UAE Banking Pulse Quarter 4, 2020 FOREWORD Alvarez & Marsal Limited (A&M) is delighted to publish the Q4’20 edition of the UAE 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. 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 metrics has been updated, where required, to reflect appropriate comparative information. Top ten UAE banks ended FY’20 with a marginal loan growth rate of 1% and a 38% drop in net income. Net income declined due to unprecedented market conditions which resulted in an 80% increase in provisioning. While FY’21 is expected to remain less volatile compared to past year, banks might witness deterioration of their asset quality, post the completion of central bank’s deferral programin June’21. Profitability metrics have taken a hit with RoE slipping to single-digit levels (7.7% in FY’20, compared to 13.3% in FY’19). Despite a challenging business environment, aggregate capital adequacy ratio of the UAE banks remained robust at 17.6% at the end of December’20, compared to 17.3% at the end of December’19. 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 fut ure. All parties should seek appropriate professional advice to analyze their particular situation before acting on any of the informa tion 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

 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 Q4’20

UAE GDP Growth Rate1, %  UAE’s economic growth is expected to rebound in FY’21 UAE Banks’ Profitability4, %* 28.0% 2.6 21.2%  Total interest income of top ten UAE banks continued to decline 2.2 18.0% 1.7 1.3 to +1.3%, after contracting by 6.6% in FY’20. Economic 1.4% 8.0% for the fourth consecutive quarter (-1.7% QoQ), on the back of grow th is expected to strengthen in the subsequent years, -12.4% -3.0% -2.0% persistently low interest rate environment driven by government initiatives -12.0% -3.9% -1.7% -7.7% -22.0% -12.7%  Aggregate net income decreased substantially by ~40% QoQ,  For 2021, the UAE’s government has reduced its budget -32.0% as increased operating expenses and impairment charges spending by 5.5% to AED 58bn, a large part of w hich w ould -42.0% -31.8% -40.1% -52.0% w eighed on profitability (6.6) be spent on social w elfare, health and education sectors  Recovery of UAE’s banking sector is expected to remain

 Average Q4’20 UAE’s Purchasing Managers’ Index (PMI)

Q1'20 Q2'20 Q3'20 Q4'20 Q4'19 gradual and that pandemic effects w ill likely continue in the declined marginally to 50.1 compared to 50.4 in Q3’20, on

2019 initial quarters of FY’21

2021F 2022F 2023F 2020E account of reduced demand and output Interest Income % QoQ Net Income % QoQ

2 US Fed Funds Rate , EIBOR, % Real Estate & Construction as %  The UAE banks’ exposure to the real estate and construction  In February’21, the US Fed reaffirmed to keep interest rate at 4 1.8 of Total Gross Loans sector reduced by ~300 bps6 QoQ 1.5 record low levels until there are concrete signs of economic 21.5 21.9 22.5 and labor market recovery 19.8 19.6  Currently, the real estate sector is facing headw inds in the 0.6 form of persistent oversupplied conditions and pandemic  The overnight EIBOR saw a marginal increase in Q4’20 by ~1 0.3 0.3 0.1 0.3 0.1 0.3 0.1 driven slow dow n bps to 0.14% compared to Q3’20  The sector is expected to recover over the medium to long  UAE’s central bank is likely to hold the interest rates at the term, on the back of regulatory amendments such as offering

current levels until the domestic economy moves out of the

Q4'19 Q2'20 Q3'20 Q4'20 Q1'20 citizenship and golden visas to qualified expats

US Fed rate movement Overnight EIBOR pandemic effect

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

UAE Money Supply3, (%, Quarterly)  M2 money supply rose by 0.7% QoQ in Q4’20 to AED UAE Banking M&A Deals5

7.0 2.0  While there w ere no deals disclosed in Q4’20, FAB

5.6 1,478.6bn, it increased by 4.6% YoY 6.0 5.4 announced to acquire Bank Audi SAE, the Egyptian arm of 5.0

4.0 3.8  M2 money supply increased as monetary deposits grew by

3.0 2.7 3.0 -based Bank Audi SAL in January’21

3.0

1.9

2.2 2.2

2.0 7.2% QoQ in Q4’20 1.0 0.7

1.0 0.7

0.6  The financial terms of the deal are still not disclosed. 0.2 0.0  M1 increased by 5.6% QoQ in Q4’20 to AED 600.1bn. On an

-1.0 How ever, FAB w ill become the largest international bank

-2.0 0.2 annual basis, M1 increased by 16.5% - w ith an asset base of USD 8.1bn operating in Egypt post

