back of high oil prices with crude oil trading close to US$ 100 a barrel Chief Executive Officer s Review for most of the year. Several countries in the Middle East and North Africa region have been adversely impacted by social unrest, as they transition to more participatory political institutions. Near term outlook indicates heightened political instability with the current conflicts affecting trade and tourism, capital flows and investments in these countries. Amid this Arab Spring, the United Arab Emirates has reinforced its position as a safe haven with the country experiencing an inflow of capital. The UAE GDP growth is estimated to be 3.3% in 2011, due to rising hydrocarbon production and increased government spending, with a modest pick-up in the private sector. The fiscal account, which is expected to be a surplus in 2011 because of high oil prices, should provide the required headway to increase government spending. In 2011, the Central Bank of the UAE continued to strengthen the regulatory framework and supervision ensuring that the financial and banking system remains robust to support the projected growth of the UAE economy. Among the notable steps was the implementation by the Central Bank of the UAE of regulations governing lending to individuals and related fees to primarily discourage excessive leveraging by retail customers. Also, the Basel III draft guidelines to improve the liquidity profile of the banks operating in the UAE were issued, with the final guidelines expected to be announced later. Profit* Total Assets AED Million AED Million 1,600 1, ,168 1,405 1,160 1,359 1, ,000 80,000 60,000 40,000 55,457 65,225 75,726 81,780 82, , *Profit attributable to Equity holders of the Bank As of 31 st December of each year 8 9

12 Loans and Advances Customers' Deposits Cost Income Ratio Loans & Advance by Economic Sector AED Million AED Million 60,000 75,000 40% 40,000 20,000 37,379 50,429 50,769 56,573 57,581 60,000 45,000 30,000 15,000 40,204 49,473 51,279 57,941 60,315 30% 20% 10% 29.4% 27.9% 30.6% 28.0% 25.7% % As of 31 st December of each year As of 31 st December of each year As of 31 st December of each year Financial Review The non-interest income in 2011 was AED million thereby resulting in a credit to deposit ratio of 95.5% to US$ one billion from its normal sources without The UNB Group achieved strong results for the year ended (2010: AED million), a decrease of 25.7% compared as at (31 December 2010: 97.6%). resorting to any refinancing. Effective management of with the consolidated profit reaching a to previous year. The decrease in the non-interest Total assets as at increased marginally credit risks remains of paramount importance, with the new record of AED 1.5 billion. Compared to prior year, the income was mainly due to a reduction in the net fees by 0.8% in 2011 to reach AED 82.5 billion (31 December Group keeping a close watch on the asset quality. At the consolidated profit of AED 1,500.4 million in 2011 (2010: and commission income which was impacted negatively 2010: AED 81.8 billion). year end, the ratio of non-performing loans to gross loans AED 1,350.0 million) was up by 11.1%. The operating due to the implementation of the Central Bank of the and advances was 3.7% (31 December 2010: 4.3%) with profit, which was propelled by an increase in the net UAE regulations governing lending to individuals, which The low returns available on liquid assets resulted in an the loan loss coverage as at being interest income and net income from Islamic Financing became effective from 1 May In order to mitigate the ongoing optimization of liquidity throughout the year. 74.7% (31 December 2010: 47.5%). In 2011, the Bank and controlled growth in operating expenses was AED impact of these regulations the Bank has been focussing However, the liquidity position has remained comfortable classified its exposure to some of the entities that are part 2,109.1 million in 2011 (2010: AED 1,839.9 million), an on other profitable but relatively less tapped segments with the ratio of liquid assets to total assets being 19.8% of the Dubai Holding Group and certain other entities, increase of 14.6% year-on-year. The operating income including the Small and Medium Enterprise (SME) related as at (31 December 2010: 21.2%). In with loan loss provisions being taken in accordance with for the year ended was AED 2,837.8 lending. Weak trading conditions led to a loss on trading 2011, the Group increased proprietary investments to AED the International Financial Reporting Standards and the million (2010: AED 2,554.8 million), an increase of 11.1% and non-trading financial instruments of AED 8.3 million 5.0 billion as at (31 December 2010: guidelines of the