REG - Bank of Sharjah PJSC - Half-year Financial Report

RNS Number : 7961M Bank of Sharjah P.J.S.C. 17 July 2026  

Bank of Sharjah P.J.S.C.

Review report and

condensed consolidated interim financial information

for the six-month period ended 30 June 2026

Bank of Sharjah P.J.S.C.

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Independent Auditor's Report on Review of Condensed Consolidated Interim Financial Information to the Board of Directors of Bank of Sharjah P.J.S.C.

Introduction

We have reviewed the accompanying condensed consolidated interim statement of financial position of Bank of Sharjah P.J.S.C. (the "Bank") and its subsidiaries (collectively referred to as the "Group") as at 30 June 2026 and the related condensed consolidated interim statements of profit or loss and comprehensive income for the three-month and six month periods then ended, and the condensed consolidated interim statements of changes in equity and cash flows for the six-month period then ended and other explanatory notes. Management is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with International Accounting Standard 34 - Interim Financial Reporting ("IAS 34"). Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.

Scope of review

We conducted our review in accordance with the International Standards on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information is not prepared, in all material respects, in accordance with IAS 34.

Emphasis of Matter

We draw attention to note 2.1 to the condensed consolidated interim financial information, which describes the classification and measurement of the Bank's Subsidiary, Emirates Lebanon Bank S.A.L (the 'Subsidiary') as held for sale under IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. Due to the geopolitical conditions in Lebanon, the sale has not been completed within one year from the date of classification and it was impractical for the Bank to obtain an updated valuation to arrive at the fair value less costs to sell for the Subsidiary as of 30 June 2026. Our review report is not modified in respect of this matter.

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Condensed consolidated interim statement of financial position

As at

To the best of our knowledge, the condensed consolidated interim financial information presents fairly in all material respects the financial position, results of operations and cashflows of the Group as of, and for, the periods presented therein. The condensed consolidated interim financial information was approved by the Board of Directors and authorised for issue on

Mohammed Bin Saud Al Qasimi                                                                          Mohamed Khadiri

Chairman                                                                                                                Chief Executive Officer

The accompanying notes 1 to 27 form an integral part of these condensed consolidated interim financial statements.

Condensed consolidated interim statement of profit or loss (unaudited)

For the six-month period ended 30 June 2026

The accompanying notes 1 to 27 form an integral part of these condensed consolidated interim financial statements.

Condensed consolidated interim statement of comprehensive income (unaudited)

For the six-month period ended 30 June 2026

The accompanying notes 1 to 27 form an integral part of these condensed consolidated interim financial statements.

Condensed consolidated interim statement of changes in equity

For the six-month period ended 30 June 2026

The accompanying notes 1 to 27 form an integral part of these condensed consolidated interim financial statement

Condensed consolidated interim statement of cash flows (unaudited)

For the six-month period ended 30 June

The accompanying notes 1 to 27 form an integral part of these condensed consolidated interim financial statements.

1.      General information

Bank of Sharjah P.J.S.C. (the "Bank"), is a public joint stock company incorporated by an Amiri Decree issued on 22 December 1973 by His Highness The Ruler of Sharjah and was registered in February 1993 under the Commercial Companies Law Number 8 of 1984 (as amended). The Bank commenced its operations under a banking license issued by the United Arab Emirates Central Bank dated 26 January 1974. The Bank is engaged in commercial and investment banking activities.

The Bank's registered office is located at Al Khan Road, P.O. Box 1394, Sharjah, United Arab Emirates. The Bank operates through six branches in the United Arab Emirates located in the Emirates of Sharjah, Dubai, Abu Dhabi, and City of Al Ain. The accompanying condensed consolidated interim financial statements combine the activities of the Bank and its subsidiaries (collectively the "Group").

2.      Basis of preparation

2.1    Subsidiary held for sale

The Central Bank of the UAE continues to support the Bank's strategic initiative to delink and deconsolidate its Lebanese subsidiary, in line with the Central Bank of the UAE recommendations and Board approval, effective 1 April 2023. This approach aims to reduce accounting volatility and address historical anomalies arising from consolidation. The subsidiary remains classified as an asset held for sale and is measured in accordance with IFRS 5 at the lower of carrying amount and fair value less costs to sell, based on a market-oriented valuation approach.