-3.0 0.0 2.0

-  M3 money supply decreased by 2.0% QoQ, due to 13.7% the acquisition

Q2'20 Q3'20 Q4'20 Q1'21

QoQ fall in government deposits. On an annual basis, M3 Q1'20

Q4'19 Q2'20 Q3'20 Q4'20 Q1'20 increased by 3.0% M1 M2 M3 # 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 5 6 AED 1.0bn on bargain purchase in 2020, Bloomberg & A&M Analysis, based on data of 8 banks for Q3’20, weighted 4 average exposure of all banks; * Data for top ten UAE banks by asset size as of September 30 th 2020 Pulse: Profitability Metrics of the UAE Banking Sector Continue to Decline, as Pandemic Effect Persists

Improved Stable Worsened

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

Loans and Advances (L&A) Growth (QoQ) -0.01% -0.4% L&A fell 0.4% QoQ, due to challenging environment. Size 1 Deposits growth (-2.8% QoQ) reached to its lowest Deposits Growth (QoQ) 4.2% -2.8% levels in last seven quarters LDR increased to 86.2% from 84.1% as deposits Liquidity Loan-to-Deposit Ratio (LDR) 84.1% 86.2% 2 declined at a higher rate compared to L&A Operating Income Growth (QoQ) -3.4% 2.7% Operating income increased after declining for three Operating Income / Assets 2.8% 2.8% 3 consecutive quarters, on the back of higher net interest and other operating income Non-Interest Income(NII) / Operating Income 30.9% 30.5% Income & NIM expanded by 5 bps QoQ, as funding costs Operating Yield on Credit (YoC) 5.3% 5.3% improved for banks Efficiency Cost of Funds (CoF) 1.3% 1.2% 4 C/I ratio increased further to 36.7% to move above the Net Interest Margin (NIM) 2.0% 2.1% pre-pandemic levels

Cost-to-Income Ratio (C/I) 34.3% 36.7% 5 CoR increased to 2.0% as compared to 1.3% due to 53% QoQ increase in impairment allowances. Coverage Ratio 90.3% 89.5% Coverage ratio decreased slightly Risk 6 Cost of Risk (CoR) 1.3% 2.0% RoE and RoA declined significantly in line with 40.1% Return on Equity (RoE) 8.8% 5.0% QoQ decrease in net income 7 Profitability Return on Assets (RoA) 1.0% 0.6% Return on Risk-Weighted Assets (RoRWA) 1.5% 0.9% RoRWA decreased tracking lower net income, while 8 the capital adequacy ratio remained flat Capital Capital Adequacy Ratio (CAR) 17.6% 17.6% 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 MSQ Underperformed its Peers on L&A Growth, while FAB’s Deposits Declined Substantially

L&A Growth QoQ (%) Q4’20 Av 4.0 Gained Deposits & Financing MS KEY TAKEAWAYS Gained Financing MS  Top ten UAE banks’ L&A and deposits decreased by 0.4% QoQ and 2.8% QoQ, respectively 2.0  MSQ’s L&A fell 3.3%, as the bank took a cautious lending approach in an uncertain economic environment  FAB reported the highest decline in 0.0 -0.4% deposits (-10.1%), on the back of increased outflow from government and corporate deposits  On the other hand, CBD reported the -2.0 highest growth in deposits (+9.0% QoQ) and L&A (+3.7% QoQ)

Lost Depositing & Financing MS Gained Deposits MS -4.0 -12.0 -10.0 -8.0 -6.0 -4.0 -2.8%-2.0 0.0 2.0 4.0 6.0 8.0 10.0 Deposits Growth QoQ (%)

Note: MS stands for market share Source: Financial statements, Investor presentations, A&M analysis 6 2 Aggregate LDR Increased After Decreasing in the Preceding Quarter

Loans to Deposits Ratio (%)

120 Q3’20 Q3’20 Av KEY TAKEAWAYS Q4’20 Q4’20 Av  Aggregate LDR increased to 86.2% in 110 Q4’20 compared to 84.1% in Q3’20  FAB (+10.6% points QoQ) reported the highest increase in LDR to 71.5% 100  RAK (-8.6% points) and CBD (-4.9% points) reported the largest decline in their LDR during the quarter 90

86.2% 84.1% 80

70

60 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 Increased as NII and Other Operating Income Inched Higher

Improved Stable Worsened

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

16.0 15.9 24.0  Operating income climbed by 2.7% 23.2 22.6 QoQ, primarily driven by 3.3% QoQ 14.7 increase in NII and 17.3% QoQ growth

