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12 H.H. Sheikh Nahayan Mabarak Al Nahayan CHAIRMAN H.E. Mohamed Dhaen Al Hamli VICE CHAIRMAN Mr. Ahmed Jassim Al Zaabi 1

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14 12 Mushriff

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16 Mussafah Abu Hail Dubai Sheikh Zayed Road Fujairah Sharjah

17 On behalf of the Board of Directors, I am pleased to present to you the 2016 consolidated financial statements for the Union National Bank (UNB) Group. In 2016, the UNB Group continued to pursue its strategy of growing its business in a selective and sustainable manner. Global Economy The global growth slowed in 2016 due to the subdued growth in some of the major economies. The key drivers for slower growth were weak business investment environment, increased political risks due to rising protectionism trends, efforts to rebalance overcapacity in certain markets, lower commodity prices and overall soft demand across many major economies. Growth is expected to pick up slightly from 2017 as the global economy continues to be supported by recovery in developed economies driven by accommodative monetary policy, improvement in commodity prices and stronger economic activity. Gulf Cooperation Council (GCC) and the UAE The GCC region continued to face challenging economic environment due to lower oil prices in Many countries in the GCC have initiated various measures to bridge the deficits including fiscal consolidation, subsidy reforms, introducing new forms of taxation, etc. Strategic plans have been announced for diversification of economy and reduce dependence on oil related revenues. In 2016, banking sector witnessed strain on liquidity, lower margins and region wide consolidation efforts to make bigger regional players to compete effectively at regional and international level. Recent oil price trends reflect the production cuts mandated by OPEC and non OPEC countries to stabilize the oil prices at more sustainable levels. Higher oil revenues should bolster the domestic banking systems, which in turn should be growth supportive. Among the GCC countries, the UAE economy is probably the best placed due to its diverse economic base with lesser reliance on oil revenues. Nonoil related growth should improve due to the infrastructure spend ahead of EXPO The UAE banking industry should remain sound as banks continue to maintain strong capital positions, hold adequate liquidity and asset quality metrics improve. UNB Group The UNB Group reported a net profit for fiscal 2016 of AED 1,583 million, lower by 15% compared to the preceding year. The operating income of AED 3,487 million for 2016, registered a decline of 7% compared to the previous year. The operating income as also the operating profit were impacted adversely mainly due to the market conditions that have resulted in higher cost of deposits and lower net interest margins for the local banking sector, including UNB. However, the Group s continued efforts to increase its share of nonfunded business led to an increase in the related revenues, which is noteworthy. The net interest income at AED 2,630 million for the year ended 31 December 2016, decreased by 10% over prior year for the reasons mentioned earlier. The net interest margin for 2016 was lower by 37 bps at 2.66% due to the higher cost of deposits and interestsuspension on the SME portfolio. The noninterest income positively uptrended, higher by 6% in 2016 to AED 858 million largely due to increase in gain on dealing in foreign currencies & derivatives, net investment income and fair value gain on investment properties. The consolidated assets of the Group as at 31 December 2016 were AED billion, registering a growth of 2% compared to the prior yearend. The loans and advances increased by 8% in 2016 to AED 73.7 billion as at 31 December 2016, with investments growing by 7% to AED 15.8 billion as at 31 December The customers deposits increased by 4% during 2016 and were at AED 77.5 billion at the yearend. In the second half of the year, the Bank successfully issued US$ 600 million of 5year senior unsecured bonds under its Euro Medium Term Note program. The issuance received a strong demand from international, regional and local investors. The liquidity position of the Group has been satisfactorily managed and remained sound, with the credit to deposit ratio being 95.1% as at 31 December The liquid assets including investments constituted 24.9% of the total assets as at 31 December The advances to stable resources ratio calculated as per the Central Bank of the UAE guidelines was circa 85% as at 31 December 2016, well within the regulatory norms. The Bank, also very comfortably met other 6

18 regulatory liquidity requirements, like the Eligible Liquid Assets ratio and the Liquidity Coverage ratio. The ratio of nonperforming loans to gross loans and advances improved to 3.4% (31 December 2015: 3.5%) with the loan loss coverage of 108.3% as at 31 December 2016 (31 December 2015: 107.7%). The Group has prudently been managing the credit risk recognizing provisions, in line with the Central Bank of the UAE regulations and in accordance with the International Financial Reporting Standards. At the yearend, the general provision represented 1.60% of the credit risk weighted assets, ahead of the requirements set by the regulator. Operating expenses in 2016 increased by 9% to AED 1,133 million and continue to be tightly managed. The increase in expenses is to support higher business activity levels along with investments in infrastructure and technology upgrades. The return on average equity, excluding the Tier I capital notes of 9.9% for 2016 and the return on average assets of 1.5% for 2016, declined due to lower profits. The capital position remained strong with the Overall capital adequacy ratio and Tier 1 capital adequacy ratio being 18.9% and 17.8% respectively as at the year end. These ratios remain significantly above the minimum requirements set by the Central Bank of the UAE of 12% for the overall capital adequacy ratio and 8% for the Tier 1 capital adequacy ratio. Dividend distribution The Board of Directors is pleased to recommend to the shareholders of the Bank a distribution of cash dividend of 20% (AED 0.20 per share) amounting in aggregate to AED 550 million. Accolades and recognition During 2016, the Bank was the recipient of various prestigious industry awards. Listed below are only some of the key recognitions conferred on the Bank during the course of the year. Union National Bank won six awards at the 2016 International Business Awards (Stevies). UNB won the Best Regional Sharia Fund Manager Award at Global Investor/ISF 2016 Middle East Awards. UNB received the The Majestic Falcon Award for Quality and Excellence presented by the Otherways Association. UNB has won the prestigious 2016 International Diamond Prize for Quality choice presented by the European Society for Quality Research. UNB CEO received the Best Business Leader Award & UNB received Customer Delight Award from MENAA UNB CEO won The International Socrates Award in the Finance & Banking category. UNB was conferred with the GCC Best Employer Brand award 2016 hosted by the Employer Branding Institute. 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. UNB won the Best Enterprise award from the Europe Business Assembly (EBA). Additionally, UNB CEO won the Manager of the Year award from EBA. Union National Bank won the Superbrand award 2016 for the 6th consecutive year. Union National Bank has been recognized with the ISO and is now certified for the Business Continuity Management Systems by LRQA. UNB received four product awards Best Customer Deposit Scheme, Best Consumer Insurance Product, Best Savings Account and Best Current Account Product at the 2016 Banker Middle East Product Awards. UNB was recognized at the Forbes Middles East event for being amongst the Top Companies in the Arab World