During the period ended 30 June 2026, Lebanon's political and economic environment showed gradual improvement, contributing to a more stable operating landscape and renewed interest in potential transactions within the banking sector. The Bank continued to make tangible progress in advancing the sale process, engaging multiple credible potential buyers who have executed confidentiality agreements and remain involved in structured discussions. While intermittent political tensions and security-related developments in the region continue to create short-term uncertainty, these are considered temporary in nature and may affect the timing, but not the underlying progress or the management's commitment to complete the disposal.

While completion remains subject to regulatory approvals and market conditions, the improving external environment and continued buyer engagement, management continues to expect that the disposal process will continue to advance and remains committed to completing the transaction, subject to regulatory approvals and market conditions. Accordingly, the Lebanese subsidiary continues to meet the criteria for classification as held for sale under IFRS 5.

The results of the Lebanese subsidiary for the period ended 30 June 2026 are considered to be immaterial to the overall financial statements of the Group, accordingly, these have not been included in these condensed consolidated interim financial statements.

2.      Basis of preparation (continued)

2.1    Subsidiary held for sale (continued)

The breakdown of the Lebanese subsidiary's net assets as at 1 April 2023 is as follows:

2.2    Basis of preparation

The condensed consolidated interim financial information of the Group have been prepared in accordance with IFRS Accounting Standards as issued by International Accounting Standards Board ("IASB") and applicable requirements of the laws of the United Arab Emirates ("UAE"). Group has also complied with provisions of the UAE Federal Decree Law No. 32 of 2021 as amended ("Companies Law") which was issued on 20 September 2021 and came into effect on 2 January 2022.

On 15 September 2025, the Federal Decree-Law No. (6) of 2025 (the "Federal Law") was issued and came into effect on 16 September 2025. The Group is in the process of reviewing the new provisions and will apply the requirements thereof no later than one year from the date on which the Federal Law came into effect.

Basis of measurement - The condensed consolidated interim financial information has been prepared on the historical cost basis except for certain financial instruments, subsidiary held for sale and investment properties that are measured at fair values as explained in the accounting policies below.

Functional and presentation currency - The condensed consolidated interim financial information is presented in Arab Emirates Dirham (AED) and all values are rounded to the nearest thousands' dirham, except when otherwise indicated.

Basis of consolidation - This condensed consolidated interim financial information incorporates the condensed interim financial information of the Bank and entities controlled by the Bank. Control is achieved when the Bank has:

§ power over the investee,

§ exposure, or has rights, to variable returns from its involvement with the investee; and

§ the ability to use its power over the investee to affect its returns.

2.      Basis of preparation (continued)

2.2    Basis of preparation (continued)

The condensed consolidated interim financial information comprises the financial statements of the Bank and of the following subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting period as that of the Bank, using consistent accounting policies.

All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between entities of the Group are eliminated in full on consolidation.

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.

Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid/payable or received/receivable is recognised directly in equity and attributed to owners of the Group.

The Bank's interests, held directly or indirectly, in the subsidiaries are as follows:

3.       Application of other new and revised International Financial Reporting Standards ("IFRS")

3.1     New and revised IFRS Accounting Standards applied with no material effect on the condensed consolidated interim financial statements

The following new and revised IFRS, which became effective for annual periods beginning on or after 1 January 2026, have been adopted in these condensed consolidated interim financial information. The application of these revised IFRS has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements.

·      Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments Disclosures regarding the classification and measurement of financial instruments

The amendments address matters identified during the post-implementation review of the classification and measurement requirements of IFRS 9

·      Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments Disclosures regarding the contracts referencing nature-dependent electricity

·      Annual improvements to IFRS Accounting Standards - Volume 11

Other than the above, there are no other significant IFRS Accounting Standards and amendments that were effective for the first time for the financial year beginning on or after 1 January 2026.

3.2 New and revised IFRS Accounting Standards in issue but not yet effective

The Group has not early adopted the following new and revised standards that have been issued but are not yet effective. The management is in the process of assessing the impact of the new requirements.

Management anticipates that these new standards, interpretations and amendments will be adopted in the Group's condensed consolidated interim financial information for the period of initial application and adoption of these new standards, interpretations and amendments may have no material impact on the condensed consolidated interim financial information of the Group in the period of initial application.

4.      Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2025.

5       Material accounting policies

The accounting policies used in the preparation of these condensed consolidated interim financial information are consistent with those used in the audited annual consolidated financial statements for the year ended 31 December 2025.

