190626 hsbc bank middle east limited uae operations financial statements PDF

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HSBC Bank Middle East Limited – UAE Operations Financial Statements For the year ended 31 December 2018

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Annual Report and Accounts 2018

Contents Page

Page

Independent Auditor’s Report………………..……. 2

Statement of cash flows for the year ended 31 December 2018……………………………….……..8

Financial Statements Income statement for the year ended 31 December 2018………………………….... …..….. 5 Statement of comprehensive income for the year ended 31 December 2018………………..…….. 6

Statement of changes in equity for the year ended 31 December 2018................................……..9 Notes on the Financial Statements........................... 11

Statement of financial position at 31 December 2018 ………………………….………..7

Presentation of Information This document comprises the financial statements for HSBC Bank Middle East Limited – UAE Operations (‘the Bank’). References to ‘HSBC’ or ‘HSBC Group’ within this document mean HSBC Holdings plc together with its subsidiaries.

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Financial Statements

Income statement for the year ended 31 December 2018

Interest income ............................................................................................ Interest expense ...........................................................................................

Notes

2018 AED’000

2017 AED’000

5 5

3,662,931 (741,096)

3,066,636 (511,857)

2,921,835

2,554,779

6 6

1,431,595 (340,849)

1,481,594 (304,536)

1,090,746

1,177,058

513,983

566,686

Net interest income ...................................................................................... Fee income .................................................................................................. Fee expense ................................................................................................. Net fee income ............................................................................................. Net income from financial instruments held for trading or managed on a fair value basis .............................................................................................. Changes in fair value of long-term debt and related derivatives ...................

5,722

18,321

(26,128)

(7,858)

379,810

377,863

4,885,968

4,686,849

4

Net (losses) from financial investments ........................................................ Other operating income ...............................................................................

7

Net operating income before changes in expected credit losses and other credit impairment ....................................................................................... Changes in expected credit losses and other credit impairment charges .......

8

(411,845)

NA

Loan impairment charges and other credit risk provisions ...........................

8

NA

(414,326)

4,474,123

4,272,523

9

(1,647,142) (937,720) (38,964) (21,885)

(1,529,562) (1,001,824) (33,272) (19,550)

Total operating expenses ...........................................................................

(2,645,711)

(2,584,208)

Profit before tax .........................................................................................

1,828,412

1,688,315

Net operating income ................................................................................. Employee compensation and benefits .......................................................... General and administrative expenses ........................................................... Depreciation and impairment of property, plant and equipment .................. Amortisation and impairment of intangible assets .......................................

Tax expense ................................................................................................. Profit for the year ......................................................................................

11

(309,672)

(268,216)

1,518,740

1,420,099

The accompanying notes on pages 11 to 85 form an integral part of these financial statements.

5

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Financial Statements

Statement of comprehensive income for the year ended 31 December 2018 2018 AED’000

2017 AED’000

1,518,740

1,420,099

Available-for-sale investments – fair value losses ................................................................................... – others .................................................................................................... – income taxes .........................................................................................

NA NA NA NA

(1,664) (4,704) 2,855 185

Debt instruments at fair value through other comprehensive income – fair value losses ................................................................................... – expected credit losses recognised in income statement ......................... – fair value losses transferred to the income statement on disposal ......... – income taxes .........................................................................................

(10,892) (16,454) (28) 4,383 1,207

NA NA NA NA NA

Cash flow hedges – fair value (losses) ................................................................................... – income taxes .........................................................................................

(44,232) (49,147) 4,915

(14,682) (16,313) 1,631

82,623 82,623

(60,021) (60,021)

Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk – fair value gains/(losses) ........................................................................

69,057 69,057

(13,137) (13,137)

Total comprehensive income for the year .................................................

1,615,296

1,330,595

Notes Profit for the year ......................................................................................

Other comprehensive income/(expense) Items that will be reclassified subsequently to profit or loss when specific conditions are met:

Items that will not be reclassified subsequently to profit or loss: Re-measurement of defined benefit asset/liability – before income taxes ...............................................................................