Central Bank of the UAE. The general compared to prior year. The Group reported a robust in 2011 compared to a gain of AED 16.4 million in AED 4.3 billion) so as to enhance returns. On inclusion provisions were significantly increased in 2011 by 65.8% increase in the net interest income and net income from The non-interest income was also impacted by the fair of investments as liquid assets, the liquidity position to reach AED million as at Islamic financing which was up by 22.5% to AED 2,389.4 value loss on investment properties, given the soft patch further improved to 25.9% as at (31 (31 December 2010: AED million). The general million in 2011 (2010: AED 1,950.9 million). The higher net that the real estate sector has it. December 2010: 26.5%). The primary regulatory metrics provisions constituted 1.07% of the credit risk weighted interest income and net income from Islamic financing to monitor liquidity is the advances to stable resources assets as at (31 December 2010: was attained by an increase in average interest earning The curtailment in new retail lending as discussed earlier ratio, which for the Bank was 86.0% as at 31 December 0.65%), against a requirement of 1.5% by 31 December assets and better net interest margin in 2011 compared and continuation of the Bank s approach to selectively book 2011 (31 December 2010: 85.2%), well within the 100% 2014 set by the Central Bank of the UAE. to the previous year. Lower cost of funding coupled with assets, led to an increase in net loans and advances by 1.8% cap set by the Central Bank of the UAE. Mainly for balance an active asset liability management ensured that the net in 2011 to reach AED 57.6 billion as at (31 sheet purposes, the Bank in the fourth quarter of the year Notwithstanding, the slight increase in operating interest margin improved by 38 basis points to exceed December 2010: AED 56.6 billion). Customers deposits, the launched five year bonds for US$ 400 million under its expenses in 2011 by 1.9% to AED million (2010: 3% in mainstay of the Group s funding base registered a relatively Euro Medium Term Note (EMTN) programme. The bond AED million), the cost to income ratio improved to higher growth of 4.1% reaching AED 60.3 billion as at 31 issuance was well received by the investors. In 2011, the 25.7% for 2011 (2010: 28.0%). Measured investment in all December 2011 (31 December 2010: AED 57.9 billion), Bank repaid its five year syndicated loan facility amounting the crucial areas to support future growth continues. The Group has over 90 branches and office spread over four Net Interest Income & Income from Islamic Financing Total Equity AED Million Return on Average Equity countries, with the presence slated to be expanded to a new country in ,500 2,000 1, ,090 1,498 AED Million 1,648 1,951 2, ,000 13,068 11,931 10,668 7, ,705 7, As of 31 st December of each year 20% 15% 10% 5% 0% 18.7% 19.9% 14.5% 14.9% 14.6% Key profitability metrics, return on average equity, excluding the Tier 1 capital notes, of 14.6% for 2011 (2010: 14.9%) and return on average assets of 1.8% for 2011 (2010: 1.7 %) are satisfactory and stable. The basic and diluted earnings per share was AED 0.56 for 2011 (2010: AED 0.50), an increase of 12.0% compared to prior year. The overall Basel II capital adequacy ratio computed in accordance with the Central Bank of the UAE guidelines remained strong at 21.9% as at 10 11

13 (31 December 2010: 20.1%) with the Tier 1 capital in the future. The core banking platform for Islamic the prevailing market conditions, Union National Bank, adequacy ratio being 16.6% as at the 2011 year end banking was upgraded with additional functionalities and Egypt the majority owned subsidiary of the Bank in Egypt, (31 December 2010: 15.2%). Subject to necessary capability to support new Islamic banking products and has adopted a cautious approach to growth. The Bank s approvals, the Board of Directors have proposed a cash dividend of 15% for the fiscal services, which would enable expanding the current suite of products and services. branch in the Qatar Financial Centre is actively engaged in booking new business that should lead to enhanced results in the future. Corporate Banking International and Investment Banking Ratings Corporate banking witnessed a controlled growth in International and Investment banking comprises of assets in 2011 with operating income and profit increasing Financial Institutions and Structured Finance, Treasury and The Bank has consistent ratings from all the rating agencies compared to The Bank expanded its suite of product Investments, Private Banking and Wealth Management that rate the Bank with the outlook being Stable. The and service offerings with the launch of