5       Material accounting policies (continued)

Financial Instruments

5.1    Recognition and Initial Measurement

A financial instrument is any contract that gives rise to both a financial asset for the Group and a financial liability or equity instrument for another party or vice versa. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Recognised financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities respectively, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in condensed consolidated interim statement of profit or loss.

5.2   Classification of financial assets

Balances with central banks, due from banks and financial institutions, financial assets and certain items in receivables and other assets that meet the following conditions are subsequently measured at amortised cost less impairment loss and deferred income, if any (except for those assets that are designated as at fair value through profit or loss on initial recognition). IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

·      the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:

·      the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. In addition, on initial recognition the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets measured at amortised cost

The effective interest rate method is a method of calculating the amortised cost of those financial instruments measured at amortised cost and of allocating income over the relevant period. The effective interest rate is the rate that is used to calculate the present value of the estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instruments, or, where appropriate, a shorter period, to arrive at the net carrying amount on initial recognition. Income is recognised in the condensed consolidated interim statement of profit or loss on an effective interest rate basis for financing and investing instruments measured subsequently at amortised cost.

5       Material accounting policies (continued)

Financial Instruments (continued)

5.2   Classification of financial assets (continued)

Financial assets measured at FVTPL

Investments in equity instruments are classified as financial assets measured at FVTPL, unless the Group designates fair value through other comprehensive income (FVTOCI) at initial recognition. Financial assets that do not meet the amortised cost criteria described above, or that meet the criteria but the Group has chosen to designate it as at FVTPL at initial recognition, are measured at FVTPL. Financial assets (other than equity instruments) may be designated at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains or losses on them on different basis. Financial assets are reclassified from amortised cost to FVTPL when the business model is changed such that the amortised cost criteria are no longer met. Reclassification of financial assets (other than equity instruments) designated as at FVTPL at initial recognition is not permitted. Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognised in the condensed consolidated interim statement of profit or loss at the end of each reporting period. The net gain or loss recognised in the condensed consolidated interim statement of profit or loss.

Financial assets measured at FVTOCI

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading. A financial asset is held for trading if:

·      it has been acquired principally for the purpose of selling it in the near term;

·      on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or

·      it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.

Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments fair value reserve. Where the asset is disposed of, the cumulative gain or loss previously accumulated in the investments fair value reserve is not transferred to condensed consolidated interim statement of profit or loss.

5.3    Measurement of ECL

Credit loss allowances are measured using a three-stage approach based on the extent of credit deterioration since origination:

•      Stage 1 - Where there has not been a significant increase in credit risk (SICR) since initial recognition of a financial instrument, an amount equal to 12 months expected credit loss is recorded. The expected credit loss is computed using a probability of default occurring over the next 12 months. For those instruments with a remaining maturity of less than 12 months, a probability of default corresponding to remaining term to maturity is used.

•      Stage 2 - When a financial instrument experiences a SICR subsequent to origination but is not considered to be in default, it is included in Stage 2. This requires the computation of expected credit loss based on the probability of default over the remaining estimated life of the financial instrument.

•      Stage 3 - Financial instruments that are considered to be in default are included in this stage. Similar to Stage 2, the allowance for credit losses captures the lifetime expected credit losses.

5       Material accounting policies (continued)

Financial Instruments (continued)

5.3    Measurement of ECL (continued)

ECLs are an unbiased probability‐weighted estimate of the present value of credit losses that is determined by evaluating a range of possible outcomes. For funded exposures, ECL is measured as follows:

·    for financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive arising from the weighting of multiple future economic scenarios, discounted at the asset's coupon rate as a proxy for effective interest rate (EIR);

·    financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

However, for unfunded exposures, ECL is measured as follows:

For undrawn loan commitments, as the present value of the difference between the contractual cash flows that are due to the Group if the holder of the commitment draws down the loan and the cash flows that the Group expects to receive if the loan is drawn down; and for financial guarantee contracts, the expected payments to reimburse the holder of the guaranteed debt instrument less any amounts that the Group expects to receive from the holder, the debtor or any other party. The Group measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic and credit risk characteristics. The measurement of the loss allowance is based on the present value of the asset's expected cash flows using the asset's coupon rate, regardless of whether it is measured on an individual basis or a collective basis.

The key inputs into the measurement of ECL are the term structure of the following variables:

·      Probability of default (PD) - PD estimates are estimates at a certain date, which are calculated based on statistical rating models currently used by the Group, and assessed using rating tools tailored to the various categories and sizes of counterparties.

