National Bank of Umm Al Qaiwain PSC : NBQ 2021 Pillar-3 Published on 24-03-2022

Basel III - Pillar 3 Disclosures

31 December 2021

National Bank of Umm Al Qaiwain

.

Page 1 of 41

		Contents
1.	General Information: ............................................................................................................................	5
2.	Executive Summary:..............................................................................................................................	5
2.1.		Purpose .............................................................................................................................................	5
2.2. Overview of Basel III Requirements..................................................................................................	5
2.3.		Verification........................................................................................................................................	5
2.4.		Capital Management.........................................................................................................................	5
2.5.		Capital Stress Testing ........................................................................................................................	6
1. Overview of risk management and RWA..............................................................................................	7
1.1. Template KM1: Key metrics (at consolidated group level)...............................................................	7
1.2. Table OVA: Bank Risk Management Approach .................................................................................	9
1.2.1.	Business Model Determination and Risk Profile:..........................................................................	9
1.2.2.	Risk Governance Framework: .......................................................................................................	9
1.2.3.	Strategic and Operational Decisions:............................................................................................	9
1.2.4.	Risk Management Structure: ......................................................................................................	10
1.2.5.	Risk Management Framework ....................................................................................................	11
1.2.6.	Risk Appetite ...............................................................................................................................	11
1.2.7.	Risk Management Architecture ..................................................................................................	12
1.2.8.	Risk Management Function: .......................................................................................................	13
1.2.9.	Compliance Function: .................................................................................................................	13
1.2.10.	Internal Audit & Control Function: .............................................................................................	13
1.2.11.	Information Systems and Reporting: ..........................................................................................	14
a. Internal Capital Adequacy Assessment Process (ICAAP) ....................................................................	14
b.	Stress Testing ......................................................................................................................................	14
1.2.12.	Policies ........................................................................................................................................	14
1.2.13. Risk Identification, Assessment and Measurement:...................................................................	15
1.3. Template OV1: Overview of RWA...................................................................................................	16
2. Linkages between financial statements and regulatory exposures....................................................	17
2.1. Template LI1: Differences between accounting and regulatory scopes of consolidation..............	17

2.2. Template LI2: Main sources of differences between regulatory exposure amounts and carrying

values in financial statements.....................................................................................................................	18
3.	Prudent valuation adjustments ..........................................................................................................	18
4.	Composition of Capital........................................................................................................................	19
		Page 2 of 41

4.1.		Template CC1: Composition of regulatory capital..........................................................................	19
4.2.		Template CC2: Reconciliation of regulatory capital to balance sheet ............................................	22
4.3.		Template CCA: Main features of regulatory capital instruments ...................................................	22
5. Macro prudential Supervisory Measures............................................................................................	23
5.1.		Template CCyB1: Countercyclical Buffer ........................................................................................	23
6.	Leverage ratio .....................................................................................................................................	23
6.1.		Template LR1: Summary comparison of accounting assets vs leverage ratio exposure ................	23
6.2.		Template LR2: Leverage ratio common disclosure template .........................................................	24
7.	Liquidity Risk Management.................................................................................................................	25
7.1.		Template LIQ1: Liquidity Coverage Ratio (LCR) ..............................................................................	25
7.2.		Template LIQ2: Net Stable Funding Ratio (NSFR) ...........................................................................	25
7.3.		Template ELAR: Eligible Liquid Assets Ratio ...................................................................................	26
7.4.		Template ASRR: Advances to Stables Resource Ratio ....................................................................	26
8.	Credit risk ............................................................................................................................................	27
8.1.		Template CRA: General qualitative information about Credit Risk ................................................	27
8.2.		Template CR1: Credit quality of assets ...........................................................................................	27
8.3.		Template CR2: Changes in stock of defaulted loans and debt securities .......................................	28
8.4.		Template CRB: Additional disclosure related to the credit quality of assets .................................	28
8.4.1.	The scope and definitions of 'past due' and 'impaired' exposures.............................................	28
8.4.2.	Description of methods used for determining accounting provisions for credit losses.............	28
8.4.3.	Loans & Advances Exposure by Industry Sectors: ......................................................................	29
8.4.4.	Loans & Advances Exposure by Residual Maturity Buckets: ......................................................	29

1. Template CRC: Qualitative disclosure requirements related to credit risk mitigation techniques 29
2. Template CRD: Qualitative disclosure on bank's use of external credit rating under the

Standardised Approach of Credit Risk ........................................................................................................

30

8.4.7. Template CR4: Standardised approach - credit risk exposure and Credit Risk Mitigation (CRM) effects 31

8.4.8.	Template CR5: standardised approach- exposure by asset classes and risk weights.................	32
9.	Counterparty Credit Risk.....................................................................................................................	33
9.1.		Template CCR1: Analysis of counterparty credit risk (CCR) exposure by approach .......................	33

9.2. Template CCR3: Standardised approach - CCR exposures by regulatory portfolio and risk weights 33

9.3.

Template CCR5: Composition of collateral for CCR exposure ........................................................

