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)
Concentrations of risk
The Group monitors concentrations of credit risk by industry sector, counterparty and geographic location. An analysis of
concentrations of credit risk at the reporting date is shown below:
Loans and advances
2009 2008
AED’000 AED’000
Concentration by industry sector:
Agriculture 102,153 151,822
Energy 14,765,588 10,587,202
Manufacturing 6,871,383 7,214,596
Construction 8,037,233 7,347,252
Real estate 21,383,367 16,991,214
Trading 8,539,818 7,815,420
Transport 6,752,251 6,365,725
Banks 1,062,590 991,587
Other financial institutions 15,914,838 11,938,702
Services 9,861,209 8,960,480
Government 16,732,726 13,802,226
Personal loans for consumption 15,056,757 11,134,210
Personal loans others 10,207,180 11,503,240
Others 286,513 421,677
135,573,606 115,225,353
Less: allowance for impairment (2,657,510) (1,549,782)
Less: interest suspended (657,766) (1,911,304)
Net loans and advances 132,258,330 111,764,267
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
Concentration by location:
UAE 4,532,762 3,579,261 102,298,465 83,376,441 7,846,364 3,855,136
Europe 12,719,622 2,264,421 15,240,981 13,600,063 7,268,510 7,490,460
Arab countries 1,822,168 472,365 13,544,900 13,866,763 2,359,572 1,797,667
USA 239,793 382,758 688,607 690,410 910,160 962,417
Asia 204,957 68,485 84,235 56,704 - -
Others 1,407 21,238 401,142 173,886 569,792 877,076
19,520,709 6,788,528 132,258,330 111,764,267 18,954,398 14,982,756
Concentration by location for loans and advances and due from banks is measured based on the residential status of the
borrower. Concentration by location for non-trading investments is measured based on the location of the issuer of the security.
Settlement risk
The Group’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of
loss due to the failure of a counter party to honour its obligations to deliver cash, securities or other assets as contractually
agreed.
Derivative related credit risk
Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its
contractual obligations and is limited to the positive market value of instruments that are favourable to the Group, which
are included in other assets. The positive market value is also referred to as the “replacement cost” since it is an estimate of
what it would cost to replace transactions at prevailing market rates if a counterparty defaults. The majority of the Group’s
derivative contracts are entered into with other financial institutions.
Commitments and contingencies related credit risk
Credit risk arising from commitments and contingencies is discussed in note 37.
Due from banks Non-trading investments
2009 2008 2009 2008
AED’000 AED’000 AED’000 AED’000
Carrying amount 19,520,709 6,788,528 18,954,398 14,982,756
Concentration by counter party:
Government - - 4,627,565 987,488
Supranational - - - 451,454
Public sector - - 1,968,049 888,578
Banks 19,521,688 6,789,685 11,104,711 11,473,939
Corporate sector - - 1,270,785 1,198,009
19,521,688 6,789,685 18,971,110 14,999,468
Less: Allowance for impairment (979) (1,157) (16,712) (16,712)
Total carrying amount 19,520,709 6,788,528 18,954,398 14,982,756
The concentration by sector for loans and advances is disclosed in note 11.
(c) Liquidity risk
Liquidity or funding risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial
liabilities. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of
funding to dry up immediately.
Management of liquidity risk
The Group’s approach to managing liquidity risk is to ensure that, management has diversified funding sources and closely
monitors liquidity to ensure adequate funding. The Group maintains a portfolio of short-term liquid assets, largely made
up of short-term liquid trading investments, and inter-bank placements. All liquidity policies and procedures are subject
to review and approval by ALCO.
Exposure to liquidity risk
The key measure used by the Group for measuring liquidity risk is the ratio of net liquid assets, i.e., total assets by maturity
against total liabilities by maturity.
Details of the Group’s net liquid assets is summarised in the table below by the maturity profile of the Group’s assets
and liabilities based on the contractual repayment arrangements and does not take account of the effective maturities as
indicated by the Group’s deposit retention history. The contractual maturities of assets and liabilities have been determined
on the basis of the remaining period at the reporting date to the contractual maturity date. The maturity profile is monitored
by management to ensure adequate liquidity is maintained.
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