·      Exposure at default (EAD) - EAD represents the expected exposure upon default of an obligor. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EADs are potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For financial guarantees, the EAD represents the amount of the guaranteed exposure when the financial guarantee becomes payable.

EAD is calculated as below:

-      For Direct Facilities: Limit or Exposure whichever is higher

-      For Letters of Credit & Acceptances: Limit or Exposure whichever is higher

-      For all types of Guarantees: Exposure

·      Loss given default (LGD) - LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, considering cash flows from the proceeds from liquidation of any collateral.

LGD is derived as below:

-     Senior Unsecured: 45%

-     Eligible Securities as per Basel lower LGD, taking into consideration applicable Basel haircuts on collateral as well as LGD floors to certain collateral

5       Material accounting policies (continued)

Financial Instruments (continued)

5.3    Measurement of ECL (continued)

Assessment of significant increase in credit risk

The assessment of a significant increase in credit risk is done on a relative basis. To assess whether the credit risk on a financial asset has increased significantly since origination, the Group compares the risk of default occurring over the expected life of the financial asset at the reporting date to the corresponding risk of default at origination, using key risk indicators that are used in the Group's existing risk management processes. At each reporting date, the assessment of a change in credit risk will be individually assessed for those considered individually significant.  This assessment is symmetrical in nature, allowing credit risk of financial assets to move back to Stage 1, if certain criteria are met, if the increase in credit risk since origination has reduced and is no longer deemed to be significant.

The group assesses whether credit risk has increased significantly since initial recognition at each reporting date. Determining whether an increase in credit risk is significant depends on the characteristics of the financial instrument and the borrower, and the geographical region. What is considered significant differs for different types of lending, in particular between wholesale and retail. The credit risk may be deemed to have increased significantly since initial recognition based on qualitative factors linked to the Group's credit risk management process that may not otherwise be fully reflected in its quantitative analysis on a timely basis. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list. Such qualitative factors are based on its expert judgement and relevant historical experiences. As a backstop, the group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. If there is evidence that there is no longer a significant increase in credit risk relative to the initial recognition, then the loss allowance on an instrument return to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases, the Group determines a probation period during which the financial asset is required to demonstrate good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a loan have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date payment performance against the modified contractual terms.

The group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that:

·      the criteria are capable of identifying significant increases in credit risk before an exposure is in default;

·      the criteria do not align with the point in time when an asset becomes 30 days past due;

·      the average time between the identification of a significant increase in credit risk and default appears reasonable;

·      exposures are not generally transferred directly from 12-month ECL measurement to credit impaired; and

·      there is no unwarranted volatility in loss allowance from transfers between 12-month PD [stage 1] and lifetime PD [stage 2].

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and expert credit assessment and including forward-looking information.

The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing:

·      The remaining lifetime probability of default (PD) as at the reporting date; with

·      The remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where relevant for changes in prepayment expectations)

5       Material accounting policies (continued)

Financial Instruments (continued)

5.3    Measurement of ECL (continued)

Assessment of significant increase in credit risk (continued)

The Group uses three criteria for determining whether there has been a significant increase in credit risk:

·      quantitative test based on movement in PD;

·      qualitative indicators

·      a backstop of 30 days past due.

Improvement in credit risk profile

If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL.

The Group has defined below criteria in accordance with regulatory guidelines to assess any improvement in the credit risk profile which will result into upgrading of customers moving from Stage 3 to Stage 2 and from Stage 2 to Stage 1.

For Wholesale Obligors, moving from Stage 3 to Stage 2 is done when at least 3 instalments have been made for monthly repayment schedule, and at least 1 instalment for any other repayment schedule for longer intervals.

For Wholesale Obligors, moving from Stage 2 to Stage 1 is done when at least 6 instalments have been made in case of monthly repayment, 2 instalments in case of quarterly repayment, 2 instalments in case of half yearly repayment, 2 instalments in case of yearly repayment and 12 months minimum in the case of any other frequency.

Definition of default

The Bank considers a financial asset to be in default when:

·      the borrower is unlikely to pay its credit obligations to the Bank in full without recourse by the Bank to actions such as realising security (if any is held);

·      the borrower is past due more than 90 days on any material credit obligation to the Bank; or

·      it is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower's inability to pay its credit obligations.

Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding.

