UAE Banking Pulse Quarter 2, 2020 Alvarez & Marsal Middle East Limited (A&M) Is Delighted to Publish the Q2’20 Edition of the UAE FOREWORD Banking Pulse (“The Pulse”)

UAE Banking Pulse Quarter 2, 2020 Alvarez & Marsal Middle East Limited (A&M) is delighted to publish the Q2’20 edition of the UAE FOREWORD Banking Pulse (“The Pulse”). In this quarterly series, we share results from our research examining the top ten largest listed UAE banks by assets, and highlight key performance indicators of the sector. The Pulse aims to help banking executives and board members stay current on industry trends. In this edition, we have made a change to our coverage universe by replacing Emirates Islamic Bank (EIB) with National Bank of Fujairah (NBF), as Emirates NBD reports consolidated financials including EIB. Hence, for consistency of comparison, all historical quarters data has been adjusted to include NBF instead of EIB. All the data used in this report has been obtained from publicly available sources and the methodology for the calculations is discussed in the glossary. Calculation of several metrics has been changed from the previous version to accommodate available information. The UAE Central Bank continues with its measures to strengthen the financial system and support the economy impacted by COVID-19. It has unveiled additional measures within the Targeted Economic Support Scheme (TESS) launched initially in March 2020 to further enhance the capacity of the banking sector to support the economy. These measures include relaxation of Net Stable Funding Ratio and the Advances to Stable Resources Ratio by 10% points for domestic banks until 31st December 2021. According to Central Bank’s credit sentiment survey for Q2’20, domestic corporate credit demand is likely to pick up in the coming period, while personal credit is still expected to witness a sluggish trend. Also, banks with large retail operations are expected to announce redundancies and the focus on cost optimization will continue. We hope you will find the Pulse useful and informative.

Disclaimer: The information contained in this document is of a general nature and has been obtained from publicly available information plus market insights. The information is not intended to address the specific circumstances of an individual or institution. There is no guarantee that the information is accurate at the date received by the recipient or that it will be accurate in the future. All parties should seek appropriate professional advice to analyze their particular situation before acting on any of the information 2 contained herein Co-Authors

Dr. Saeeda Jaffar Asad Ahmed Co-Author, Managing Director Co-Author, Managing Director Head of Middle East Head of ME Financial Services

 18+ years of international experience in management  30+ years of experience in banking consulting and industry  Focuses on performance improvement,  Focuses on strategic and performance-related matters in turn-around, credit management, and formulating and financial institutions, sovereign wealth funds, family managing strategic and operational changes in businesses, real estate, private equity and financial institutions private investments  Former CEO of banks in the UAE & Kenya  Emirati National, frequent speaker and moderator in Banking & Finance events

CONTACT [email protected] DETAILS Phone: +97145671065

3 UAE Macro & Sector Overview

Macro overview Banking overview Q2’20

UAE GDP Growth Rate1, % 3.3 UAE Banks’ Profitability4, %* 25.0% 21.2%  Total interest income of top ten UAE banks declined at a faster 1.7  The IMF forecasts UAE’s GDP growth to decline by 15.0% 1.3 1.4% 7.3% pace (-12.7%), compared to the previous quarter, as interest 0.5 1.7% 3.5% in FY’20, before growing by +3.3% in FY’21 5.0% rates reached multi-period low levels  Uncertainty regarding the duration of coronavirus pandemic (5.0%) 1.9% -5.0% (4.2%) (15.0%)  Net profit growth rebounded (+21.2% QoQ), as lower coupled with low oil prices and the delay in Expo 2020 are -12.5% (12.7%)

(25.0%) operating expenses (-10.5% QoQ) and impairment charges the major factors impacting economic growth (35.0%) -31.8% (-30.1% QoQ) helped in offsetting reduced income  Average Q2’20 Emirates NBD Purchasing Managers’ Index (3.5)  While corporate credit demand is likely to improve in the near

