HSBC Bank Middle East Limited Annual Report and Accounts 2020 Contents Presentation of Information Page This document comprises the Annual Report and Accounts 2020 Report of the Directors 2 for HSBC Bank Middle East Limited (‘the bank’) and its subsidiary Independent Auditor’s Report to the Shareholder of HSBC Bank undertakings (together ‘the group’). It contains the Report of the Middle East Limited 3 Directors, Financial Statements together with the Auditor’s report Financial Statements 8 and Additional information. References to ‘HSBC’ or ‘the HSBC Consolidated income statement 8 Group ’or 'the Group' within this document mean HSBC Holdings Consolidated statement of comprehensive income 9 plc together with its subsidiaries. Consolidated statement of financial position 10 Consolidated statement of cash flows 11 Consolidated statement of changes in equity 12 Notes on the Financial Statements 13 1 Legal status and principal activities 13 2 Basis of preparation and significant accounting policies 13 3 Net fee income 22 4 Changes in fair value of designated debt and related derivatives 22 5 Operating profit/(loss) 23 6 Employee compensation and benefits 23 7 Auditors’ remuneration 24 8 Tax 24 9 Dividends 25 10 Segment analysis 26 11 Trading assets 27 12 Fair values of financial instruments carried at fair value 27 13 Fair values of financial instruments not carried at fair value 31 14 Derivatives 32 15 Financial investments 34 16 Assets charged as security for liabilities, and collateral accepted as security for assets 34 17 Interests in associates and joint arrangement 34 18 Investments in subsidiaries 35 19 Prepayments, accrued income and other assets 35 20 Intangible assets 35 21 Trading liabilities 35 22 Financial liabilities designated at fair value 36 23 Debt securities in issue 36 24 Accruals, deferred income and other liabilities 37 25 Provisions 37 26 Maturity analysis of assets, liabilities and off-balance sheet commitments 37 27 Offsetting of financial assets and financial liabilities 39 28 Foreign exchange exposure 39 29 Called up share capital and share premium 40 30 Notes on the statement of cash flows 40 31 Risk management 41 32 Contingent liabilities, contractual commitments and guarantees 69 33 Lease commitments 70 34 Legal proceedings and regulatory matters 70 35 Related party transactions 71 36 Events after the balance sheet date 73 Additional information 74 HSBC Bank Middle East Limited Annual Report and Accounts 2020 1 Report of the Directors | Independent Auditor’s Report to the Shareholder of HSBC Bank Middle East Limited Board of Directors David Eldon, Chairman John Raine Martin Tricaud, Deputy Chairman Neslihan Erkazanci Muna Al Gurg John Bartlett Amina Alrustamani Christopher Spooner David Dew Stephen Moss Change in Directors • Muna Al Gurg appointed as a Director on 16 July 2020. • Stephen C Moss appointed as a Director on 22 October 2020. • Dr. Raja Al Gurg resigned as a Director on 11 February 2020. On 22 February 2021, the HSBC Group announced a change to its senior management team in the Middle East, North Africa and Turkey region. This change is subject to regulatory approval. Principal activities The group through its branch network and subsidiary undertakings provides a range of banking and related financial services in the Middle East, North Africa and Turkey. Attributable profit and dividends The loss attributable to the shareholders of the parent company amounted to US$86m (profit in 2019: US$554m) as set out in the consolidated income statement on page 8. No dividends were declared during the year (2019: US$200m). Registered office The bank is registered by continuation as a company limited by shares in the Dubai International Financial Centre (‘DIFC’) under the Companies Law, DIFC Law No. 2 of 2009, on 30 June 2016 with registered number 2199. Its head office and registered office is located at Level 1, Gate Village Building 8, Dubai International Financial Centre, Dubai, United Arab Emirates. Auditor PricewaterhouseCoopers Limited has expressed its willingness to continue in office and the Board recommends that it be reappointed. A resolution proposing the reappointment of PricewaterhouseCoopers Limited as auditor of the group and giving authority to the Directors to determine its remuneration will be submitted to the forthcoming Annual General Meeting. On behalf of the Board J A Tothill Secretary 2 HSBC Bank Middle East Limited Annual Report and Accounts 2020 Report on the audit of the consolidated financial statements Our opinion In our opinion, the consolidated financial statements present fairly, in all material aspects, the consolidated financial position of HSBC Bank Middle East Limited (the ‘Company’) and its subsidiaries (together the ‘group’) as at 31 December 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). What we have audited The group’s consolidated financial statements comprise: • the consolidated statement of financial position as at 31 December 2020; • the consolidated income statement for the year then ended; • the consolidated statement of comprehensive income for the year then ended; • the consolidated statement of changes in equity for the year then ended; • the consolidated statement of cash flows for the year then ended; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (‘IESBA Code’) and the ethical requirements of the Dubai Financial Services Authority (the ‘DFSA’). We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. Our audit approach Overview Group scoping The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk assessment, the financial significance of the components and other qualitative factors. Materiality Overall group materiality: USD 22.7 million, which represents 5% of the average of the absolute value profit or loss of the current year and the prior two financial years as a benchmark for calculating our overall group materiality. Key audit matters The key audit matters identified during the year are: • Expected credit losses - Impairment on loans and advances to customers • IT access management As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates. Given the geographically dispersed nature of the group’s operations in the Middle East and North Africa and the diversity of its banking activities, our approach was designed to cover each of the significant locations, being the United Arab Emirates (‘UAE’) and Qatar. We audited the operations of the group in the UAE and instructed a PwC member firm to perform work and issue an audit opinion to us in respect of the group’s operations in Qatar. Each location that was not individually significant was assessed for any significant risks or material balances and, where appropriate, we instructed PwC member firms in those locations to perform and report on specific procedures relating to matters which were judgmental in nature and/or material to the overall group. The work in these locations was carried out by applying standard benchmarks on materiality and reflected the size and complexity of the operations in those locations. PricewaterhouseCoopers Limited, License no. CL0215 Al Fattan Currency House, Tower 1, Level 8, Unit 801, DIFC, PO Box 11987, Dubai – United Arab Emirates T: +971 (0)4 304 3100, F: +971 (0)4 346 9150, www.pwc.com/me PricewaterhouseCoopers Limited is registered with the Dubai Financial Services Authority. HSBC Bank Middle East Limited Annual Report and Accounts 2020 3 Independent Auditor’s Report to the Shareholder of HSBC Bank Middle East Limited Our audit approach (continued) How we tailored our group audit scope (continued) A significant amount of the group’s operational processes