19 I am pleased to present the 2016 Review Report for Union National Bank (UNB) Group. Amid a backdrop of demanding market conditions and continued uncertain global environment, the UNB Group has remained focused on its strategy of developing its franchise and business sustainably. The Group has continued to maintain financial prudence and discipline, with UNB consistently being included by the Global Finance, an international Finance Journal, among the 50 Safest Banks in Emerging Markets. The Bank s ranking improved by five notches from 22nd in 2015 to 17th rank in 2016, among the 50 Safest Banks in Emerging Markets in The Gulf Cooperation Countries (GCC), remain attentive to diversify their economies to mitigate the impact of lower oil price, whilst also undertaking other structural changes. The UAE banking sector was impacted by lower oil revenues resulting in tighter liquidity, higher cost of deposits and lower margins which has somewhat impacted the profitability of the UAE banking sector. In 2017, the market conditions are expected to improve as firmer oil prices should positively impact the liquidity conditions in the market. The strategy of the Group remains to enhance the banking experience for our customers to achieve our vision to be the best in class in banking industry in the UAE. Financial Review The net profit for the year was AED 1,583 million, lower by 15% over the previous year mainly on account of lower operating income impacted by a decline in net interest margin due to higher cost of deposits due to tighter liquidity conditions in the market. The operating profit for 2016 was AED 2,354 million, a decrease of 13% compared to The operating income for 2016 was AED 3,487 million, lower by 7% compared to In line with the trends witnessed across the local banking sector, the higher cost of deposits impacted negatively both the operating income and operating profit for the UNB Group. The net interest income and net income from Islamic financing for 2016 was lower by 10% at AED 2,630 million mainly due to reduction in net interest margin and interest suspension on the impaired SME portfolio. In 2016, the net interest margin decreased by 37 bps to 2.66%. Considerable focus and effort to diversify the revenue streams led to the noninterest income increasing in 2016 by 6% to AED 858 million. The increase in noninterest income for 2016 was mainly due to higher gain on dealing in foreign currencies & derivatives, net investment income and fair value gain on investment properties. Following, a 7% growth in loans and advances in 2015, the loan book increased by 8% in 2016 to AED 73.7 billion as at 31 December Also, the investment portfolio increased in 2016 by 7% to AED 15.8 billion as at 31 December 2016, mainly to comply with the liquidity regulations issued by the Central bank of the UAE and to enhance the balance sheet returns. Liquidity was well managed throughout the year, with the Bank comfortably complying with the regulatory requirements for Advances to Stable Resources ratio and the Eligible Liquid Assets ratio, as set by the Central Bank of the UAE. The consolidated assets of the UNB Group increased by 2% in 2016 to AED billion as at 31 December Operating expenses increased by 9% in 2016 to AED 1,133 million. The increase in expenses was to support higher business activity levels along with investments in infrastructure and technology upgrades. The cost to income ratio for 2016 was 32.5% and remains amongst the best locally. 8

20 Customers Deposits AED Billion As of 31st December of each year The ratio of nonperforming loans and advances to gross loans and advances was 3.4% as at 31 December 2016 (31 December 2015: 3.5%) with loan loss coverage of 108.3% (31 December 2015: 107.7%). The impairment charge reduced in 2016 by 10% to AED 702 million due to write backs and stable provisions. Included in the impairment charge stated above are additional general provisions recognized during the year with the cumulative collective impairment representing 1.6% of the total credit risk weighted assets, ahead of the requirements set by the regulators. The return on average equity, excluding Tier 1 capital notes was 9.9% for 2016 (2015: 12.1%) and the return on average assets was 1.5% for 2016 (2015: 1.9%). The earnings per share for 2016 was AED 0.55 (2015: AED 0.65), lower by 15% compared to The capital ratios remained strong, with the Overall Basel II capital adequacy ratio being 18.9% as at 31 December 2016 (31 December 2015: 19.4%) and the Tier I capital adequacy ratio being 17.8% as at 31 December 2016 (31 December 2015: 18.3%). Both the ratios remained significantly above the respective regulatory thresholds of 12% for overall capital adequacy and 8% for Tier 1 capital adequacy. The Board of Directors has proposed a cash dividend of 20% (AED 0.20 per share) of the paidup share capital of the Bank subject to necessary consents. The dividend payout ratio for 2016 was circa 35% (2015: circa 30%). Corporate Banking Corporate banking is a key segment and contributed 43% of the UNB Group s net profit in The net profit for the Corporate banking segment at AED 673 million was lower by Cost to Income Ratio 10% over preceding year due to a reduction in net interest income mainly driven by higher cost of deposits. During 2016, the noninterest income improved by 8% on the back of higher business volumes. Assets registered a healthy growth of 10% in 2016 to AED 34.5 billion as at 31 December 2016 while liabilities increased by 9% over previous yearend. The Bank launched the improved electronic banking platform which offers customized cash management solutions and serves as one stop corporate service centre to enhance customer experience. Consumer Banking Consumer banking segment remained the single highest contributor in terms of operating income with a contribution of 36% or AED 1,250 million in The net profit for Consumer banking was AED 237 million in 2016, a decrease of 26% due to reduction in net interest income on account of higher cost of deposits and lower revenues from SME business. The Consumer banking assets registered a growth of 6% in 2016 to AED 16.0 billion as at 31 December 2016 while liabilities increased by 7% during the year. Net Interest Income & Income from Islamic Financing AED Million 9