(PMI) fell to 47.1 compared to 47.9 in Q1’20, due to decline

Q2'20 Q3'19 Q4'19 Q1'20 Q2'19 term, low interest rates would nullify this positive impact and

in output, new orders and employment 2018

2017 limit interest income growth

2020F 2021F 2019E Interest Income % QoQ Net Income % QoQ

2 US Fed Funds Rate , EIBOR, % Real Estate & Construction as %  The UAE banks exposure to the real estate sector increased  In July’20, the US Fed decided to maintain interest rates near of Total Loans4 2.5 2.52.3 further by ~40 bps6 2.1 2.02.0 zero until the economy recovers. It also pledged to maintain 23.7 1.8 21.5 21.9 1.5 its bond purchases 21.1 19.8  The UAE’s real estate market is expected to be under pressure in the near term, due to economic slowdown and 0.6  The overnight EIBOR saw an additional decline in Q2’20, to 0.3 0.3 persistent oversupply conditions 0.1 reach at multi-period low levels  The UAE central bank said that economic recovery is  Interest rates in the UAE are likely to remain at record expected in H2’20, due to TESS and economic stimulus

low levels, as the central bank would look to support the

Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q1'19 packages, which will also support the real estate sector

US Fed rate movement Overnight EIBOR economy from the ongoing headwinds

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

UAE Money Supply3, (%, Quarterly) UAE Banking M&A Deals5  M2 money supply fell 0.2% in May’20 to AED 1,451.9bn 7.0 25,000 8.0

6.0 5.4 5.4 compared to March’20, while it increased by 9.9% YoY 5.0 4.0 20,000 6.0  UAE banking sector saw no deal taking place in Q2’20

4.0 3.7 3.0

3.0  The decline in M2 money supply compared to March’20 was 15,000 partially due to the impact of the coronavirus pandemic which

2.2

2.1

2.0 1.8

2.0 1.7

1.5 4.0

0.8

0.8 0.8 0.6 due to drop in quasi monetary deposits had lowered business confidence 1.0 10,000

0.0 2.0 -1.0  M1 increased by 4.0% in May’20 to AED 564.3bn compared 5,000  M&A deals are most likely be in favor of the buyers as need

-2.0 0.2

0.2

0.8

- - -3.0 to March’20. On an annual basis, M1 increased by 11.3% 0 0.0 for cash could result in acceptance of low valuation multiples

 M3 increased by 2.0% compared to March’20, and increased offered by them

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Q2'19 Q3'19 Q4'19 Q1'20

Q1'19 7.9% YoY to reach AED 1,747.8bn May'20 M1 M2 M3 Deal Value AED mn # of deals 1 IMF, 2 US Board of Federal Reserve, 3 UAE Central Bank, 4 Company filings, ENBD net income adjusted for one time gain of AED 4.4bn from disposal of stake in jointly controlled entity during 2019, DIB’s net income adjusted for one-time gains of AED 1.0bn on bargain purchase in 2020, 5 Bloomberg & A&M Analysis, 6 based on data of 7 banks, weighted average 4 exposure of all banks; * Data for top ten UAE banks by asset size as of June 30th 2020 Pulse: Improved Operating Efficiency and Lower Impairments Helped in Offsetting Lower Operating Income; Supporting Bottom-line