9

The accompanying notes on pages 11 to 85 form an integral part of these financial statements.

6

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Financial Statements

Statement of cash flows for the year ended 31 December 2018 2018 AED’000

2017 AED’000

Cash flows from operating activities Profit before tax ................................................................................................

1,828,412

1,688,315

Adjustments for: – Provision for liabilities and charges .............................................................. – Change in expected credit losses and other credit impairment charges ......... – Loan impairment losses gross of recoveries and other credit risk provisions – Depreciation and amortisation ...................................................................... – Share based payment expense including options .......................................... – Fair value movement on own debt ................................................................ – Loss on investment in shares ........................................................................ – Loss/(gain) on disposal of property and equipment ......................................

62,204 411,845 NA 60,849 34,049 157,107 26,128 38

230,849 NA 414,326 52,822 33,015 (18,321) 7,858 (65,362)

Net cash generated before changes in operating assets / liabilities ....................

2,580,632

2,343,502

– Change in loans and advances to banks and reverse repurchase agreements – non-trading .......................................................................... – Change in loans and advances to customers ............................................... – Change in other assets and derivatives ....................................................... – Change in deposits by banks....................................................................... – Change in customer accounts ..................................................................... – Change in other liabilities, accruals and deferred income and derivatives .. – Retirement benefits and other charges paid ................................................ – Tax paid......................................................................................................

3,916,034 (6,458,413) (961,265) (1,057,641) (285,313) (103,573) (132,493) (245,650)

(9,334,741) 7,694,566 1,118,874 (6,092,768) 466,691 (1,922,723) (59,945) (336,943)

Net cash absorbed in operating activities ..........................................................

(2,747,682)

(6,123,487)

Cash flows from investing activities – Sale/(Purchase) of financial assets and liabilities classified as fair value through profit and loss (net) ....................................................................... – Net cash flows from purchase and sale/maturity of financial investments .. – Purchase of property and equipment and intangible assets ......................... – Sale of property and equipment and intangible assets ................................

622,478 (774,581) (1,144,075) 84,560

(420,275) (1,318,347) (45,500) 105,488

Net cash absorbed in investing activities ..........................................................

(1,211,618)

(1,678,634)

Cash flows from financing activities – Debt securities issued/(repaid) (net) ........................................................... – Dividend paid to Head Office .....................................................................

1,466,599 -

(1,315,372) (2,605,830)

Net cash generated from/(used in) financing activities

1,466,599

(3,921,202)

Net decrease in cash and cash equivalents .................................................... Cash and cash equivalents as at 1 January ........................................................

(2,492,701) 14,399,738

(11,723,323) 26,123,061

Cash and cash equivalents as at 31 December .................................................. 32

11,907,037

14,399,738

Note

The accompanying notes on pages 11 to 85 form an integral part of these financial statements.

8

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Financial Statements

Statement of changes in equity for the year ended 31 December 2018

2018 Other reserves Financial assets at Cash flow Actuarial hedging gains/(losses) Other FVOCI reserve reserve² reserves¹ reserve AED’000 AED’000 AED’000 AED’000 (14,505) (27,011) (293,648) 16,535

Allocated capital AED’000 4,495,255

Legal Reserve AED’000 2,050,128

496,841

(694,387)

(197,113)

At 1 January 2018 ................................................................................

4,495,255

2,050,128

(14,072)

(27,011)

(293,648)

513,376

5,271,518

11,995,546

Profit for the year ................................................................................

-

-

-

-

-

-

1,518,740

1,518,740

-

-

(10,892) -

(44,232)

-

-

-

(10,892) (44,232)

-

-

-

-

82,623

69,057 -

-

69,057 82,623

-

96,556

At 31 Dec 2017 .................................................................................... Impact on transition to IFRS 9 .............................................................

Other comprehensive income (net of tax) ............................................ Debt instruments at fair value through other comprehensive income ... Cash flow hedges ................................................................................ Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk ............................................................ Actuarial gains on defined benefit plans ..............................................

