English Version - National Bank of Abu Dhabi

Notes to the consolidated financial statements
Notes to the consolidated financial statements
4 Financial risk management (continued) 4 Financial risk management (continued)
Impairment:
The Group measures its exposure to credit risk by reference to the gross carrying amount of financial assets less amounts
offset, interest suspended and impairment losses, if any. The carrying amount of financial assets represents the maximum credit
exposure.
Due from Banks Loans and advances Non-trading investments
2009 2008 2009 2008 2009 2008
AED’000 AED’000 AED’000 AED’000 AED’000 AED’000
Individually impaired
Substandard - - 961,141 207,580 - -
Doubtful 979 1,157 554,127 1,101,640 20,055 20,055
Loss - 810,924 1,673,829 - -
Gross amount 979 1,157 2,326,192 2,983,049 20,055 20,055
Interest suspended - - (639,519) (1,911,304) - -
Specific allowance
for impairment (979) (1,157) (1,053,422) (701,698) (16,712) (16,712)
Carrying amount - - 633,251 370,047 3,343 3,343
Past due but not impaired
Other loans especially
mentioned (OLEM)
Carrying amount - - 3,342,278 454,312 - -
Interest suspended - - (18,247) - - -
Carrying amount - - 3,324,031 454,312 - -
Neither past due nor
Impaired 19,520,709 6,788,528 129,905,136 111,787,992 18,951,055 14,979,413
Collective allowance
for impairment - - (1,604,088) (848,084) - -
Carrying amount 19,520,709 6,788,528 132,258,330 111,764,267 18,954,398 14,982,756
Impaired loans and advances and non-trading investments
Impaired loans and advances and non-trading investments are financial assets for which the Group determines that it is probable
that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreements. The
Group financial assets that are neither past due nor impaired mainly fall within the grade 3-4 in accordance with the Group’s
internal credit risk grading system.
Other loans especially mentioned
Other loans especially mentioned (OLEM) accounts are accounts which are currently performing but show some potential
weakness in the borrower’s financial position and creditworthiness, which requires more than normal attention. Such potential
weakness is specifically monitored to ensure that the quality of the asset does not deteriorate in the near future affecting
negatively the Group’s credit position. On this class of asset the Group believes that specific impairment is not appropriate at
the current condition.
Loans with renegotiated terms
Loans with renegotiated terms are loans that have been restructured due to either deterioration in the borrower’s financial
position and where the Group has made concessions that it would not otherwise consider or the loans are performing but the
terms have been amended. Once the loan is restructured it remains in this category for a minimum period of twelve months
until it performs satisfactory on the revised terms. In the last twelve months, the Group has renegotiated the following exposures:
2009 2008
AED’000 AED’000
Renegotiated loans 3,183,155 -
Accounts with re-negotiated terms amounting to AED 556,907 thousand (2008: AED nil) are included in OLEM.
Allowances for impairment
The Group establishes an allowance for impairment losses on assets carried at amortised cost that represents its estimate of
incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to
individually significant exposures, and a collective loan loss allowance for losses that have been incurred but not identified,
established for groups of homogeneous assets with similar risk characteristics that are indicative of the debtor’s ability to pay
amounts due according to the contractual terms on the basis of a credit risk evaluation or grading process that considers asset
type, industry, geographical location, collateral type, past due status and other relevant factors. Future cash flows in a group of
financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets
with credit risk characteristics similar to those in the group.
Individually assessed loans are required to be classified as impaired as soon as there is objective evidence that an impairment
loss has been incurred. Objective evidence of impairment includes observable data such as when contractual payment of
principal or interest is overdue or there is known difficulties in the cash flows of counterparties, credit rating downgrades or
original terms of the contractual repayment are unable to be met.
Write-off policy
The Group writes off a loan or investment balance (and any related allowances for impairment losses) when the Risk Management
Committee determines that the loans or investments are uncollectible. This is determined after all possible efforts of collecting
the amounts have been exhausted.
Collateral
The Group holds collateral against loans and advances and investments in the form of mortgage interests over property, other
securities over assets, cash deposits and guarantees. The Group accepts sovereign guarantees and guarantees from well reputed
local or international banks, well established local or multinational large corporate and high net-worth private individuals.
Collateral generally is not held against due from banks, and no such collateral was held at 31 December 2009 or 2008.
An estimate of the fair value of collateral and other security enhancements held against loans and advances (including Islamic
financing) is shown below:
2009 2008
AED’000 AED’000
Against individually impaired
Property 446,673 357,809
Debt securities - -
Equities 142,337 45,845
Other 45,048 -
634,058 403,654
Against past due but not impaired
Property 6,037,155 404,000
Debt securities - -
Equities 884,422 164,612
Other 214,473 31,068
7,136,050 599,680
7,770,108 1,003,334
During the year 2009 and 2008, the Group repossessed a negligible amount of collateral that was held as security against loans
and advances.
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