14.2 22.0 13.7 in other operating income 20.5 20.4  This was partially offset by ~10% QoQ 19.9 20.0 decline in fee income, as pandemic Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 driven slowdown continued to impact

18.0 card and commission income for banks +  CBD (+24.7% QoQ) reported the Quarterly Net Fee commission and other highest increase in its total operating Operating Income (AED Bn) 16.0 income, followed by DIB (+14.6%) and 7.2 SIB (14.5% QoQ) 6.8 14.0 6.1 6.2  ENBD (-12.7% QoQ) and RAK (-5.3% 5.8 QoQ) were the only banks which

12.0 reported reduced operating income

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

Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 8 4 NIM Improved After Declining for Five Consecutive Quarters

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

7.1% 6.7% 5.8% 5.3% 5.3%  NIM increased by ~4.7 bps QoQ to 2.58 2.1%, remaining close to its multi- 2.50 period low levels Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 2.26  Yield on credit remained largely 2.05 2.10 unchanged at 5.3%, while cost of funds Loan-to-Deposit Ratio (LDR) x declined ~15.2 bps to reach 1.2% 87.5% 87.7% 87.7% 86.2% 84.1% –

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

Cost of Funds (Quarterly Annualized)

2.2% 1.9% 1.5% 1.3% 1.2%

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

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 NIMforImprovedtheMostBanks of Source: Financial statements, investor presentations, A&M statements, analysis presentations, investor Financial Source: to rounding due up add might numbers not Some Note: Net Net Interest Margin (%, Quarterly) Improved

1.31 0.06 1.37 - Stable

2.56 0.07 2.49 Worsened

2.41 0.04 2.45

2.21 0.17 2.38

1.51 0.22 1.73 Q3’20 - 2.71 0.03 2.69 0.30 2.08 Q4’20 2.38

1.84 0.29 10

2.13 Q3’20 Av - 4.77 0.25 4.52 0.29 2.11 Q4’20 Av 2.40 2.05% 2.10%     KEY KEY TAKEAWAYS adjustments increased NIIdue to fair value account of lower cost of funds and ADCB’s NIMimproved marginally, on interest rates QoQ) due to the impact of lower RAK reported highest decline (~25 bps (~29 bps QoQ) NIM (~30 bps QoQ), followed by SIB CBD reported the highest increase in costs further banks were able to reduce their funding NIMimproved ~4.7 by bps QoQ, as 5 Cost to Income Ratio Increased to Pre-Pandemic Levels

Improved Stable Worsened

Quarterly Operating Expenses Cost to Income Ratio (AED Bn) (%, Quarterly Annualized) KEY TAKEAWAYS 37.0% 36.7% 8.0  C/I ratio increased for the second 7.7 consecutive quarter to reach 36.7% 7.5

36.0%  Operating expenses grew by ~10% 6.9 6.8 QoQ, the highest increase in past several quarters 35.0%  The increase is largely on account of 34.6% Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 34.3% seasonality effect and one-off expenses incurred by banks ÷ 34.0% 33.8% Quarterly Operating Income  ENBD’s (+13.1% QoQ) and MSQ’s (AED Bn) 33.4% (+68.7% QoQ) operating expenses

33.0% increased at the highest pace 23.2 22.6 20.5 19.9 20.4

32.0%

31.0% Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20

Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 11 5 Efficiency Ratios of MSQ and ENBD Saw the Highest Deterioration

Improved Stable Worsened

Cost to Income Ratio (%, Quarterly) KEY TAKEAWAYS

Q3’20 Q4’20 Q3’20 Av Q4’20 Av  Five of the top ten banks reported increased C/I ratio 35.0  MSQ’s C/I ratio increased at the highest rate (+35.0% points QoQ) impacted by one-off branch rationalization costs, Covid-19 related -4.0 1.3 2.8 expenses and investments in digital 6.8 9.5 -1.7  Similarly, ENBD’s C/I ratio increased -6.6 -4.5 9.5% points QoQ, on account of completion of certain cost management -2.3 initiatives and seasonality effect 36.7% 34.3%  On the other hand, DIB’s C/I ratio improved the most (-6.6% points QoQ), as the bank’s administrative expenses

decreased by ~30% QoQ

25.8 32.0 36.7 40.6 29.4 24.9 43.8 28.0 41.5 35.0 30.0 23.4 55.2 90.1 44.6 45.1 38.2 45.0 39.3 42.1

Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis *Comparison on QoQ basis 12 6 Overall Coverage Ratio Decreased Slightly