21 As of 31st December of each year Total Equity AED Billion Islamic Banking In 2016, the net profit from Islamic banking reduced by 6% to AED 173 million, mainly due to lower net income from Islamic financing on account of higher funding costs partly offset by higher fair value gain on investment properties. The Islamic banking assets grew by 5% in 2016 to AED 8.2 billion as at 31 December Islamic banking offers end to end product offerings through wide range of Shari a compliant Islamic products and services to meet customer requirements. Islamic banking continued to support development of various UAE based projects and related businesses through strategic relations with reputed business players in the market. Treasury and Investment Banking The operating income for the segment reduced slightly by 4% in 2016 over the preceding year. The operating profit in 2016 was lower by 5% at AED 361 million mainly due to lower net interest income by 21% on account of increased funding cost partly offset by an increase in other operating income by 38% due to increase in gain on foreign currencies & derivatives and net investment income. The segmental assets decreased by 5% to AED 32.2 billion as at 31 December As part of proactive balance sheet management, the portfolio of high quality fixed income investments was further aligned to the impending regulatory requirements while registering growth in return on investments. Segmental liabilities were lower by 11% to AED 16.9 billion as at 31 December In 2016, a series of innovative products and campaigns were launched targeting customers across various segments. Products like Interest in Advance Deposit and Payroll Cards were launched to offer enhanced value proposition to the customers. Campaigns and promotions like Gold Rush Campaign were launched to acquire and onboard new customers. Innovative product launches included product categories like personal loans, auto loans and mortgage loans. Consumer banking continued its technology focus and launched a Mobile Banking application and a new and revamped website. Customer focus and satisfaction has always been a top priority for the UNB Group and towards this an enhanced and more user friendly Interactive Voice Response was launched for our Call Centre. Accolades conferred on the Bank included 2016 Banker s Middle East Product Awards in four categories; Best Customer Deposit Scheme, Best Consumer Insurance Product, Best Savings Account and Best Current Account. Consumer banking also won the Stevie Award in the category of Product Development Team of the Year. During the year, the Bank participated in 18 new syndicated deals and was the 4th largest UAE based bank in the Middle East Syndications League Tables. The Bank coarranged several large deals like Hassyan Clean Coal, Etihad Air, Oman Electricity Company and acted as mandated lead arranger for several other important deals. The Bank, also participated in several landmark bilateral deals, in addition to actively buying secondary market deals and risk participating in trade related unfunded transactions globally and regionally. The year also saw the successful issuance of US$ 600 million 5year Senior Unsecured Notes at a highly competitive pricing, under the Bank s established US$ 3 billion EMTN program. Private Banking and Wealth Management In 2016, the profit for Private banking and Wealth management reduced considerably mainly due to increased costs of deposits. The assets for the segment grew by 11% to AED 7.0 billion as at 31 December 2016 while the segmental liabilities were lower by 5% at AED 7.7 billion. Private banking and Wealth management expanded its market share by growing the existing clientele portfolio among the UAE, GCC & Mena Region as well as expanding its physical presence in the UAE by introducing its new office in Dubai. Awards conferred included being the recipient of the Best regional Shariah Compliant Fund of the year by Global Investor/ ISF at the 2016 Middle East Capital Market Summit. 10

22 Recognition and Corporate Social Responsibility The Bank has been the recipient of various awards and accolades over the last many years. In addition to the awards mentioned earlier, listed below are some of the key recognitions received by the Bank during 2016: Systems and Improvements In 2016, the Bank continued to upgrade its Information Technology infrastructure and network environment including installation of latest Superdome which is the Bank s main processing engine to support growing business needs and to ensure highest level of Information Technology services and product delivery. The Bank has also upgraded its Core Banking solution bringing host of additional features to enable the Bank to launch new product and services in lesser time and to enter new markets. Union National Bank won six awards at the 2016 International Business Awards (Stevies) namely Executive of the Year Financial Services for UNB (Gold Stevie Winner), Health, Safety & Environment Program of the Year in the Middle East and Africa (Gold Stevie Winner), Customer Service Team of the Year for Customer Care Unit (Silver Stevie Winner), Company of the Year, Financial Services (Bronze Stevie Winner), Product Development/Management Department or Team of the Year for Retail Products (Bronze Stevie Winner) and Corporate Social Responsibility Program of the Year in the Middle East and Africa (Bronze Stevie Winner). Additionally, some of the other enhancements included the launch of Mobile Banking for retail customers and new state of the art website, introduction of mobile wallet, implementation of advanced credit card fraud detection system and Escrow Accounts system as per RERA requirements. During the year, the Bank continued to focus on strengthening its Cyber Security and Incident Management program in response to the growing cyber threats, particularly targeting financial institutions across the region. The Bank achieved PCI DSS compliance certification for 4th consecutive year reaffirming its commitment to Information Security and to protect valuable customer data. Further, the Bank continued compliance with both internal and external security & control requirements including ISO20000 Service Management System and ISO27001 Information Security Management system. The Bank implemented the National Electronics Security Authority UAE Cyber Security Risk Management framework and also implemented the biometric customer authentication utilizing the features of Emirates ID. Union National Bank won the acclaimed Superbrand award This is the 6th consecutive year that UNB has achieved this distinction. Ratings The Bank has consistent ratings from all the rating agencies that rate the Bank. The ratings as at the end of 2016 were: Moody s: Bank deposits: A1 / P1; Fitch: A+ Longterm IDR and F1 Shortterm IDR; Capital Intelligence: A+ Foreign Currency Longterm and A1 Foreign Currency Shortterm 11

23 UNB was recognized at the Forbes Middles East event for being amongst the Top Companies in the Arab World 2016 World Confederation of Businesses awarded Union National Bank, with the BIZZ The beyond Success Trophy, and UNB CEO Mr. Mohammad Nasr Abdeen with the World Leader Businessperson certificate for being a successful leader at The BIZZ Europe 2016 Award ceremony. UNB CEO received the Best Business Leader Award & UNB received Customer Delight Award from MENAA 2016 UNB received The Majestic Falcon Award for Quality and Excellence presented by the Other ways Association. Union National Bank was recognized with the ISO and is now certified for the Business Continuity Management Systems by LRQA. UNB won the prestigious 2016 International Diamond Prize for Quality choice presented by the European Society for Quality Research. UNB won the Best Enterprise award from the Europe Business Assembly. Additionally, UNB CEO won the Manager of the Year award from EBA. 12