Improved Stable Worsened

Metric Q1’20 Q2’20 Q2’19 Q3’19 Q4’19 Q1’20 Q2’20 Key Trends of Q2’20

Loans and Advances (L&A) Growth (QoQ) 0.8% 1.0% Despite tough market conditions, there was an overall Size 1 Deposits Growth (QoQ) 0.6% 1.1% growth in L&A (+1.0%) and deposit (+1.1%) LDR has remained stable at 87.7% and is largely in Liquidity Loan-to-Deposit Ratio (LDR) 87.7% 87.7% 2 line with the trend seen in last couple of years Operating Income Growth (QoQ) -2.3% -9.2% Operating income growth declined further in Q2’20, Operating Income / Assets 3.4% 3.0% 3 due to reduced interest and fee income performance Non-Interest Income(NII) / Operating Income 29.9% 28.4% Income & NIM compressed further to reach multi-period low Operating Yield on Credit (YoC) 6.7% 5.8% levels Efficiency Cost of Funds (CoF) 1.9% 1.5% 4 Operating efficiency improved as total expenses declined at a faster pace (-10%), helping C/I to Net Interest Margin (NIM) 2.5% 2.3% improve to 33.4% Cost-to-Income Ratio (C/I) 33.8% 33.4% 5 CoR declined to 1.4%, after rising substantially in the preceding quarter. Coverage ratio decreased further, Coverage Ratio 94.5% 89.2% as NPLs increased ~9% Risk 6 Cost of Risk (CoR) 2.1% 1.4% Increased cost efficiency and reduced provisioning Return on Equity (RoE) 9.0% 9.4% supported profitability growth 7 Profitability Return on Assets (RoA) 0.9% 1.1% RoRWA increased slightly while the capital adequacy Return on Risk-Weighted Assets (RoRWA) 1.3% 1.6% ratio improved after declining considerably in the 8 previous quarter Capital Capital Adequacy Ratio (CAR) 16.2% 17.1% Note 1: QoQ stand for quarter over quarter Note 2: Growth in loans & advances and deposits were presented QoQ instead of YoY Note 3: Quarterly income was used in the calculation of operating income growth Source: Financial statements, Investor presentations, A&M analysis 5 1 DIB Reported Double-Digit L&A Growth, While RAK Saw Negative Growth for Deposit and L&A

L&A Growth QoQ (%) Q2’20 Av 12.0 KEY TAKEAWAYS Gained Financing MS Gained Deposits & Financing MS 10.0  Banks’ L&A (+1.0%) and deposit (+1.1%) increased from earlier quarter 8.0  DIB reported highest growth in L&A (+ 6.0 11.2%) as the bank’s wholesale and public sector lending increased 4.0 substantially  MSQ reported the strongest deposit 2.0 growth (+11.4%), as time deposits 1.0% increased ~13% 0.0  RAKBANK reported the steepest -2.0 decline in both deposits (-7.3%) and L&A (-5.1%) -4.0  L&A dropped as lending declined -6.0 across all segments

Lost Depositing & Financing MS Gained Deposits MS  Deposits fell on account of a -8.0 -8.0 -4.0 0.0 1.1% 4.0 8.0 12.0 outflows in time deposits Deposits Growth QoQ (%)

Note: MS stands for market share Source: Financial statements, Investor presentations, A&M analysis 6 2 DIB’s LDR Increased the Most while MSQ’s LDR Reported a Sizeable Decline

Loans to Deposits Ratio (%)

120 Q1’20 Q1’20 Av KEY TAKEAWAYS 115 Q2’20 Q2’20 Av  Average LDR remained broadly unchanged at 87.7% 110  DIB showed the highest increase in 105 LDR to 97.0% in Q2’20 compared to 90.2% in Q1’20 100  ADIB showed the second highest increase in LDR to 83.1% from 80.3% 95 in Q1’20

90  On the other hand, MSQ reported the 87.7% highest decline to 77.6% from 88.5% in 85 the preceding quarter

80  Similarly, NBF’s LDR fell to 80.3% from 84.9% in Q1’20 75

70 0 100 200 300 400 500 600 700 800 900 1000 Total Asset (AEDMillions Bn)

Note: The green zone is an area of healthy liquidity Source: Financial statements, A&M analysis 7 3 Operating Income Declined For the Second Consecutive Quarter

Improved Stable Worsened

Quarterly NII Quarterly Operating Income (AED Bn) (AED Bn) KEY TAKEAWAYS

16.0 15.9 24.0  Operating income declined by 9.2% 23.2 QoQ, as net interest income and non- 15.3 22.6 22.0 interest income declined by 7.3% and 14.7 22.0 13.7%, respectively 14.4 21.0 20.5  Non-interest income fell, as lockdowns 20.0 limited the income arising from cards Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 and new business volumes

+ 18.0  Amongst the top three banks, ENBD reported the highest decline in Quarterly Net Fee commission and other operating income (-16.6% QoQ), as NII Operating Income (AED Bn) 16.0 and fee income fell ~12% and ~37%, 7.1 respectively 6.8 6.7 14.0 6.6  FAB, on the other hand, reported an 5.8 increase in total operating income

12.0 (+5.0%), driven by higher NII (+6.6%)

10.0 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 8 4 NIM Witnessed Sizeable Contraction, on the Back of Low Interest Rates

Yield On Credit Net Interest Margin (Quarterly Annualized) (%,Quarterly Annualized) KEY TAKEAWAYS