Corporate Online banking platform as also enhancing the range of derivative products to hedge exposures. Some of the key financing transactions in the current year where the Bank participated included arranging syndication facilities of USD 300 million for Emirates Aluminium, participation in syndicate deal of AED 3 billion for Sorouh and general participation in syndicated term loan facility of USD 500 million for General Holding Corporation. In order to realize synergies between the China Representative Office, Shanghai and the UNB Group branches a dedicated China Desk was established in Asset quality which continues to exhibit some strain is being carefully monitored to ensure that any troubled exposures are effectively managed. Retail Banking Retail banking a key focus area of growth witnessed further increase in business and profit. Over a three year period, the profit from Retail banking has nearly doubled and now contributes to around a third of the Group s consolidated profits. Business volumes are up with consumer loans being the single highest exposure to an economic sector accounting for 19.7% of the consolidated gross loans and advances as at (31 December 2010: 16.9%). Like mentioned earlier the regulations implemented by the Central Bank of the Best Domestic Retail Bank award to UNB at the The Banker Middle East Industry Award UAE governing lending to individuals is likely to impact future growth in the retail lending. However, the Group is profitably growing its SME related lending and other segments within retail banking which should in part compensate for the reduced retail lending due to the restrictions mentioned earlier. The Bank launched a number of attractive product propositions in the year, like Smart Account, Everyday Interest Savings account, permanent Accelerating Rate Deposit, Gold Business credit card for SMEs to name a few in addition to various unique and customer friendly promotions which were run during the course of the year. The Bank successfully launched the EMV compliant chip card to enhance security and peace of mind to our customers while conducting card related transactions. New and additional services were also made available through internet banking facility Uninet. As part of the strategy to continuously improve service standards, an accreditation programme for the retail staff was launched with the objective of improving productivity and keeping staff up-to-date on the extant requirements. The drive to significantly excel the Retail banking business was recognized by the customers and industry alike, with the Bank being awarded Best Domestic Retail Bank at the The Banker Middle East Industry Award 2011 and Best Savings Account Award at the 2011 Banker Middle East and the brokerage subsidiary of the Bank. In 2011, the Bank attained third ranking on the league tables for syndications and wholesale finance in GCC. Several landmark deals were successfully lead arranged by the unit such as General Holding Corporation, Emirates steel and UAE Exchange which led to an increase in the Bank s market share of syndications and structured finance to over 3.5% of the total UAE deals. The unit led a successful closure of the Bank s five year bond issuance (Reg S) for USD 400 million. The bonds were issued under the Bank s USD 3 billion EMTN program listed in Luxembourg. Amid a backdrop of turbulent market conditions, the bond issuance received encouraging response from the investor community. During fiscal 2011, Treasury and Investment unit maintained adequate liquidity within the established parameters and guidelines and continued to enhance its propriety investments in high quality local bonds hence optimising returns. In keeping with the commitment to expand its services, the Bank introduced a client friendly foreign exchange trading platform called T 360, which should facilitate booking of customer deals and enhance business volumes. Lackadaisical investor sentiment and dwindling trading volumes at the local bourses led the Group to further rationalize the brokerage business so as to contain losses without impacting on product offerings and service delivery. ratings as at the end of 2011 were: Fitch: 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 Awards and Recognition The consistent and sustainable financial and non-financial performance of the UNB Group was well recognized by the industry leading to the Bank being conferred with several awards and recognition in 2011, a fitting tribute to each of the stakeholders whose concerted efforts and support have made these accomplishments possible. The prominent awards and recognition won by the Bank in 2011 are listed below; Best Domestic Retail Bank at the The Banker Middle