In assessing whether a borrower is in default, the Bank considers indicators that are:

·      qualitative - e.g. breaches of covenant;

·      quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Bank; and

·      based on data developed internally and obtained from external sources.

Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL are presented in the statement of financial position as follows:

·      financial assets measured at amortised cost: (as a deduction from the gross carrying amount of the assets);

·      where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: The Group presents a combined loss allowance for both components. The combined amount is presented as deduction from the gross carrying amount of the drawn component.

·      debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the statement of profit or loss.

5       Material accounting policies (continued)

Financial Instruments (continued)

5.4    Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'amortised cost'. The Group initially recognises financial liabilities such as deposits and debt securities issued on the date at which they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes party to the contractual provision of the instrument.

Financial liabilities at amortized cost

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

De-recognition of financial liabilities

Financial liabilities are derecognised when they are extinguished - that is when the obligation specified in the contract is discharged, cancelled or expired.

Offsetting

Financial assets and liabilities are offset and reported net in the consolidated financial position only when there is a legally enforceable right to set off the recognised amounts and when the Group intends to settle either on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Group trading activity. The Group is party to a number of arrangements, including master netting agreements, that give it the right to offset financial assets and financial liabilities but where it does not intend to settle the amounts.

5.5    Estimates and judgements

The preparation of condensed consolidated interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.

Actual results may differ from these estimates. In preparing this condensed consolidated interim financial information, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that were applied to the audited consolidated financial statements as at and for the year ended 31 December 2025.

Regional Geopolitical Developments

During the six-month period ended 30 June 2026, regional geopolitical developments continued to contribute to elevated economic uncertainty across parts of the Middle East, with potential implications for certain sectors.

5       Material accounting policies (continued)

Financial Instruments (continued)

5.5    Estimates and judgements (continued)

Regional Geopolitical Developments (continued)

Management and the board are closely monitoring these issues and have performed ongoing assessments of these potential impacts on certain sectors in the Banks' portfolio including stress testing under multiple downsides and severe but plausible scenarios measuring the impact of both short- and longer-term disruption to these sectors. The Bank has conducted a focused review of its credit portfolio, particularly across sectors such as hospitality, real estate, trading, contracting and logistics, to identify any emerging credit concerns. Based on the Bank's assessments performed as at 30 June 2026, no material deterioration in asset quality has been observed, and there are no indicators of significant stress within the Bank's credit portfolio that would require additional management actions beyond the existing risk management framework. Monitoring remains ongoing.

In estimating expected credit losses ("ECL") as at 30 June 2026, the Bank performed sensitivity analysis of the model inputs and assumptions to assess elevated uncertainty and volatility in forward-looking macroeconomic variables. The sensitivity applied increased the adverse scenario by 25% with a corresponding decrease of 30% in upside.

The Bank acknowledges the support of the Central Bank of the UAE through its resilience measures announced on 17 March 2026, which may provide additional mitigation if required. During the second quarter of 2026, the Bank temporarily utilized some of these measures. The Bank continues to monitor developments and will assess the need for any management overlays or further adjustments to its ECL framework, where appropriate.

The Bank has not experienced any material business continuity disruptions during the period, and normal banking operations across physical and digital channels have continued without material disruption. The management and the board will continue to monitor and assess the situation carefully, maintaining a prudent and proactive risk management approach.

Based on the assessments performed as at 30 June 2026, management believes that no material adverse impact has been identified on the Bank's financial position, financial performance or liquidity.

5.6    Investment properties

Investment properties are held to earn rental income and/or capital appreciation. Investment properties include cost of initial purchase, developments transferred from property under development, subsequent cost of development, and fair value adjustments. Investment properties are reported at valuation based on fair value at the end of the reporting period. The fair value is determined on a periodic basis by independent professional valuers. Fair value adjustments on investment property are included in the consolidated statement of profit or loss in the period in which these gains or losses arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the consolidated statement of profit or loss in the period of derecognition. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

6.      Cash and balances with central bank

The analysis of the Group's cash and balances with the central bank is as follows:

*As per the CBUAE regulations, the Bank is allowed to draw their balances held in the UAE reserve account, while ensuring that they meet the reserve requirements over a 14-day period.