Coverage Ratio, % NPL / Net loans, %

Coverage Ratio1 and NPL / Net Loans Ratio (%, Quarterly) KEY TAKEAWAYS  Aggregate coverage ratio for the banks fell marginally to 89.5% in Q4’20 7.0 140.0 9.0 120.0 6.6 7.0 120.0 9.0 140.0 9.0 127 129 127 100.0 125 123 6.0 117 124 8.0 8.0 114 8.0 83 6.0 120.0 5.6 6.0 96 120.0 82 82 100.0 100.0 compared to 90.3% in Q3’20 80 79 6.7 89 7.0 86 7.0 100 7.0 80.0 6.4 5.0 5.9 6.2 98 5.0 100.0 5.9 5.0 74 100.0 4.1 6.0 80.0 73 80.0 73 6.0 5.5 6.0 4.0 72 70 67 70 6.6  Coverage ratio of NBF (+15% QoQ) 60.0 3.6 4.0 80.0 4.0 80.0 4.6 3.3 5.0 3.4 4.2 4.5 5.0 5.6 5.0 4.1 60.0 60.0 5.1 6.1 5.4 4.0 4.0 4.0 3.0 60.0 3.0 60.0 and SIB (+9% points QoQ) improved 40.0 4.8

3.0 40.0 40.0 3.0 3.0 2.0 40.0 2.0 40.0 the most 2.0 2.0 2.0 20.0 20.0 20.0 1.0 20.0 1.0 20.0 1.0 1.0 1.0

------ Aggregate NPL / net loan ratio

continued to increase for the fifth

Q4'19 Q2'20 Q1'20 Q4'20 Q4'19 Q3'20 Q2'20 Q2'20 Q3'20 Q4'20 Q4'19 Q1'20 Q3'20 Q4'20 Q4'19 Q2'20 Q3'20 Q1'20 Q2'20 Q4'20 Q4'19 Q1'20 Q3'20 Q4'20 Q1'20 consecutive quarter to reach 6.1%, as NPLs increased ~6.5%

70.0 18.0 120.0 7.3 7.4 8.0 14.0 7.3 120.0 10.0

103 140.0 131 131 129 100.0 16.0 7.1 7.2 9.0 129 7.0 60.0 55 118 12.0 100.0 100.0 93 92 90 94 84 81 51 8.0 120.0 49 52 14.0 7.0 86 48 82 5.6 6.0 75 5.5 80.0 50.0 76 81 10.0 7.0 12.0 80.0 72 6.8 100.0 66 80.0 4.8 65 10.9 6.9 5.0 6.0 40.0 4.2 4.2 8.0 10.0 6.6 60.0 7.1 9.0 80.0 8.2 60.0 60.0 4.1 4.1 5.0 4.0 5.7 7.9 8.0 6.4 30.0 6.7 9.4 9.2 3.7 3.7 3.6 6.0 8.8 4.0 60.0 3.0 40.0 6.0 40.0 6.2 40.0

20.0 3.0 4.0 6.2 40.0 2.0 4.0 6.0

2.0 20.0 20.0 20.0 10.0 2.0 20.0 2.0 5.8 1.0 1.0

- - - 5.6 - -

- - - -

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

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

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

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 Increased Significantly as Provisioning Rises

Improved Stable Worsened

Quarterly Net Loan Loss Provisions Cost of Risk (AED Bn) (%, Quarterly Annualized) KEY TAKEAWAYS 8.4 8.4  Aggregate cost of risk increased by ~70 bps QoQ, as total provisioning 5.6 5.9 5.5 2.06% increased ~53.4% to AED 8.4bn 2.01%  Overall increase in provisioning is primarily driven by higher impairments from DIB (+3.6x QoQ) Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 and MSQ (+2.6x QoQ) 1.41% 1.42% ÷ 1.31%  MSQ’s provisions increased due to challenging conditions in corporate Average Gross Loans (AED Bn) banking (contracting and NBFI) 1,664 segment 1,660 1,663  On the other hand, FAB (-37.0% QoQ) 1,642 reported a sizeable decrease in provisioning 1,622

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

Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 14 6 NBF Reported theHighest in Increase Risk Costof Source: Financial statements, investor presentations, A&M statements, analysis presentations, investor Financial Source: some and to rounding numbers due up add might not Scaling Note: Cost of Risk (bps) Improved - 50.0 18.6 31.4 - 48.5 180.0 Stable 131.4 – Worsened Net Net of Reversals