24 UNB CEO won The International Socrates Award in the Finance & Banking category from the Europe Business Assembly. UNB has consistently supported Corporate Social Responsibility (CSR) initiatives across various categories including education, health and general betterment of the society. Several workplace related initiatives were also undertaken to drive employee awareness and participation, ensuring that employees play a crucial role as a responsible citizen in the society. UNB received the Dubai Chamber CSR Label for 2016 in its maiden attempt. Conclusion 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. Sheikh Nahayan Mabarak Al Nahayan, the Chairman and the Board of Directors for its direction and stewardship and the various Government agencies for their guidance and support. 13

25 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December 2016 Introduction Prudent corporate governance practice in accordance with high ethical standards is an integral part of the Union National Bank Group s (the Bank) corporate identity. The Bank s governance guidelines are built upon the values of ethics and integrity through responsible and valuedriven management systems and control. The principal elements of the Bank s governance principles are: good relationship with the shareholders; professional cooperation between the management and the board; fair performance management process and prudent risk and compliance framework. The Bank s governance standards adopt international best practices and the governance operations are compliant with the applicable provisions of the Union Law 10 of 1980, federal law 2 of 2015 and the extant regulations of the Central Bank of the UAE, as well as regulatory requirements in other operating jurisdictions. The Board and the s enior management are committed to prudent and entrepreneurial management to ensure sustainable longterm success of the Bank. The Bank s corporate governance practices aim at maintaining good operational performance and financial success supported through judicious internal control system, transparent disclosures and accountability in decision making processes. The Bank s governance structure facilitates effective implementation of its corporate governance standards by adopting an enterprisewide integrated governanceriskcompliance framework and ensures responsible management and control of the Bank and its subsidiaries (UNB group), with a focus on sustainable value creation. The Bank s governance culture is built on the principles of responsibility, accountability, transparency, sustainability and quality. The Bank s governance principles are delineated in the corporate standards manual which in essence, sets the tone and standards for the organization s business practices. The Board and the senior management believe and recognize that good corporate governance is the principal attribute to promote and sustain the Bank s objective of becoming the first and best bank of choice for all stakeholders. The Bank s governance system underpins: prudent decision making on the basis of adequate and appropriate information avoiding conflict of interest, effective communication between the Board and the management, fair compensation policy with sustainable long term focus, strong relationship with the shareholders, corporate social responsibility, and adherence to the applicable laws and regulations in all its operating jurisdictions. Consistent with its disclosure policy the Bank publishes financial and nonfinancial information under different sections of the annual report for the benefit of the shareholders and other stakeholders, in line with the Basel Committee disclosure requirements mandated by the Central Bank of the UAE and in accordance with the International Financial Reporting Standards. The Bank has been conferred with leading international awards and accolades in recognition of its governance culture, business practices, quality standards and brand image which are mentioned elsewhere in the Annual Report. 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 objectives, approving medium and longterm business strategies, ensuring robust control functions and reviewing the financial and nonfinancial performance of the Bank and senior management on an ongoing basis. In accordance with the provisions of the Articles of Association, the overall supervision and control 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 Ordinary General Meeting for a term of three years and are eligible for reelection upon completion of their term. As at the end of December 2016, UNB s Board comprised of nine members. Eight members were elected by the shareholders in the annual general meeting held on February 29, 2016 for a three year team up to In the same meeting, the shareholders accepted the resignation of one member and appointed a new member upto the tenure of the existing board in replacement thereof. Further in line with the approvals at the Annual General Meeting a new director effective April 10, 2016 was appointed upto the tenure of the existing board. The directors have diverse range of experience from different backgrounds and collectively provide required expertise and skills to effectively provide strategic directives and control over the affairs of the Bank in the long term interest of all the stakeholders. Directors independence disclosure In the Board s composition of nine directors, seven members represent the strategic investors (viz. five representing the Abu Dhabi Investment Council and two representing the Investment Corporation of Dubai) with the remaining two Directors representing other shareholders. All the directors are nonexecutive and six 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 14

26 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. Director s 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 2016, the remuneration for each director is proposed to be AED 600,000 (Fiscal 2015: Director s remuneration was AED 600,000/ for each director) The Board Committees The Board is assisted by board subcommittees viz. Audit Committee, Remedial Assets Committee, Risk Committee and Nomination and Remuneration Committee and Credit Committee to perform certain delegated responsibilities as delineated in their respective charters. Of the above subcommittees the Credit Committee was newly constituted in November The Board ensures that directors with appropriate balance of skills, knowledge and independence are appointed to the Committees. The Board Committees were reconstituted in 2016 in line with Bank s governance guidelines. Audit Committee The Audit Committee consists of three members. All the members of the Committee are nonexecutive and independent. This Committee assists the Board in exercising due care and diligence while discharging their monitoring responsibilities in respect of internal controls, financial reporting, risk management, compliance with internal policies, laws, external regulations and findings of examination by the regulatory bodies and appointing External Auditors. The Audit Committee periodically reviews the internal control system to ensure adequacy and reasonableness of the Bank s internal control effectiveness. Remedial Asset Committee The Remedial Asset Committee consists of three Board members; all the members are non executive and independent. This Committee assists the Board in exercising due care and diligence while discharging their responsibilities in respect of establishing and reviewing provisioning policy, assessing specific provisions for individual credit facilities and proprietary investments and monitoring the recoveries. Board Nomination & Remuneration Committee The Board Nomination & Remuneration Committee consists of two Board members; both the members are non executive and one being independent. The committee shall assist the Board on matters related to the composition of the Board, performance assessment and succession planning for individual directors and senior management and their remuneration policy. Board Risk Management Committee The Board Risk Management Committee consists of three Board members; all the members are non executive with two members being independent. The Committee shall assist the board in fulfilling its risk oversight responsibilities, assessing stress testing results and approving risk disclosures. Board Credit Committee The Board Credit Committee consists of four Board members; all the members are non executive with three members being independent. The Committee shall assist the board in fulfilling its credit approval responsibility in accordance with the delegated authority. The committee is operational since November Governance performance The details of the Board and Board committees, meetings held and attendance are provided in the appendix, which is part of this report. The agenda for the board meetings included forward looking strategic issues with a balance of performance reporting review, approval of policies and other operating decisions. Board and its committee discussions were supported by relevant and focused papers distributed in advance of the meetings. Performance Assessment In line with the best practices, the Board engaged an independent firm to conduct an assessment for the fiscal 2015 in accordance with the framework outlined in the Corporate Standards Manual of the Bank. Based on the performance assessment, the external firm is of the opinion that its overall activities and oversight are proportionate to the risk complexities of the Bank and appropriate to meet the stakeholders expectation in a reasonable manner. Significant recommendation(s) put forth by the external firm have been considered and adopted by the Bank. Board has undertaken the selfassessment of the governance framework, functioning of the Board and its committees for the year Insider trading restriction The Bank considers that the Directors, the CEO, Senior Management, Deputy Heads of Divisions and other identified staff, by 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. 15