Cash and cash equivalents

For the statement of condensed consolidated interim statement of cash flows, cash and cash equivalents includes:

*Approximately AED 1.65 billion (31 December 2025: nil) of Repo borrowing have not been deducted from cash and cash equivalents as at 30 June 2026. Considering the underlying substance of the borrowing and nature of the underlying collateral, the Group has classified the proceeds/ repayments from the Repo borrowing as a cash inflow/ outflow from financing activities. (Note 13)

7.      Deposits and balances due from banks

The analysis of the Group's deposits and balances due from banks is as follows:

7.      Deposits and balances due from banks (continued)

The geographical analysis of deposits and balances due from banks is as follows:

8.      Loans and advances, net

(a)     The analysis of the Group's loans and advances measured at amortised cost is as follows:

(b)     Impairment reserve

The CBUAE issued its IFRS 9 guidance addressing various implementation challenges and practical implications for banks adopting IFRS 9 in the UAE.

Banks must ensure that the total provision corresponding to all Stage 1 and Stage 2 exposures is not less than 1.50% of the credit risk weighted assets as calculated under the CBUAE capital regulations. Where the collective provisions held are lower, the shortfall may be held in a dedicated non-distributable balance sheet reserve called "the impairment reserve- general". The amount held in the impairment reserve-general must be deducted from the capital base (Tier 1 capital for banks) when computing the regulatory capital.

*For the purpose of calculation, the movement in impairment reserve provisions under IFRS 9 are determined based on CB UAE classification of loans and advances, only for the purpose of this disclosure.

8.      Loans and advances, net (continued)

(c)     The geographic analysis of the gross loans and advances of the Group is as follows:

9.      Investment securities, net

All of the quoted equity securities are listed on the securities exchanges in the U.A.E. (Abu Dhabi Securities Exchange and Dubai Financial Market).  Included in the debt securities are bonds and sukuk with the fair value of AED 3.88 billion (31 December 2025: AED 2.23 billion) given as collateral against borrowings under repo agreements (Note 13). Included in the quoted equity securities are investments in perpetual bonds amounting to AED 562 million (31 December 2025: AED 614 million).

The composition of the investment measured at fair value and amortised cost by geography is as follows:

10.    Other assets

11.    Customers' deposits

12.    Deposits and balances due to banks

The geographical analysis of deposits and balances due to banks is as follows:

13.    Repo borrowings

The analysis of the repo borrowing agreements is as follows:

The Group entered into repo agreements under which bonds with fair value of AED 3.88 billion (31 December 2025: AED 2.23 billion) were given as collateral against borrowings. The risks and rewards relating to these bonds remain with the Group.

Repo borrowings include an amount of AED 1.65 billion (31 December 2025: nil) which is represented as part of the group's financing activities in the consolidated statement of cashflows. (Note 6)

14.    Other liabilities

15.    Issued Bonds

On 14 March 2023, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 7%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the Irish Stock Exchange.

On 12 September 2024, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 5.25%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the London Stock Exchange's International Securities Market.

On 19 November 2025, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 4.8750%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the London Stock Exchange's International Securities Market.

16.    Dividends

Following the Annual General Meeting held on 30 April 2026, the shareholders approved the distribution of a cash dividend of AED 195 million in respect of the year ended 31 December 2025, representing 6.5% of the Bank's paid-up share capital (2024: Nil).

17.     Net impairment (reversal)/ loss on financial assets

The movement in impairment loss by financial asset category during the period ended 30 June 2026 is as follows:

The movement in impairment loss by financial asset category during the period ended 30 June 2025 is as follows:

18.    Commitments and contingent liabilities

19.    Related party balances

The Group enters into transactions with companies and entities that fall within the definition of a related party as contained in IAS 24 Related Party Disclosures. Related parties comprise companies under common ownership and/or common management and control, their shareholders and key management personnel. Transactions with associate and other related parties are made on substantially the same terms, as those prevailing at the same time for comparable transactions with external customers and parties. Transactions within the Group and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. The related parties' balances included in the condensed consolidated interim financial information and the significant transactions with related parties are as follows:

Compensation of key management personnel:

20.    Profit per share

Profit per share IS computed by dividing the profit for the period by the average number of shares outstanding during the period as follows:

As at the reporting date, the diluted profit per share is equal to the basic profit per share as the Group has not issued any financial instruments that should be taken into consideration when the diluted profit per share is calculated.

21.    Segmental information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Information reported to the Group's chief operating decision maker for the purposes of resource allocation and assessment of segment performance is specifically focused on the type of business activities undertaken as a Group. For operating purposes, the Group is organised into two major business segments:

(i)      Commercial, which principally provides loans and other credit facilities, deposits and current accounts for corporate, government, institutional and individual customers; and

(ii)     Investment and treasury, which involves the management of the Group's investment portfolio.