7.4% 7.4% 7.1% 6.7% 5.8%  NIM compressed further and at a faster pace (~24 bps QoQ) in Q2’20, reaching 2.60 2.59 multi-period low levels 2.58 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20  The contraction in NIM was largely

2.51 because the fall yield of credit (~90 Loan-to-Deposit Ratio (LDR) x bps) was more than double compared 88.0% to that of cost of funds (~42 bps) 87.8% 87.7% 87.7% 87.5% –

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

2.26 Cost of Funds (Quarterly Annualized)

2.3% 2.3% 2.2% 1.9% 1.5%

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Note: Relation between elements above represents a functionality and not necessarily an exact mathematical formula Source: Financial statements, Investor presentations, A&M analysis 9 4 NIM Fell Across Most of the Banks Source: Financial statements, investor presentations, A&M A&M Financial Source: investor analysis presentations,statements, rounding to dueup add numbersSomeNote:might not Net Interest Margin (%,Quarterly) Improved 1.6 0.1 1.6 Stable

3.1 - 0.4 2.7 Worsened -

2.9 0.5 2.5

2.9 - 0.5 2.4

2.2 - 0.3 2.0 Q1’20 - 2.8 0.2 2.7 - Q2’20 2.4 0.3 2.1 -

5.0 0.1 10

5.0 Q1’20 Av

1.9 0.0 1.9 - Q2’20 Q2’20 Av 2.8 0.4 2.3 2.29% 2.53%     KEYTAKEAWAYS DenizBank margins through its Turkish subsidiary, received some support of higher While ENBD’s NIM 36 fell bps, the bank increased 5 bybps to 1.62% On the other hand, FAB’s NIM bps QoQ) (~54 bps QoQ), followed by (~47 ADCB DIB reported the steepest contraction lowlevels wideinterest rates reached multi NIM fell by~24 bps QoQ, as system - period - 5 Banks Continue to Optimize Their Expenses, in Light of Tough Operating Environment

Improved Stable Worsened

Quarterly Operating Expenses Cost to Income Ratio (AED Bn) (%, Quarterly Annualized) KEY TAKEAWAYS

8.0  C/I ratio improved for the second 7.7 34.6% consecutive quarter to reach 33.4% 7.4 33.3% 33.6% 33.8% 33.4%  Persistent decline in the operating 7.0 6.9 expenses, led to the improvement in the C/I ratio  Banks are likely to focus more on Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 improving their efficiency in the coming ÷ period, as challenging operating environment calls for increased efforts Quarterly Operating Income (AED Bn) towards cost optimization

22.0 23.2 22.6 21.0 20.5

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 11 5 Improvement EfficiencyRatioof DIB FABand the ShowedHighest *ComparisonQoQbasis on A&M Financial Source: investor analysis presentations,statements, rounding to dueup someadd andnumbersnot Scaling Note:might Cost to Income Ratio (%,Quarterly) Improved

29.6 - 3.8 25.8 4.2 29.8 Stable

34.0 Worsened -

38.2 3.5

34.7

34.5 - 6.9 27.6

41.5 6.1

47.6 Q1’20 49.1 0.2

49.3 Q2’20 26.8 1.7

28.5

36.7 0.8 12

37.5 Q1’20 Av -

44.7 0.1

44.8 Q2’20 Q2’20 Av

29.7 2.8

32.5 33.4% 33.8%     KEYTAKEAWAYS quarters ratios of these banks in the coming additional improvement in the efficiency July’20. Hence, there could be cuts in the range of 400 and haveADCB ENBD announced job banks income declined substantially for both deteriorated the most, as operating C/I ratios for MSQ and ENBD FAB ( DIB’s ( C/I The largest improvement was seen in reported lower C/I ratios overall cost efficiency, only While there was an improvement in the - 3.8% points) - 6.9% 6.9% points), followed by – 800 people in three three banks banks 6 Coverage and NPL / Net Loans Ratios Deteriorated for Most Banks KEY TAKEAWAYS