80.4 68.8 149.2

103.0 268.2 371.2

333.8 545.4 879.2 Q3’20 113.9 51.3 165.2 Q4’20 124.0 81.6 205.7

92.1 44.1 15

136.2 Q3’20 Av - 470.4 4.7 465.6 810.8 270.2 Q4’20 Av 1,081.0 201.2 131.3    KEY KEY TAKEAWAYS charges increased 3.6x, on account of one by 268 bps, as the bank’s provisioning Similarly, DIB’s cost of risk increased  highest rate (810.8 bps QoQ) NBF’s cost of risk increased at the increase in cost of risk Seven the of top ten banks reported an in provisions The increase resulted from 3.9x rise - off 7 RoE Continued to Decline for the Second Consecutive Quarter

Return on Equity (%) 20 KEY TAKEAWAYS Q3’20 Q2’20 Av Q4’20 Q3’20 Av 10  Aggregate RoE declined further to 8.8% 5.0% 5.0% in Q4’20, amid increased impairments and operating expenses 0  MSQ and NBF reported steep decline in RoEs as losses for banks widened -10 during the period  FAB (13.2%) reported the highest RoE, -20 followed by ADIB (11.6%) and CBD (11.4%) -30

-40

-50

-60 0 200 400 600 800 1,000 1,200 Millions Asset Size (AED Bn)

Source: Financial statements, Investor presentations, A&M analysis 16 7 Operating Environment for the UAE’s Banking Sector is Expected to Remain Less Volatile in FY’21

Improved Stable Worsened

Op. Income / Assets (%) Non-Interest Income / Yield On Credit (%) KEY TAKEAWAYS Op. Income (%) 31.1 30.9 30.5 7.1 29.9 6.7 3.5 3.4 5.8 5.3 3.0 2.8 2.8 5.3 28.4  The UAE’s banking sector is expected to Assets / Equity (x) witness prolonged effect of the pandemic 8.3

8.2 8.2 at least during H1’21

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

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

Q4'19 Q4'20 Q2'20 Q3'20 7.8 Q1'20 7.5  Events such as Expo and a gradual Cost / Income Ratio (%) Net Interest Margin (%) Cost of Funds (%) economic improvement are expected to Return on Equity (%) be the key catalysts for the sector in the

36.7

Q3'20 Q1'20 Q2'20 Q4'20 Q4'19 2.6 2.5 2.3 2.2 near term 34.6 2.0 2.1 1.9 33.8 34.3 11.2 33.4 1.5 1.3 9.0 9.4 8.8 1.2  However, interest rates are likely to 5.0 Return on Assets (%) remain low in the foreseeable future that

2.5 2.3 would impact income streams for banks 2.1

1.9

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

Q2'20 Q4'19 Q1'20 Q3'20 Q4'20 1.7 1.4 1.5  Following the completion of TESS 1.3 1.1 0.9 1.0 1.1 0.9 0.6 program in June’21, banks might witness 0.7 Cost of Risk (%) LDR (%)

0.5 further deterioration in their asset quality

Q3'20 Q4'19 Q1'20 Q2'20 Q4'20 2.1 2.0 87.5 87.7 87.7  FAB’s acquisition of Bank Audi Egypt 1.4 1.4 1.3 86.2 reinstated the M&A wave in the region and 84.1 other banks could follow the trend to

consolidate their position

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

Q3'20 Q1'20 Q2'20 Q4'20 Note: All the charts above are based on L3M numbers Q4'19 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

Consideration Announcement Date Target Company Target Country Acquirer Company % Sought Deal Status* (AED Mn)

20-Jan-21 Bank Audi SAE (Egypt) Egypt First Abu Dhabi Bank PJSC 100% NA Pending 16-Sep-20 Ahli United Bank Egypt SAE Egypt Ahli United Bank BSC 14.4% 298 Pending 30-Jun-20 Al Khalij PQSC Masraf Al Rayan QSC 100% 4,404 Pending 25-Jun-20 Samba Financial Group SJSC 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 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 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 919.1 FAB

Emirates NBD 698.1 ENBD

Abu Dhabi Commercial Bank 411.2 ADCB

Dubai Islamic Bank 289.6 DIB

Mashreq Bank 158.5 MSQ

Abu Dhabi Islamic Bank 127.8 ADIB

Commercial Bank of Dubai 97.4 CBD

Sharjah Islamic Bank 53.6 SIB

National Bank of Ras Al-Khaimah 52.8 RAK

National Bank of Fujairah 39.9 NBF

Note: Banks are sorted by assets size • As on 31st December 2020 21