34

Page 3 of 41

9.4.	Template CCR6: Credit derivative exposures..................................................................................	34
9.5.	Template CCR8: Exposures to central counterparties ....................................................................	34
10.	Securitisation ..................................................................................................................................	34
10.1.	Template SEC1: Securitisation exposures in the banking book ......................................................	34
10.2.	Template SEC2: Securitisation exposures in the trading book .......................................................	34
10.3.	Template SEC3: Securitisation exposures in the banking book and associated regulatory capital
requirements - bank acting as originator or as sponsor.............................................................................	34
10.4.	Template SEC4: Securitisation exposures in the banking book and associated capital
requirements - bank acting as investor ......................................................................................................	34
11.	Market risk ......................................................................................................................................	35
11.1.	Table MRA: General qualitative disclosure requirements related to market risk ..........................	35
11.2.	Table MR1: Market risk under the standardised approach (SA) ....................................................	35
11.3.	Interest rate risk in the banking book.............................................................................................	35
11.4.	Table IRRBBA: IRRBB risk management objectives and policies.....................................................	36
11.5.	Table IRRBB1: Quantitative information on IRRBB .........................................................................	37
12.	Operational Risk..............................................................................................................................	37
12.1.	Table ORA: General qualitative information on a bank's operational risk framework .................	37
13.	Remuneration Policy.......................................................................................................................	39
13.1.	Table REMA: Remuneration policy .................................................................................................	39
13.1.1. Main elements of the remuneration system:.............................................................................	39
13.1.2. Information related to design and structure of remunerations process:...................................	40
13.2.	Template REM1: Remuneration awarded during the financial year ..............................................	41
13.3.	Template REM2: Special payments.................................................................................................	41
13.4.	Template REM3: Deferred remuneration.......................................................................................	41

Page 4 of 41

1. General Information:

National Bank of Umm Al-Qaiwain (PSC) (the "Bank") is a Public Shareholding Company (ADX listed) incorporated in the Emirate of Umm Al-Qaiwain ("UAQ") in the United Arab Emirates ("U.A.E.") by Amiri Decree Number (1) on January 5, 1982, issued by His Highness, the Ruler of Umm Al-Qaiwain, and commenced its operations with effect from August 1, 1982.

The Group comprises National Bank of Umm Al-Qaiwain (PSC), Umm Al-Qaiwain, and its subsidiary Twin Towns Marketing Management LLC (100% ownership), Dubai. The Bank is engaged in providing products and services to customers in Retail, Corporate, Small and Medium Enterprise, Treasury and Trade finance in both conventional and Islamic banking.

2. Executive Summary:

The Central Bank of the UAE has published notice number CBUAE/BSD/N/2020/4980 in November 2020 and CBUAE/BSD/N/2021/5508 on 30 November 2021 regarding Pillar 3 disclosures. These disclosures have been prepared in accordance with these guidelines along with the Board approved disclosure Policy of the Bank.

2.1. Purpose

The purpose of this report is to enable market participants to access key information relating to Bank's regulatory capital and risk exposures in order to increase transparency and confidence about Bank's exposure to risk and the overall adequacy of its regulatory capital.

2.2. Overview of Basel III Requirements

The Bank complies with the Basel 3 standards and guidelines, which have been implemented in the UAE through notice reference CBUAE/BSD/N/2020/4980 dated 12 November 2020.

For Pillar 1, Bank has adopted the Standardized Approach for Credit Risk, the Standardized Approach for Market Risk and the Basic Indicator Approach for determining the capital requirements for Operational Risk.

Pillar 2 covers additional risk areas such as systemic risk, concentration risk, strategic risk, reputational risk, liquidity risk and legal risk. The risk and capital assessment of these other areas are commonly referred as "Internal Capital Adequacy Assessment Process (ICAAP)". Under ICAAP report, the Bank assesses the above mentioned risk (where applicable) and measures that after combining the pillar 1+Pillar 2 risk the Bank can withstand the regulatory and internal capital requirements. The Bank submits ICAAP report to CBUAE on annual basis.

Pillar 3 focuses on Market Discipline and complements the minimum capital requirements (Pillar I) and the supervisory review process (Pillar II). The CBUAE supports the enhanced market discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on the scope of application, capital, risk exposure, risk assessment process and hence the capital adequacy . This report is prepared in line with the same objective.

2.3. Verification

The Pillar 3 disclosures for the period 31 December 2021 have been reviewed and signed off by External Auditor

2.4. Capital Management

Bank's capital management policy is to maintain a strong capital base to support the development and growth of business. Current and future capital requirements are determined on the basis of loan growth expectations for each business unit, expected growth in off-balance sheet facilities, future sources and uses of funds and Bank's future dividend policy. The Bank also ensures compliance with externally imposed capital requirement norms, strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders' value. During the year the Bank had complied in full with all external imposed capital requirements. The U.A.E. Central Bank requires the banks in U.A.E. to maintain a ratio of total regulatory capital to the risk weighted assets at or above the agreed minimum of 13%. (Including 2.5% of capital conservation buffer)

Page 5 of 41