27 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/halfyearly/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. Notification and periodic reminders regarding commencement of blackout period under insidertrading restriction is issued to all the staff through the Bank s intranet to ensure compliance. During the fiscal 2016 the Bank was fully compliant to Security Commodity Authority rules and regulations. Role of H.H. The Chairman, CEO and management committees The 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 guidance within the delegated authorities and policies approved by the Board. The Board has delegated certain authorities to the CEO and management committees whose responsibilities are set out in their respective charters. The CEO maintains close liaison with the work of the management committees. Management committees chaired by the CEO are: Assets Liability Committee Crisis Management Team Head Office Credit Committee Investment Committee Leadership Forum Remedial Assets Committee Risk Management Committee Internal Control Framework The Bank s internal control environment remains effective under the collective oversight of the senior management, Internal Audit, Compliance & Enterprise Risk functions. The Bank has established robust Comprehensive Capital Assessment Program (CCAP) and conducts stress testing on a halfyearly basis based on prudent risk policies approved by the Board. The Bank s CCAP program includes assessing the overall risk profile, determining material risks, undertaking stress testing to shock scenarios that are proportionate to risk complexities of the Bank and allocating the capital under Basel Pillar 2 to ensure financial solidity and long term sustainability. Based on our assessment the Bank maintains adequate capital to support future business growth with sufficient countercyclical buffer. risk threats. The Bank encountered few incidents of external fraud risk attempts during The Bank and the senior management continue to adopt dynamic fraud risk response measures and enhance preventive and detective control procedures, system capabilities and tools to combat cybercrime and fraud risks. During the year 2016 actual and potential operational loss reckoned by the Bank owing cybercrime and fraud risk is not material. The Bank practices fair customer care policy and adopts prudent measures to protect customers interest and preserve the Bank s reputation. Accountability During the fiscal 2016, the Board, the CEO and the senior management provided a balanced and true assessment of Bank s position and its prospects to all the stakeholders and ensured that any and all material information were promptly disclosed to the market in a fair and accurate way. Statutory Auditors M/s Deloitte & Touche (M.E) were reappointed as the Statutory Auditors for the year 2016 by the shareholders in the Annual General Meeting held on 29 February The appointment of the statutory auditors was in accordance with the provisions of Articles of Association and in conformance with the Statutory Auditors Appointment Rules (SAAR) promulgated by the Abu Dhabi Accountability Authority. The SAAR stipulates that the same Statutory Auditors cannot be appointed for a period exceeding four consecutive years with a cooling period of at least four years before the same firm can be appointed as the Statutory Auditors. The external auditors did not provide any material 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 31 December 2016 are provided below: Abu Dhabi Investment Council % Investment Corporation of Dubai % Conclusion The Board of Directors and the senior management believe that the Bank s governance practices are appropriately designed to serve and safeguard the interests of the various stakeholders and sustainably enhance shareholders value. Cybercrime and fraud risks The Bank adopts zero tolerance towards fraud risks and undertakes robust monitoring, assessment and countering measures to combat cybercrime, information security and fraud 16

28 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December Cash Dividend 20% 20% 25% 15% 10% Stock Dividend 5% 5% Current market price Book value Price to Book value Earnings per share (EPS) Price to Earnings (PE) Dividend yield UNB Share price details (face value AED 1 per share Membership in Board committees Sl. No. Name of the Board Member Representative of Position in the Board Membership capacity in the Board viz. Independent (IND) / Non Executive (NEX) 1 H.H. Sheikh Nahayan Mabarak Al Nahayan Abu Dhabi Investment Council Chairman NEX 2 H.E. Mohamed Dhaen Mahasoon Al Hamli (From 29 Feb 2016) Abu Dhabi Investment Council Vice Chairman NEX & IND Chairman Chairman 3 H.E. Ahmed Saeed Mohamed Al Badi Al Dhaheri Minority shareholders Member NEX Chairman 4 H.E. Mattar Mohamed Ahmed Al Tayer Investment Corporation of Dubai Member NEX & IND Member Member 5 Mr. Rashed Darwish Ahmed Saif Al Ketbi Minority shareholders Member NEX Member Member 6 Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi Abu Dhabi Investment Council Member NEX & IND Chairman Chairman Member 7 Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi Abu Dhabi Investment Council Member NEX & IND Member Member 8 Mr. Abdulwahed Mohd Sharif Asad Al Fahim Investment Corporation of Dubai Member NEX & IND Member 9 Mr. Ahmed Jasim Al Zaabi (From 10 Apr 2016) Abu Dhabi Investment Council Member NEX & IND Member Member 10 H.E. Mohamed Ahmed Al Bowardi Al Falacy (Resigned on 29 Feb 2016) Abu Dhabi Investment Council Member NEX & IND 17

29 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December st meeting 2 nd meeting 3 rd meeting 4 th meeting Meeting Dates 25Jan16 28Apr16 14Jul16 17Oct16 Sl. No. Name of the Board Member Position in the Board Membership capacity in the Board viz. Independent (IND) / NonExecutive (NEX) Number of meetings held during the tenure of membership Number of meetings attended 1 H.H. Sheikh Nahayan Mabarak Al Nahayan Chairman NEX H.E. Mohamed Dhaen Mahasoon Al Hamli (From 29 Feb 2016) Vice Chairman NEX & IND 3 3 (2 by proxy) 3 H.E. Ahmed Saeed Mohamed Al Badi Al Dhaheri Member NEX H.E. Mattar Mohamed Ahmed Al Tayer Member NEX & IND Mr. Rashed Darwish Ahmed Saif Al Ketbi Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi Mr. Abdulwahed Mohd Sharif Asad Al Fahim Mr. Ahmed Jasim Al Zaabi (From 10 Apr 2016) H.E. Mohamed Ahmed Al Bowardi Al Falacy (Resigned on 29 Feb 2016) Member NEX 4 4 Member NEX & IND 4 4(1 by proxy) Member NEX & IND 4 4(1 by proxy) Member NEX & IND 4 4 Member NEX & IND 3 3 Member NEX & IND 1 18