The following table presents information regarding the Group's operating segments:

21.    Segmental information (continued)

The following table presents information regarding the Group's operating segments for the six-month period ended 30 June 2026 (unaudited):

The following table presents information regarding the Group's operating segments for the six-month period ended 30 June 2025 (unaudited):

* Unallocated items comprise mainly head office expenses and tax assets

Revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the period. Transactions between segments, inter-segment cost of funds and allocation of expenses are not determined by management for the purpose of resource allocation. The accounting policies of the reportable segments are the same as the Group's accounting policies as disclosed in the consolidated financial statements for the year ended 31 December 2025. For the purposes of monitoring segment performance and allocating resources between segments:

•     All assets are allocated to reportable segments except for property and equipment and certain amounts included in other assets; and

•     All liabilities are allocated to reportable segments except for certain amounts included in other liabilities.

22.    Fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, differences can arise between book values and the fair value estimates.  Underlying the definition of fair value is the presumption that the Group is a going concern without any intention or requirement to materially curtail the scale of its operation or to undertake a transaction on adverse terms.

Investments held at fair value through profit and loss - Investments held for trading or designated at fair value through profit and loss represent investment securities that present the Group with opportunity for returns through dividend income, trading gains and capital appreciation. Including in these investments listed equity securities for which the fair values are based on quoted prices at close of business as of 30 June 2026, and unlisted bonds for which the fair values are derived from internal valuation performed based on generally accepted pricing models, all inputs used for the valuation are supposed by observable market prices or rates.

Unquoted investments held at fair value through other comprehensive income - The condensed consolidated interim financial information includes holdings in unquoted securities amounting to AED 61 million (31 December 2025: AED 81 million) which are measured at fair value. Fair values are determined in accordance with generally accepted pricing models based on comparable ratios backed by discounted cash flow analysis depending on the investment and industry. The valuation model includes some assumptions that are not supported by observable market prices or rates.

For investments valued using comparable ratios, share prices of comparable companies represent significant inputs to the valuation model. If the share prices of the comparable companies were 5% higher/lower while all other variables were held constant, then the fair value of the securities would increase/decrease by AED 3 million (31 December 2025: AED 4 million). The impact of the change in fair valuation from previously existing carrying amounts have been recognised as a part of cumulative changes in fair value in equity.

Fair value of financial instruments carried at amortised cost - Except as detailed in the following table, the management considers that the carrying amounts of financial assets and financial liabilities measured at amortised cost in the condensed consolidated interim financial information approximates their fair values.

The fair value for other financial assets measured at amortized cost is based on market prices.

Fair value measurements recognised in the condensed consolidated interim statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value. They are ranked into levels 1 to 3 based on the degree to which the fair value is observable.

•    Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

•    Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices, including over-the-counter quoted prices).

•    Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

22.    Fair value of financial instruments (continued)

There were no transfers between Level 1 and Level 2 during the current period.

Reconciliation of Level 3 fair value measurements of other financial assets measured at fair value:

23.        Capital adequacy

Basel III

24.    Risk management

Stage migration for the six-month period ended 30 June 2026 (unaudited)

Scope: All clients

Migration during the period

24.    Risk management (continued)

Stage migration for the six-month period ended 30 June 2025 (unaudited)

Scope: All clients

Migration during the period

24.        Risk management (continued)

ECL charge/(flow) for the six-month period ended 30 June 2026 (unaudited)

Scope: All clients

ECL charge/(flow) for the six-month period ended 30 June 2025 (unaudited)

Scope: All clients

25.    Corporate tax

During the six-month period ended 30 June 2026, the Group has recorded a provision for current income tax amounting AED 32.0 million (30 June 2025: AED 27.0 million) in accordance with the CT Law, representing an effective tax rate of 8.13% (30 June 2025: 9.13%). As per the Group's assessment, there is no material deferred tax impact on account of the CT Law in the financial statements for the period ended 30 June 2026.

26.    Seasonality of results

No income of a seasonal nature was recorded in the condensed consolidated interim statement of profit or loss for the six-month period ended 30 June 2026.

27.    Subsequent events

There are no material subsequent events that have occurred that require adjustment to, or disclosure in, the condensed consolidated interim financial information.

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