Coverage Ratio, % NPL / Net loans, %  Coverage ratio for most of the banks Coverage Ratio1 and NPL / Net Loans Ratio (%, Quarterly) declined in Q2’20, as banks reported lower provisioning  CBD’s and NBF’s coverage ratio 103 101 136 7.0 140.0 127 127 129 9.0 120.0 110 5.6 6.0 120.0 9.0 140.0 9.0 declined the most (~10% points) 100.0 125 106 106 102 122 124 8.0 5.0 99 8.0 114 8.0 83 6.0 120.0 120.0 82 100.0 5.0 100.0 80 89 6.4 7.0 86 7.0 100 7.0 80.0 6.2 98  RAK and ENBD had the highest 5.0 100.0 5.9 5.9 100.0 6.0 80.0 72 4.0 80.0 74 6.0 6.0 5.1 3.4 70 coverage ratios at 129% and 125%, 60.0 3.6 4.0 80.0 80.0 4.7 4.6 5.0 4.5 5.0 4.6 5.0 3.3 5.5 3.2 60.0 3.0 60.0 4.1 3.2 4.1 2.6 2.6 3.7 3.9 5.6 4.0 4.0 4.0 respectively 3.0 60.0 4.8 60.0 40.0

3.0 40.0 2.0 40.0 3.0 3.0

2.0 40.0 40.0

2.0 2.0 2.0  NPL / net loan ratio increased across

20.0

20.0 1.0 20.0

1.0 20.0 20.0 1.0 1.0 1.0 the board, as slowdown in economic

------activities resulted in higher NPLs

Q2'20 Q3'19 Q4'19 Q1'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19  NBF (+0.9% points) and ADIB (+0.6% points) reported the highest increase in NPL / net loan ratio 18.0 120.0 107 7.3 8.0 8.0 120.0 10.0 14.0 80.0 74 104 140.0 132 129 131 103 103 6.9 100.0 9.0 70 16.0 129 92 91 7.0 7.0 118 12.0  Overall, coverage ratio declined to 100.0 100.0 93 70.0 92 84 5.9 120.0 90 8.0 14.0 5.8 82 6.0 6.0 75 65 80.0 10.0 60.0 55 77 7.0 89.2%, which is the lowest since we 51 12.0 80.0 6.2 72 100.0 4.8 80.0 6.0 49 5.0 5.0 6.0 50.0 4.2 7.1 4.2 8.0 10.0 3.9 60.0 80.0 3.9 4.6 started tracking from 2018. 8.2 60.0 4.0 4.0 60.0 5.0 40.0 4.1 5.7 8.0 6.7 3.7 3.7 5.0 5.3 7.9 6.0 8.8 60.0 4.0

3.0 3.0 40.0 30.0 5.5 5.2 6.0 40.0 40.0  Consolidated NPL ratio moved 3.0 4.0 40.0 2.0 2.0 20.0 4.0

2.0 20.0 20.0 20.0 marginally up to 5.5% 2.0 20.0 1.0 1.0 10.0 2.0 1.0

------

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis, 1 accumulated allowance for impairment / NPL 13 6 Cost of Risk Fell, but Still Remains Above its 2-Year Average Levels

Improved Stable Worsened

Quarterly Net Loan Loss Provisions Cost of Risk (AED Bn) (%, Quarterly Annualized) KEY TAKEAWAYS 8.4  After increasing for three consecutive quarters, CoR decreased by ~64 bps, 5.6 5.9 2.06% as banks reduced their provisioning 4.0 2.9  ADCB’s (-64.5% QoQ) and ENBD’s (-35.4% QoQ) loan loss provisions declined the most Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 1.41% 1.42%  On the other hand, SIB (+5.0x QoQ) ÷ and FAB (+43.7% QoQ), reported a sharp increase in provisioning in Q2’20 Average Gross Loans 1.04% (AED Bn) 1,660 0.82% 1,642 1,622 1,585

1,467

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 14 6 Risk DIB and ReportedADCBthe Costin Highest of Decline Source: Financial statements, investor presentations, A&M A&M Financial DIB’s Source: investor analysis, presentations, statements, cost risk of recalculatedQ1’20for rounding to dueup someadd andnumbersnot Scaling Note:might Cost of Risk (bps) Improved