30 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December st meeting 2 nd meeting 3 rd meeting 4 th meeting 5 th meeting Meeting Dates 24 & 25 Jan Apr16 26May16 14Jul16 13Oct16 Sl.No Name of the Board Audit Committee Member Position Member capacity Independent (IND)/ Non Executive (NEX) Number of meetings held during the tenure of Membership Number of meetings attended Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi (From Jan 2016 till date) H.E. Mattar Mohamed Ahmed Al Tayer (From Jan 2016 Apr 2016 & from Nov 2016 till date) Mr. Ahmed Jasim Al Zaabi (From Apr 2016 till date) Current Chairman NEX & IND 5 4 Member NEX & IND 2 1 Member NEX & IND 3 2 Previous 4 5 Mr. Rashed Darwish Ahmed Saif Al Ketbi (From May 2016 Oct 2016) Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi (From Jan 2016 Apr 2016) Member NEX 3 3 Member NEX & IND 2 2 Board Remedial Asset Committee meeting attendance 2016 Number of Board Remedial Asset Committee meetings held during 2016 four (4) 1 st meeting 2 nd meeting 3 rd meeting 4 th meeting Meeting Dates 14Apr16 30Jun16 12Oct16 25Dec16 Sl.No Name of the Board Remedial Asset Committee Member Position Member capacity Independent (IND)/ Non Executive (NEX) Number of meetings held during the tenure of Membership Number of meetings attended Current H.E. Mohamed Dhaen Mahasoon Al Hamli (From Nov 2016) H.E. Mattar Mohamed Ahmed Al Tayer (From Jan 2016 Apr 2016 & from Nov 2016) Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi (From May 2016) Chairman NEX & IND 1 1 Member NEX & IND 2 2 Member NEX & IND 3 3 Previous Mr. Rashed Darwish Ahmed Saif Al Ketbi (From May 2016 Oct 2016) Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi (From Jan 2016 Oct 2016) Mr. Abdulwahed Mohd Sharif Asad Al Fahim (From Jan 2016 Apr 2016) Chairman NEX 2 2 Member NEX & IND 3 3 Member NEX & IND

31 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December st meeting 2 nd meeting 3 rd meeting Meeting Dates 18Feb16 27Jun16 07Sep16 Sl.No Name of the Board Risk Management Committee Member Position Member capacity Independent (IND)/ Non Executive (NEX) Number of meetings held during the tenure of Membership Number of meetings attended Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi (From Jan 2016 Apr 2016 & from Nov 2016) Mr. Rashed Darwish Ahmed Saif Al Ketbi (From Nov 2016 till date) Mr. Ahmed Jasim Al Zaabi (From Nov 2016 till date) Current Chairman NEX & IND 1 1 Member NEX Member NEX & IND Previous H.E. Mohamed Dhaen Mahasoon Al Hamli (From May 2016 Oct 2016) Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi (From Jan 2016 Oct 2016) Mr. Abdulwahed Mohd Sharif Asad Al Fahim (From Jan 2016 Oct 2016) Chairman NEX & IND 2 2 Member NEX & IND 3 3 Member NEX & IND st meeting 2 nd meeting 3 rd meeting 4 th meeting 5 th meeting Meeting Dates 23Nov16 28Nov16 12Dec Dec Dec2016 Sl.No Name of the Board Credit Committee Member Position Member capacity Independent (IND)/ Non Executive (NEX) Number of meetings held during the tenure of Membership Number of meetings attended Current 1 H.E. Mohamed Dhaen Mahasoon Al Hamli Chairman NEX & IND Mr. Rashed Darwish Ahmed Saif Al Ketbi Member NEX Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi Member NEX & IND 1 1 Member NEX & IND

32 Union National Bank Public Joint Stock Company CORPORATE GOVERNANCE REPORT for the year ended 31 December st meeting Meeting Dates 29Feb16 Sl.No Name of the Board Nomination and Remuneration Committee Member Position Member capacity Independent (IND)/ Non Executive (NEX) Number of meetings held during the tenure of Membership Number of meetings attended Current H.E. Ahmed Saeed Mohamed Al Badi Al Dhaheri (From May 2016 till date) Mr. Abdulwahed Mohd Sharif Asad Al Fahim (From May 2016 till date) Mr. Rashed Darwish Ahmed Saif Al Ketbi (From Jan 2016 Oct 2016) Mr. Khalifa Sultan Ahmed Sultan Al Suwaidi (From Jan 2016 Apr 2016) Mr. Yousef Abdul Aziz Ahmed Abdulla Al Harmoodi (From Jan 2016 Oct 2016) Chairman NEX Member NEX & IND Previous Chairman NEX 1 1 Member NEX & IND 1 Member NEX & IND 1 1 UNB Share Price Summary (as per closing price published by ADX) Closing Price (As on 31Dec2016) 4.54 Highest Price during the year 4.67 Lowest Price during the year 3.18 Median Price during the year 4.00 Total number of trades during the year 9,136 Total volume trades during the year 266,360,544 Total traded value during the year AED 1,043,653,977 UNB Share Price Monthly Summary (as per closing price published by Bloomberg) Month Average Price Highest Price Lowest Price Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ,800 7,600 7,400 7,200 7,000 6,800 6,600 6,400 6,200 5,7 4,7 3,7 2,7 ADSMI (Bloomberg) Closing Price (UNB) (Bloomberg) ADBF (Index (Bloomberg) Closing Price (UNB) (Bloomberg) 21