East Industry Award 2011 Best Savings Account Award for UNB s Everyday Interest Saving account at the 2011 Banker Middle East Product Awards Golden Award for Excellence and Quality in the Arab World from the Arab Administrative Development Organization, member of the Arab League and Tatweej Academy Product Awards. Overseas Operations Islamic Banking As part of the strategy to grow its franchise selectively Best Savings Account Award for Everyday Interest Saving account at the 2011 Banker Middle East Product Awards. Al Wifaq Finance Company, a majority owned subsidiary of the Bank along with the Islamic Banking unit within the Bank complement each other to provide Shari a compliant products and services. During the year, Al Wifaq Finance Company expanded its branch network to three branches in the UAE with physical presence in Abu Dhabi, Al Ain and Sharjah. The Islamic financing and Islamic deposits showed a deceleration in 2011, albeit underlying trends indicate ongoing growth potential in the related business in identified markets, the Bank in 2012 would commence operations in Kuwait through a branch which would provide commercial banking products and services. This would mark the third GCC country where the Bank would be present in addition to its presence in Egypt and China, outside the GCC. The Arab Spring has led to political instability in Egypt as the country transitions to a more participatory political process. The long term prospect for the Egyptian economy remains intact, although in the near term, the outlook continues to be challenging. In view of His Highness Sheikh Majid bin Mohammed bin Rashid Al Maktoum, presenting the Golden Award for Excellence and Quality in the Arab World to UNB

14 2011 Brand Leadership Award at the Global Awards for Brand Excellence Event CEO Middle East Award 2010 Dream Company to Work For by 2011 Asian Leadership Awards UNB participated in the Earth Hour 2011, World Environment Day. initiatives mentioned in this Review is by no means exhaustive and only reiterates the Group s commitment to serve the society at large in a responsible manner. UNB awarded Dream Company to Work For by 2011 Asian Leadership Awards. Superbrands for 2012 UNB is the first commercial bank in the world to be certified by M/s Lloyd s Register Quality Assurance Ltd. to the Integrated Management System (IMS). UNB awarded 2011 Brand Leadership Award at the Global Awards for Brand Excellence Event. Prestigious People s Choice Stevie Award for Favorite Companies in the Financial Services Category and a Stevie distinguished Honoree in two categories namely, Company of the year and Executive of the Year under Financial services category Safest Bank Award in Emerging Markets by Global Finance Recognized in the World Finance 100 list for 2011 Continuing on its journey of excellence, UNB in 2011 became the first commercial bank in the world to be certified by M/s Lloyd s Register Quality Assurance Ltd. to the Integrated Management System (IMS) comprising of three standards, ISO Quality Management Systems (QMS), ISO Environmental Management Systems (EMS) and OHSAS Occupational Health & Safety Management Systems (OHSAS). Corporate Social Responsibility The Group is actively engaged in a range of initiatives which it believes would benefit the society and community in which it operates. Some of the noteworthy Corporate Social Responsibility (CSR) initiatives undertaken in 2011 included - participation in Paperless Day, Earth Hour 2011, World Environment Day, Breast Cancer Awareness campaign, support to the Future Centre - a centre for children with special needs, participation in Al Noor Fun fair to support children with special needs and sponsorship of the Small World Charity Event through which donations collected are provided to the less fortunate children around the world. The list of CSR UNB participated in Al Noor Fun fair to support children with special needs. Appreciations 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 the Board of Directors for its direction and stewardship and the various Government agencies for their guidance and support. Mohammad Nasr Abdeen Chief Executive Officer UNB receiving the IMS certification from LRQA. UNB awarded Superbrand status for