433

Unremitted Total Head profits Office funds AED’000 AED’000 5,965,905 12,192,659

Total comprehensive income for the year .............................................

-

-

(10,892)

(44,232)

82,623

69,057

Transfer to legal reserve ....................................................................... Transfer to General Impairment Reserve²............................................. Other movements ................................................................................

-

151,874 -

-

-

-

156,020 (60,669)

(151,874) (156,020) 60,959

290

(71,243)

(211,025)

677,784

6,543,323

13,611,132

At 31 December 2018 ..........................................................................

4,495,255

2,202,002

(24,964)

¹ AED 14.5m at 31 December 2017 represents the IAS 39 Available-for-sale fair value reserves as at 31 December 2017. ² Other reserve includes the General Impairment Reserve (AED 653m) (AED 497m as at 1 January 2018) as per the requirements of the Central Bank of the UAE. This impairment reserve was created in relation to the difference between the IFRS 9 model ECLs for Stages 1 and 2 and the minimum general provision requirements of the UAECB as an appropriation of retained earnings and is not distributable. The accompanying notes on pages 11 to 85 form an integral part of these financial statements.

9

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Financial Statements

Statement of changes in equity for the year ended 31 December 2017

2017 Other reserves Actuarial Available- Cash flow for-sale fair hedging gains/(losses) Other reserve value reserve reserve reserve AED’000 AED’000 AED’000 AED’000

Allocated capital AED’000

Legal Reserve AED’000

At 1 January 2017 ................................................................................

4,495,255

1,908,118

(12,841)

(12,329)

(233,627)

Profit for the year ................................................................................

-

-

-

-

-

-

-

(1,664) -

(14,682)

-

-

-

Total comprehensive income for the year .............................................

-

-

Transfer of profits to Head Office ........................................................ Other movements ................................................................................

-

142,010

At 31 December 2017 ..........................................................................

4,495,255

2,050,128

Other comprehensive income (net of tax) ............................................ Available-for-sale investments ............................................................ Cash flow hedges ................................................................................ Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk ............................................................ Actuarial losses on defined benefit plans .............................................

The accompanying notes on pages 11 to 85 form an integral part of these financial statements.

10

Unremitted profits AED’000

Total Head Office funds AED’000

40,390

7,298,213

13,483,179

-

1,420,099

1,420,099

-

-

-

(1,664) (14,682)

-

(60,021)

(13,137) -

-

(13,137) (60,021)

(1,664)

(14,682)

(60,021)

(13,137)

-

(89,504)

-

-

-

(10,718)

(2,605,830) (146,577)

(2,605,830) (15,285)

(14,505)

(27,011)

(293,648)

16,535

5,965,905

12,192,659

HSBC BANK MIDDLE EAST LIMITED – UAE Operations

Notes on the Financial Statements 1

Legal status and principal activities HSBC Bank Middle East Limited – United Arab Emirates (‘UAE’) Operations (‘the Bank’) is a branch of HSBC Bank Middle East Limited (‘HBME’). HBME has its place of incorporation and head office in Dubai International Financial Centre (‘DIFC’), in the United Arab Emirates, under a category 1 licence issued by the Dubai Financial Services Authority (‘DFSA’). The immediate parent company of HBME is HSBC Middle East Holdings BV and the ultimate parent company of the Bank is HSBC Holdings plc, which is incorporated in England. The Bank is regulated by the Central Bank of the UAE (‘UAECB’). The principal activity of the Bank is to offer a comprehensive range of financial services to personal, commercial, corporate and institutional clients, which are carried out from its branches as follows:

2

Abu Dhabi Jumeirah

Bur Dubai Jebel Ali

Ras Al Khaimah

Fujairah

Deira Sharjah

Basis of preparation

(a) Compliance with International Financial Reporting Standards The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’) as well as interpretations issued by the IFRS Interpretations Committee (‘IFRS IC’). Standards adopted during the year ended 31 December 2018 The Bank has adopted the requirements of IFRS 9 ‘Financial ins...