33 INDEPENDENT AUDITOR S REPORT The Shareholders Union National Bank Public Joint Stock Company Abu Dhabi United Arab Emirates REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Opinion We have audited the consolidated financial statements of Union National Bank PJSC, Abu Dhabi (the Bank ) which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statement of profit or loss, consolidated statement of profit or loss and other 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. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the other ethical requirements that are relevant to our audit of the Bank s consolidated financial statements in the United Arab Emirates, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters How the matter was addressed in our audit Impairment allowance for loans and advances The appropriateness of loan loss provisions is a key area of judgement for management. The identification of loans that are deteriorating, the assessment of objective evidence of impairment and the determination of recoverable amounts are an inherently uncertain process involving various assumptions and factors including the financial condition of the counterparty, expected future cash flows, observable market prices and value of collateral. The use of different modelling techniques and assumptions could produce significantly different estimates of loan loss provisions. Due to the significance of loans and advances (representing 71% of total assets) and the related estimation uncertainty, we consider this a key audit matter. The portfolios which give rise to the greatest estimation uncertainty are typically those with exposures that are unsecured or are subject to potential cash flow or collateral shortfalls as well as impairments that are derived from collective models. Associated risk management disclosure is complex and dependent on high quality data. It is the judgements for collective provisioning which are the most significant as they are the most sensitive to model adjustment. A key judgement is the assessment of the likelihood of default as there is limited historic data. The Bank s individual provisions are also subjective as a result of judgements exercised and the relatively limited amount of data available about future expected cash flows. These loans are individually monitored and the assessment of provisions for these loans involves substantial knowledge of each borrower. The key judgement for individual provisions on these portfolios is the recoverable value of underlying collateral. We assessed and tested the design and operating effectiveness of the controls over individual and collective impairment calculations including the quality of underlying data and systems. For loan loss provisions calculated on an individual basis we tested the assumptions underlying the impairment identification and quantification including forecasts of future cash flows, valuation of underlying collateral and estimates of recovery on default. For loan loss provisions calculated on a collective basis we tested the underlying models including the model approval and validation process. We also tested the appropriateness of the assumptions and accuracy of the inputs applied with respect to probability of default and loss given default rates and where available, compared data and assumptions made to external benchmarks. Finally, we assessed and tested the design and operating effectiveness of the controls over related disclosures. 22

34 Union National Bank Public Joint Stock Company INDEPENDENT AUDITOR S REPORT Key audit matters (continued) Key audit matters How the matter was addressed in our audit Valuation of securities and derivatives Financial instruments that are measured at fair value are significant for the financial statements of the Bank, such as investment securities, trading positions and derivatives (15% of total assets). For financial instruments that are actively traded and for which quoted market prices or market parameters are available, there is high objectivity in the determination of fair values (level 1 instruments). However, when observable market prices or market parameters are not available the fair value is subject to significant estimation uncertainty. The fair value of those financial instruments (level 2 and level 3 instruments) is determined through the application of valuation techniques which often involves the exercise of judgement by management and the use of assumptions and estimates. The valuation of those instruments is considered a key audit matter due to the related estimation uncertainty. We assessed the design and operating effectiveness of the Bank s key controls supporting the identification, measurement and oversight of valuation risk of financial instruments. We examined the Bank s independent price verification processes and approved processes over data feeds and other inputs to valuation and the Bank s governance and reporting processes and controls. For samples selected, we compared fair values with observable externally available market data. We determined that we could rely on the key controls operated by the Bank for the purposes of our audit. For the more judgemental valuations, which may depend on observable and unobservable inputs, we evaluated the assumptions, methodologies and models used by the Bank. Valuation of investment property The Bank carries investment properties at fair value (AED 2,029 million) and its measurement is inherently subjective due to the individual nature and location of each property which considerably influences the expected future rental income. The result of the revaluation is a gain of AED 28 million this reporting period. The valuations are carried out by third party valuers in accordance with the RICS Valuation Professional Standards and IFRS 13 and take into account, where available, evidence of comparable market transactions. Information technology and controls over financial reporting We assessed the competence, capabilities and objectivity of the third party valuers, verified their qualifications, and discussed the scope of their work. We challenged the valuation methodologies and tested the data inputs underpinning the valuation for a sample of properties. We have also involved our subject matter experts to assess key assumptions used and ensured their accuracy, completeness and reliability. We also compared a sample of the valuations to our expectations and challenged any differences. The Bank is vitally dependent on its information technology infrastructure for the reliability and continuity of its business operations and financial reporting due to the extensive volume and variety of transactions which are processed daily. In 2016, the Bank continued to improve the efficiency and effectiveness of its technology infrastructure and the reliability and continuity of the IT processing. Our audit approach relies on automated controls and therefore procedures are designed to test access and control over IT systems, however, we assessed the reliability and continuity of electronic data processing only to the extent necessary within the scope of the audit of the financial statements. Our work consisted of assessing the developments in the IT infrastructure and analysing the impact on the IT organisation. Our audit procedures included Reviewing major IT systems and applications including swift messaging; Reviewing general computer controls for key IT systems; Assessing IT security environment using our certified IT auditors; Focused on key controls and computer generated information testing on significant IT systems relevant to business processes; and Performed journal entry testing as stipulated by the International Standard on Auditing. 23

35 Union National Bank Public Joint Stock Company INDEPENDENT AUDITOR S REPORT Other information The Board of Directors and management are responsible for the other information. The other information comprises the annual report of the Bank. We obtained the Chairman s Report prior to the date of this auditor s report, and the remaining information of the annual report is expected to be made available to us after that date. The other information does not include the consolidated financial statements and our auditor s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the remaining information of the annual report of the Bank, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and their preparation in compliance with the applicable provisions of the UAE Federal Law No. (2) of 2015, 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. In preparing the consolidated financial statements, management is responsible for assessing the Bank s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. The Board of Directors and Audit Committee are responsible for overseeing the Bank s financial reporting process. Auditor s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 24