15 INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF UNION NATIONAL BANK - PUBLIC JOINT STOCK COMPANY Report on the financial statements We have audited the accompanying consolidated financial statements of Union National Bank Public Joint Stock Company ( the Bank ) and its subsidiaries ( the Group ), which comprise the consolidated statement of financial position as at, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the applicable provisions of the articles of association of the Bank and the UAE Commercial Companies Law of 1984 (as amended), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at, 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 UAE 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 of the Chairman s Report relating to these consolidated financial statements are consistent with the books of account. We further report that 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 UAE 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 Group or on its financial position. Signed by Richard Mitchell Partner Ernst & Young Registration No February 2012 Abu Dhabi CONSOLIDATED STATEMENT OF INCOME for the year ended Note US$ 000 US$ 000 Interest income 4 3,420,665 3,342, , ,087 Interest expense 5 (1,352,341) (1,699,168) (368,184) (462,610) Net interest income 2,068,324 1,643, , ,477 Income from Islamic financing 434, , , ,619 Depositors share of profit Islamic financing (113,864) (135,697) (31,001) (36,944) Net income from Islamic financing 321, ,338 87,409 83,675 Net interest income and income from Islamic financing 2,389,379 1,950, , ,152 Net fee and commission income 6 466, , , ,414 Net gain from dealing in foreign currencies 41,262 38,441 11,234 10,466 Net (loss)/gain on trading financial instruments (6,627) 3,022 (1,804) 823 Net (loss)/gain on non-trading financial instruments (1,678) 13,364 (457) 3,638 Net loss on investment properties 15 (97,515) (86,662) (26,549) (23,594) Other operating income 7 46,261 75,924 12,595 20,671 Operating income 2,837,805 2,554, , ,570 Staff costs 8 (470,564) (439,442) (128,114) (119,641) Depreciation 17 (67,691) (69,948) (18,430) (19,044) Other operating expenses 9 (190,453) (205,585) (51,852) (55,972) Operating expenses (728,708) (714,975) (198,396) (194,657) Operating profit 2,109,097 1,839, , ,913 Impairment loss on financial assets (net) 10 (593,624) (482,366) (161,618) (131,329) Profit before income tax 1,515,473 1,357, , ,584 Income tax expense 28 (15,108) (7,439) (4,113) (2,025) Profit for the year 1,500,365 1,350, , ,559 Attributable to: Equity holders of the Bank 1,507,129 1,358, , ,994 Non-controlling interest (6,764) (8,946) (1,841) (2,435) Total 1,500,365 1,350, , ,559 Basic and diluted earnings per share 33 AED 0.56 AED 0.50 US$ 0.15 US$ 0.14 The attached notes 1 to 34 form an integral part of these consolidated financial statements

16 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended US$ 000 US$ 000 Profit for the year 1,500,365 1,350, , ,559 Other comprehensive income: Available-for-sale investments: - net fair value gain 19,565 94,958 5,327 25,853 - net fair value gain transferred to consolidated statement of income on disposal (4,600) (7,567) (1,252) (2,060) - amount transferred to consolidated statement of income in respect of impairment losses - (519) - (141) 14,965 86,872 4,075 23,652 Exchange difference on translation of foreign operations (27,184) (49,561) (7,401) (13,494) Zakat - (2,680) - (730) Directors remuneration (4,329) (1,400) (1,179) (381) (16,548) 33,231 (4,505) 9,047 Total comprehensive income for the year 1,483,817 1,383, , ,606 Total comprehensive income attributable to: Equity holders of the Bank 1,490,777 1,396, , ,294 Non-controlling interest (6,960) (13,547) (1,895) (3,688) Total 1,483,817 1,383, , ,606 The attached notes 1 to 34 form an integral part of these consolidated financial statements. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at Note US$ 000 US$ 000 Assets Cash and balances with central banks 11 1,822,688 5,972, ,240 1,626,157 Due from banks 12 14,465,023 11,364,057 3,938,204 3,093,944 Loans and advances 13 57,581,311 56,573,056 15,676,915 15,402,411 Investments 14 5,037,981 4,333,051 1,371,626 1,179,704 Investment properties 15 1,422,602 1,462, , ,283 Other assets 16 1,541,088 1,458, , ,045 Property and equipment , ,204 97,512 99,702 Goodwill , ,277 65,327 67,867 Total Assets 82,468,800 81,779,759 22,452,709 22,265,113 Liabilities and Equity Liabilities Customers deposits 19 60,314,700 57,941,257 16,421,100 15,774,913 Due to banks 20 2,598,572 3,228, , ,033 Medium term borrowing 21 1,469,200 3,673, ,000 1,000,000 Subordinated loan 22 3,236,134 3,236, , ,060 Other liabilities 23 1,782,353 1,769, , ,836 Total Liabilities 69,400,959 69,848,860 18,894,898 19,016,842 Equity Share capital 24 2,495,625 2,268, , ,683 Legal reserve 25 2,317,863 2,317, , ,941 General reserve 19,598 18,704 5,336 5,092 Retained earnings 6,096,380 5,168,605 1,659,782 1,407,189 Foreign currency translation reserve (55,286) (28,310) (15,052) (7,708) Cumulative changes in fair value 50,940 36,024 13,869 9,808 Tier 1 capital notes 26 2,000,000 2,000, , ,514 Equity attributable to equity holders of the Bank 12,925,120 11,781,218 3,518,954 3,207,519 Non-controlling interest 142, ,681 38,857 40,752 Total Equity 13,067,841 11,930,899 3,557,811 3,248,271 Total Liabilities and Equity 82,468,800 81,779,759 22,452,709 22,265,113 These consolidated financial statements were approved and authorised for issue by the Board of Directors on 06 February 2012 and signed on their behalf by: Nahayan Mabarak Al Nahayan Chairman The attached notes 1 to 34 form an integral part of these consolidated financial statements. Mohammad Nasr Abdeen Chief Executive Officer 18 19