72.2 34.3

106.4 - 77.9 216.5 Stable

138.6 – Worsened - Net of Reversals 294.8 188.8

106.0

344.3 215.4

129.0

200.9 78.2

279.1 - Q1’20 185.7 32.8

152.9 Q2’20 144.6 5.9

150.5 - 530.2 65.7 15

464.5 Q1’20 Av 71.2 19.5

90.7 32.3 305.7 Q2’20 Av

338.1 142.4 206.0    KEYTAKEAWAYS risk risk during the quarter reported the highest increase in cost of MSQ (+78.2 bps) and (+71.2 SIB bps) and related entities provisioning on NMCHealth, Finablr QoQ, as the bank reported lower ADCB’scost of risk fell ~189 by bps Q1’20 reported one pace (215.4 bps), the as bank had DIB’s cost of risk declined at the fastest - off impairment charges in 7 RoE Improved in Q2’20

Return on Equity (%)

18 KEY TAKEAWAYS Q1’20 Q1’20 Av Q2’20 Q2’20 Av  Average RoE for the universe increased to 9.4% during Q2’20, 13 compared to 9.0% during Q1’20  DIB reported the highest RoE (12.6%), 9.4% followed by FAB (10.6%) 9 9.0%  NBF reported losses during the quarter, and consequently, the bank’s RoE remained in the negative range

-0

-5 0 100 200 300 400 500 600 700 800 900 1,000 Millions Asset Size (AED Bn)

Source: Financial statements, Investor presentations, A&M analysis 16 7 Banks Likely to Focus on Cost Optimization Measures, as Tough Operating Conditions might Weigh on Profitability

Improved Stable Worsened

Op. Income / Assets (%) Non-Interest Income / Yield On Credit (%) KEY TAKEAWAYS Op. Income (%) 31.2 30.8 30.5 7.4 7.4 7.1 29.9 6.7 3.6 3.5 3.5 3.4 5.8 3.0  While there was a marginal increase in 28.4 RoE, the outlook on profitability still Assets / Equity (x) remains negative 8.3

8.2  Domestic banking sector is set to face

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Q1'20 Q3'19 Q4'19 Q2'20 7.7 Q2'19 7.6 7.5 headwinds in foreseeable future, in the Cost / Income Ratio (%) Net Interest Margin (%) Cost of Funds (%) form of after effects of COVID-19, low Return on Equity (%)

34.6 oil prices and delay in Expo 2020

Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 2.6 2.6 2.6 2.5 33.8 2.3 2.3 2.3 2.2 33.6 1.9 15.3 13.6 33.4  While central bank’s survey expects 11.2 33.3 1.5 9.0 9.4 a pick up in corporate credit demand Return on Assets (%) for Q3’20, the recovery would likely 2.5

2.3 2.1 1.9 be fragile

1.9 1.7

Q1'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 Q3'19 Q4'19 Q2'20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 1.7 1.4 1.5 1.1 1.3 0.9 1.1  Low interest environment along with

0.9

0.7 Cost of Risk (%) LDR (%) 0.5 a possible increase in impairments

is expected to weigh on profitability

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 2.1 88.0 87.8 1.4 1.4 87.7 87.7  Banks might resort to additional job 1.0 87.5 0.8 cuts and increased focus towards

digitization to save costs and

Q2'19 Q3'19 Q4'19 Q1'20 Q2'20

Q3'19 Q4'19 Q1'20 Q2'20 Q2'19 support bottom-line Note: All the charts above are based on L3M numbers Op Income stands for Operating Income Scaling and some numbers might not add up due to rounding Source: Financial statements, Investor presentations, A&M analysis 17 GCC Banking Consolidation