36 Union National Bank Public Joint Stock Company INDEPENDENT AUDITOR S REPORT Auditor s responsibilities for the audit of the consolidated financial statements (continued) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Bank to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements As required by the UAE Federal Law No. (2) of 2015, we report that: we have obtained all the information we considered necessary for the purposes of our audit; the consolidated financial statements of the Bank have been prepared and comply, in all material respects, with the applicable provisions of the UAE Federal Law No. (2) of 2015; the Bank has maintained proper books of account; the financial information included in the Chairman s Report is consistent with the Bank s books of account; note 15 to the consolidated financial statements of the Bank discloses purchased or invested in shares during the financial year ended 31 December 2016; note 32 to the consolidated financial statements of the Bank discloses material related party transactions, the terms under which they were conducted and principles of managing conflict of interests; based on the information that has been made available to us nothing has come to our attention which causes us to believe that the Bank has contravened during the financial year ended 31 December 2016 any of the applicable provisions of the UAE Federal Law No. (2) of 2015 or of its Articles of Association which would materially affect its activities or its financial position as at 31 December 2016; and note 10 to the consolidated financial statements of the Bank discloses social contributions made during the financial year ended 31 December Further, as required by the UAE Union Law No (10) of 1980, as amended, we report that we have obtained all the information and explanations we considered necessary for the purpose of our audit. Deloitte & Touche (M.E.) Mohammad K. Al Tah Registration No February 2017 Abu Dhabi, United Arab Emirates 25

37 Union National Bank Public Joint Stock Company CONSOLIDATED STATEMENT OF PROFIT OR LOSS for the year ended 31 December 2016 Notes USD USD 000 Interest income 4 3,850,523 3,679,866 1,048,332 1,001,869 Interest expense 5 )1,412,964( (972,968) )384,689( )264,897( Net interest income 2,437,559 2,706, , ,972 Income from Islamic financing 6 276, ,758 75,286 67,998 Depositors share of profit Islamic financing (84,286) (32,870) (22,947) (8,949) Net income from Islamic financing 192, ,888 52,339 59,049 Net interest income and net income from Islamic financing 2,629,797 2,923, , ,021 Net fee and commission income 7 598, , , ,377 Net gain from dealing in foreign currencies and derivatives 34,334 22,966 9,348 6,253 Net investment income 28,584 11,729 7,782 3,193 Net gain on investment properties 16 27,996 3,206 7, Other operating income 8 167, ,910 45,692 35,369 Operating income 3,487,414 3,732, ,474 1,016,086 Staff costs 9 )686,492( )673,289( )186,902( )183,308( Depreciation 18 )76,122( )71,528( )20,725( )19,474( Other operating expenses 10 )370,569( )291,694( )100,890( )79,416( Operating expenses )1,133,183( )1,036,511( (308,517) )282,198( Operating profit before impairment charges 2,354,231 2,695, , ,888 Impairment charge on financial assets, net 11 (702,349) (780,264) )191,219( )212,432( Net profit before income tax 1,651,882 1,915, , ,456 Income tax expense 29 )69,303( )51,231( )18,868( )13,948( Net profit for the year 1,582,579 1,864, , ,508 Attributable to: Equity holders of the Bank 1,572,406 1,852, , ,326 Noncontrolling interests 10,173 11,689 2,770 3,182 1,582,579 1,864, , ,508 Basic and diluted earnings per share AED دمهر 0.65 AED 0.15 USD درالو USD

38 Union National Bank Public Joint Stock Company CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December USD 000 USD 000 Net profit for the year 1,582,579 1,864, , ,508 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Available for sale financial assets net change in fair values 132,226 (66,334) 35,999 (18,060) net amount reclassified to profit or loss on disposal (30,960) (13,921) (8,429) (3,790) Fair value changes on cash flow hedges 8,800 4,072 2,396 1,109 Exchange difference on translation of foreign operations (604,648) (94,482) (164,620) (25,723) Income tax relating to items that may be reclassified subsequently to profit or loss 860 2, (493,722) (168,651) (134,420) (45,916) Items that will not be reclassified subsequently to profit or loss: Actuarial losses on defined benefit liability (5,637) (5,752) (1,534) (1,566) Other comprehensive loss for the year, net of tax (499,359) (174,403) (135,954) (47,482) Total comprehensive income for the year 1,083,220 1,689, , ,026 Attributable to: Equity holders of the Bank 1,089,809 1,681, , ,686 Noncontrolling interests (6,589) 8,595 (1,794) 2,340 1,083,220 1,689, , ,026 27

39 as at 31 December 2016 Notes USD 000 USD 000 ASSETS Cash and balances with central banks 12 7,916,291 11,537,209 2,155,266 3,141,086 Due from banks 13 2,156,621 2,731, , ,681 Loans and advances 14 73,714,400 68,429,080 20,069,262 18,630,297 Investments 15 15,771,321 14,713,677 4,293,853 4,005,902 Investment properties 16 2,029,018 1,872, , ,820 Other assets 17 1,971,777 2,051, , ,412 Property and equipment , ,585 76,423 99,805 Goodwill 19 75, ,807 20,546 50,315 Total assets 103,915, ,886,514 28,291,749 27,739,318 LIABILITIES AND EQUITY Liabilities Customers deposits 20 77,524,828 74,790,741 21,106,678 20,362,304 Due to banks ,680 1,253, , ,332 Medium term borrowings 22 5,371,256 5,576,148 1,462,362 1,518,145 Other liabilities 23 2,154,676 2,370, , ,430 Total liabilities 85,556,440 83,991,267 23,293,341 22,867,211 Equity Share capital 24 2,751,426 2,751, , ,095 Legal and statutory reserves 25 2,751,426 2,712, , ,509 General reserve 60,958 38,977 16,596 10,612 Retained earnings 11,421,558 10,534,902 3,109,599 2,868,201 Foreign currency translation reserve (852,315) (264,236) (232,049) (71,940) Cumulative changes in fair value 50,671 (51,583) 13,796 (14,044) Cash flow hedge reserve 12,872 4,072 3,504 1,109 Tier I capital notes 26 2,000,000 2,000, , ,514 Equity attributable to equity holders of the Bank 18,196,596 17,726,100 4,954,150 4,826,056 Noncontrolling interests , ,147 44,258 46,051 Total equity 18,359,154 17,895,247 4,998,408 4,872,107 Total liabilities and equity 103,915, ,886,514 28,291,749 27,739,318 These consolidated financial statements were approved and authorised for issue by the Board of Directors on 9 February 2017 and signed on their behalf by: Nahayan Mabarak Al Nahayan Chairman Mohammad Nasr Abdeen Chief Executive Officer Sanjeev Dureja Chief Financial Officer 28