17 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended Attributable to equity holders of the Bank Foreign currency Cumulative Tier 1 Non - Share Legal General Retained translation changes in capital controlling Total capital reserve reserve earnings reserve fair value notes Total interest equity 1 January ,268,750 2,317,445 18,704 5,168,605 (28,310) 36,024 2,000,000 11,781, ,681 11,930,899 Cash dividend (Note 24) (226,875) (226,875) - (226,875) Bonus issue (Note 24) 226, (226,875) Transfer to legal reserve (Note 25) (418) Transfer to general reserve (894) Interest on Tier 1 capital notes (120,000) (120,000) - (120,000) Total comprehensive income for the year ,502,837 (26,976) 14,916-1,490,777 (6,960) 1,483,817 2,495,625 2,317,863 19,598 6,096,380 (55,286) 50,940 2,000,000 12,925, ,721 13,067,841 1 January ,062,500 2,316,599 18,704 4,139,467 17,889 (50,765) 2,000,000 10,504, ,228 10,667,622 Bonus issue (Note 24) 206, (206,250) Transfer to legal reserve (Note 25) (846) Interest on Tier 1 capital notes (120,000) (120,000) - (120,000) Total comprehensive income for the year ,356,234 (46,199) 86,789-1,396,824 (13,547) 1,383, December ,268,750 2,317,445 18,704 5,168,605 (28,310) 36,024 2,000,000 11,781, ,681 11,930,899 The attached notes 1 to 34 form an integral part of these consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended Note OPERATING ACTIVITIES Profit for the year before income tax 1,515,473 1,357,485 Adjustments for: Interest on subordinated loan 131, ,247 Depreciation 67,691 69,948 Impairment loss on financial assets (net) 593, ,366 Net loss/(gain) on non-trading investments 1,678 (13,364) Net loss on investment properties 97,515 86,662 Operating profit before changes in operating assets and liabilities 2,407,228 2,114,344 Directors remuneration paid (3,929) (2,995) Income tax paid (15,251) (11,515) Zakat paid - (2,680) 2,388,048 2,097,154 Changes in: Trading investments 67,877 (141,674) Due from banks maturing after three months 642,194 (3,549,041) Loans and advances (1,601,880) (6,295,490) Other assets (107,062) 62,518 Customers deposits 2,373,443 6,661,848 Due to banks maturing after three months (765,866) 824,052 Other liabilities 85,198 (287,786) Translation adjustments (17,568) (37,344) Net cash from / (used in) operating activities 3,064,384 (665,763) INVESTING ACTIVITIES Purchase of property and equipment (net) (62,516) (64,907) Proceeds from sale of property and equipment 2,867 1,609 (Purchase) / sale of non-trading investments (net) (698,175) 221,541 Net payments for investment properties (104,297) (132,496) Net cash (used in) / from investing activities (862,121) 25,747 FINANCING ACTIVITIES Dividend paid to equity holders (226,875) - Issue of Euro medium term note 1,469,200 - Interest on Tier 1 capital notes (120,000) (120,000) Interest on subordinated loan (131,247) (131,247) Repayment of medium term borrowing (3,673,000) (1,601,772) Net cash used in financing activities (2,681,922) (1,853,019) NET DECREASE IN CASH AND CASH EQUIVALENTS (479,659) (2,493,035) Cash and cash equivalents at beginning of the year 10,911,549 13,404,584 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 29 10,431,890 10,911,549 The attached notes 1 to 34 form an integral part of these consolidated financial statements

18 1 LEGAL STATUS AND PRINCIPAL ACTIVITIES (the Bank ) was incorporated in the Emirate of Abu Dhabi on 29 November 1982 as a Public Joint Stock Company with limited liability under an Emiri Decree and in accordance with UAE Federal Law No (8) of The Bank carries on commercial and investment banking activities through its fifty five branches in the United Arab Emirates, a branch in the Qatar Financial Centre, the State of Qatar and a representative office in the People s Republic of China. The registered address of the Bank is Post Box No Abu Dhabi, United Arab Emirates. The Government of Abu Dhabi, who holds an aggregate of 50% of the Bank s share capital through Abu Dhabi Investment Council, is the ultimate controlling party of the Group. The consolidated financial statements incorporate the financial statements of the Bank and its subsidiaries (the Subsidiaries ) collectively referred to as the Group. The main subsidiaries of the Bank are as follows: Proportion of ownership Year of Country of Name interest incorporation incorporation Principal activities Union Brokerage LLC ( UBC ) 99.0% 2002 U.A.E. Brokerage activities for customers trading in shares and securities on Dubai Financial Market and Abu Dhabi Securities Exchange. Al Wifaq Finance 80.0% 2006 U.A.E. Finance company providing Company PrJSC ( AWFC ) Shari a compliant Islamic finance products. Union National Bank Egypt 94.9% 1981 Egypt Commercial banking related ( UNB-E ), an Egyptian Joint activities through twenty eight Stock Company branches in Egypt (Refer Note 18). 