GCC list of M&A transactions in banking sector since January 2019

Announcement Target % Consideration Target Company Acquirer Company Deal Status* Date Country Sought (AED Mn) 30-Jun-20 Al Khalij Commercial Bank PQSC Qatar Masraf Al Rayan QSC 100% 4,404 Pending 25-Jun-20 Samba Financial Group SJSC Saudi Arabia National Commercial Bank SJSC 100% 57,252 Pending 31-Dec-19 Alizz Islamic Bank SAOG Oman Oman Arab Bank SAOC 81% NA Pending 12-Sep-19 Ahli United Bank BSC Bahrain Kuwait Finance House KSCP 100% 21,431 Pending 15-Aug-19 Cqur Bank LLC Qatar VTB Bank PJSC 19% NA Completed 08-Aug-19 DenizBank AS Turkey Emirates NBD PJSC 0.20% NA Completed 20-Jun-19 Warba Bank KSCP Kuwait Kuwait & Middle East Financial Investment Co KSCP 75.70% NA Proposed 12-May-19 Gulf Bank KSCP Kuwait Alghanim Industries Ltd 16% NA Completed 21-Apr-19 HSBC Saudi Arabia Ltd Saudi Arabia HSBC Holdings PLC 2% 31 Completed 10-Apr-19 Invest bank PSC UAE Emirate of Sharjah United Arab Emirates 50% 989 Completed 07-Apr-19 Noor Bank PJSC UAE Dubai Islamic Bank PJSC 100% NA Completed 03-Apr-19 Oman United Exchange Co Oman Private Investor 25% NA Completed 15-Mar-19 Banque Saudi Fransi Saudi Arabia Olayan Investments, Ripplewood Advisors LLC 5% 1,609 Completed 29-Jan-19 Union National Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% 11,531 Completed 29-Jan-19 Al-Hilal Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% NA Completed

Source: Bloomberg *Proposed Status: Board suggests shareholders to consider the acquisition *Pending Status: Acquisition has announced *Completed Status: Acquisition has completed 18 GLOSSARY Glossary

19 Glossary

Metric Abbreviation Definition

Loans and Advances Growth QoQ growth in EOP net loans and advances for the top 10 Size Deposits Growth QoQ growth in EOP customer deposits for the top 10

Liquidity Loan-to-Deposit Ratio LDR (Net EOP loans and advances / EOP customer deposits) for the top 10

Operating Income Growth QoQ growth in aggregate quarterly operating income generated by the top 10

Operating Income / Assets (Annualized quarterly operating income / quarterly average assets) for the top 10

Non-Interest Income / (Quarterly non-interest income / quarterly operating income) for the top 10 Operating Income Income & (Aggregate annualized quarterly net interest income) / (quarterly average earning assets) for the top 10 Operating Net Interest Margin NIM Earnings assets are defined as total assets excluding goodwill, intangible assets, and property and equipment Efficiency Yield on Credit YoC (Annualized quarterly gross interest income / quarterly average loans & advances) for the top 10

(Annualized quarterly interest expense + annualized quarterly capital notes & tier I sukuk interest) / (quarterly average interest Cost of Funds CoF bearing liabilities + quarterly average capital notes & tier I sukuk interest) for the top 10

Cost-to-Income Ratio C/I (Quarterly operating expenses / quarterly operating income) for the top 10

Coverage Ratio (Loan loss reserves / non-performing loans) for the top 10 Risk Cost of Risk CoR (Annualized quarterly provision expenses net of recoveries / quarterly average gross loans) for the top 10

(Annualized quarterly net profit attributable to the equity holders of the banks – annualized quarterly capital notes & tier I sukuk Return on Equity RoE interest) / (quarterly average equity excluding capital notes) for the top 10 Profitability Return on Assets RoA (Annualized quarterly net profit / quarterly average assets) for the top 10

Return on Risk-Weighted Assets RoRWA (Annualized quarterly net profit generated / quarterly average risk-weighted assets) for the top 10

Capital Capital Adequacy Ratio CAR (EOP tier I capital + tier II capital) / (EOP risk-weighted assets) for the top 10

Note: LTM and EOP stand for last twelve months and end of period respectively 20 Glossary (cont’d.)

Bank Assets (AED Bn)* Abbreviation Logo

First Abu Dhabi Bank 866.0 FAB

Emirates NBD 694.3 ENBD

Abu Dhabi Commercial Bank 406.2 ADCB

Dubai Islamic Bank 294.8 DIB

Mashreq Bank 173.3 MSQ

Abu Dhabi Islamic Bank 124.4 ADIB

Commercial Bank of Dubai 93.7 CBD

National Bank of Ras Al-Khaimah 54.3 RAK

Sharjah Islamic Bank 52.7 SIB

National Bank of Fujairah 44.5 NBF

Note: Banks are sorted by assets size * As on 30th June 2020 21