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 24 (Amendment): Related Party Disclosures The amended standard clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The amended standard introduces a partial exemption of disclosure requirements for government related entities. IAS 32 (Amendment): Financial Instruments: Presentation Classification of Rights Issues The amendment to IAS 32 amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity s non-derivative equity instruments, or to acquire a fixed number of the entity s own equity instruments for a fixed amount in any currency. IFRS 7 (Amendment): Financial Instruments - Disclosures The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. IFRIC 14 (Amendment): Prepayments of a minimum funding requirement The amendment to IFRIC 14 provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The Group also adopted amendments to IAS 1: Presentation of Financial Statements, IAS 27: Consolidated and Separate Financial Statements and IAS 34: Interim Financial Statements made by the International Accounting Standards Board as part of the annual improvements project. These amendments were made primarily with a view to remove inconsistencies and clarifying wordings. The amendments did not have any impact on the consolidated financial position and performance of the Group during the year. (a) Basis of preparation 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRSs ) and the requirements of the UAE Federal Law No. 8 of 1984 (as amended). The Islamic banking related activities are in accordance with the Fatwa and Sharia h Supervisory Board rulings. The accounting policies adopted are consistent with those of the previous financial year except as noted below. During the year the Group has adopted the following standards / interpretations effective for the annual period beginning on or after 1 January 2011: IAS 24 (Amendment) - Related Party Disclosures IAS 32 (Amendment) - Financial Instruments: Presentation Classification of Rights Issues IFRIC 14 (Amendment) - Prepayments of a minimum funding requirement IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments IFRS 7 (Amendment) - Financial Instruments - Disclosures However the amendments did not have any impact on the accounting policy, consolidated financial position and performance of the Group during the year. A brief description of the change is also provided below: The consolidated financial statements are prepared under the historical cost basis except for certain financial instruments and investment properties, which are carried at fair value, and collateral pending sale, which is stated at the lower of the carrying value of the loan settled and the current fair value of the assets in accordance with International Financial Reporting Standards. The consolidated financial statements of the Group are presented in the United Arab Emirates Dirham ( AED ), which is also the functional currency of the Bank, rounded to the nearest thousand, except as indicated. The US Dollar amounts, which are presented in these consolidated financial statements have been translated from AED at an exchange rate of US$ 1 = UAE Dirham and have been included for presentation purposes only. (b) Basis of consolidation A subsidiary is an entity over which the Bank exercises control, directly or indirectly, to govern the financial and operating policies so as to obtain benefits from its activities. These consolidated financial statements include the operations of the subsidiaries over which the Bank has control. A subsidiary is fully consolidated from the date on which control is transferred to the Bank until the date that control ceases. The intra-group transactions, balances and unrealised gains on transactions between the Bank and the Subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the assets transferred. Accounting policies of the Subsidiaries have been aligned, where necessary, to ensure consistency with the policies adopted by the Bank. The financial statements of the subsidiaries are prepared for the same reporting year as of the Bank