Bank of Sharjah

Pillar 3 Report

30 September 2023

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

Table of Contents

1.

Introduction

2

2.

Purpose and basis of preparation

2

3.

Overview of Pillar III

3

3.1 Verification

4

3.1 Implementation of Basel III standards and guidelines

4

4.

Key Metrics for the group (KM1)

5

5.

Overview of Risk Weighted Assets (OV1)

6

6.

Leverage Ratio

7

6.1 Summary comparison of accounting assets versus leverage ratio exposure (LR1)

7

6.2 Leverage ratio common disclosure template (LR2)

8

7.

Liquidity risk management

9

7.1 Eligible Liquid Asset Ratio (ELAR)

9

7.2 Advances to Stable Resources Ratio (ASRR)

9

1

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

1. Introduction

Bank of Sharjah P.J.S.C. (the "Bank"), is a public joint stock company incorporated by an Amiri Decree issued on 22 December 1973 by His Highness the Ruler of Sharjah and was registered in February 1993 under the Commercial Companies Law Number 8 of 1984 (as amended). The Bank commenced its operations under a banking license issued by the United Arab Emirates Central Bank dated 26 January 1974. The Bank is engaged in commercial and investment banking activities.

The Bank's registered office is located at Al Khan Road, P.O. Box 1394, Sharjah, United Arab Emirates. The Bank operates through eight branches in the United Arab Emirates located in the Emirates of Sharjah, Dubai, Abu Dhabi, and City of Al Ain.

2. Purpose and Basis of preparation

The Central Bank of the UAE supports the Bank's strategic effort to delink/deconsolidate its Lebanese Subsidiary, as the underlying accounting anomalies impact is not sustainable for the Bank and pose a threat for even greater unnecessary volatility. Accordingly, the ultimate immediate objective was to cease the consolidation of the Lebanese Subsidiary financial statements in the Group's financial statements as per the Central Bank of the UAE recommendations effective 1 April 2023. This is required in order to avoid the unnecessary accounting anomalies and/or disruptions resulting from the consolidation of the Lebanese Subsidiary. On 22 June 2023, the board approved the de-linking.

When the Group classifies the Lebanese subsidiary as an "asset held for sale" involving loss of control and the sale is highly probable within 12 months, all the assets and liabilities of that subsidiary are classified as held for sale. Once classified in this category, the group of assets and liabilities are measured at the lower of carrying amount or fair value less costs to sell. If the group of assets and liabilities becomes impaired, an impairment loss is recognised in the condensed consolidated interim statement of profit and loss. Impairment losses may be reversed. The fair value less cost to sell estimate is a significant judgement and it is determined based on the market offer approach

The disclosures have been prepared in line with the disclosures template introduced by the CBUAE guidelines on disclosure requirements published in November 2020, November 2021 and December 2022 respectively.

The Pillar III report of the Group for the period ended 30 September 2023 comprises detailed information on the underlying drivers of risk-weighted assets (RWA), capital of the Bank, its wholly owned subsidiaries (together referred to as "The Group"). The report should be read in conjunction with the Group's reviewed Financial Statements as at 30 September 2023.

2

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

2. Purpose and Basis of preparation (continued)

The complete listing of all direct subsidiaries of Bank of Sharjah PJSC as at 30 September 2023 is as follows:

Proportion of

Country

ownership

Year of

Year of

of

Name of Subsidiary

interest

incorporation

acquisition

incorporation

Principal activities

2023

2022

Emirates Lebanon Bank SAL

100%

100%

1965

2008

Lebanon

Financial institution

El Capital FZC

100%

100%

2007

2017

U.A.E.

Investment in a financial institution

BOS Real Estate FZC

100%

100%

2007

2007

U.A.E.

Real estate development activities

BOS Capital FZC

100%

100%

2007

2007

U.A.E.

Investment

Polyco General Trading LLC

100%

100%

2008

2008

U.A.E.

General trading

Investment & Real estate

Borealis Gulf FZC

100%

100%

2010

2010

U.A.E.

development activities

BOS Funding Limited

100%

100%

2015

2015

Cayman Islands

Financing activities

Developing of real estate & related

Muwaileh Capital FZC

90%

90%

2010

2017

U.A.E.

activities

BOS Repos Limited

100%

100%

2018

2018

Cayman Islands

Financing activities

BOS Derivatives Limited

100%

100%

2018

2018

Cayman Islands

Financing activities

GTW Holding LTD

100%

100%

2022

2022

U.A.E. (ADGM)

Facilitate the sale of real estate assets

GDLR Holding LTD

100%

100%

2022

2022

U.A.E. (ADGM)

Facilitate the sale of real estate assets

BOS Real Estate Egypt

100%

-

2023

2023

Egypt

Real estate development activities

3. Overview of Pillar III

Pillar III complements the minimum capital requirements and the supervisory review process. Its aim is to encourage market discipline by developing disclosure requirements which allow market participants to assess certain specified information on the scope of application of Basel III, capital, particular risk exposures and risk assessment processes, and hence the capital adequacy of the institution. Disclosures consist of both quantitative and qualitative information and are provided on the consolidated level.

The CBUAE issued Basel III capital regulations, which came into effect from 1 February 2017 introducing minimum capital requirements at three levels, namely Common Equity Tier 1 ('CET1'), Additional Tier 1 ('AT1') and Total Capital.

The minimum capital adequacy requirements as set out by the Central Bank of UAE are as follows:

  • Minimum common equity tier 1 (CET 1) ratio of 7% of risk weighted assets (RWAs).
  • Minimum tier 1 ratio of 8.5% of RWAs.
  • Total capital adequacy ratio of 10.5% of RWAs.

In addition to CET 1 ratio of 7% of RWAs, a capital conservation buffer (CCB) of 2.5% of RWAs shall be maintained in the form of CET 1. Further, counter cyclical buffer (CCyB) requirement shall be met by using CET 1. The level of CCyB to be notified by 'the Central Bank'. There is no CCyB requirement during the current period.

The capital adequacy ratios are computed based on circulars issued by the Central Bank of UAE and based on a specific exception received from the Central Bank of the UAE considering the currency translation reserve resulting from the change in the Lebanese official rate from LBP 1507.5 to LBP 15,000 on 28 February 2023. The Group has complied with all the externally imposed capital requirements.

3

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

3. Overview of Pillar III (continued)

Following are the changes in the revised standards which have been adopted:

  • The Tier Capital Supply Standard
  • Tier Capital Instruments Standard
  • Pillar 2 Standard: Internal Capital Adequacy Assessment Process (ICAAP)
  • Credit Risk, Market Risk and Operational Risk
  • Equity Investment in Funds, Securitisation, Counterparty Credit Risk, Leverage Ratio
  • Credit Value Adjustment (CVA) for Pillar I and III

CBUAE requires the Pillar 2 - Supervisory Review Process to focus on each bank's Internal Capital Adequacy Assessment Process (ICAAP) in addition to Pillar 1 Capital calculations. The ICAAP should include a risk based forward looking view of, but not limited to, Credit, Market and Operational Risk Capital.

3.1 Verification

The Pillar 3 Disclosures for the period ending 30 September 2023 have been reviewed by the Group's internal auditors.

3.2 Implementation of Basel III standards and guidelines

The Group is compliant with Standardised Approach for Credit, Market and the Basic Indicator Approach for Operational Risk (Pillar 1) as applicable in 2023.

4

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

4. Key Metrics for the group (KM1)

Key prudential regulatory metrics have been included in the following table:

30 September

30 June

31 December

30 September

2023

2023

2022

2022

Available capital (amounts)

AED 000

AED 000

AED 000

AED 000

1

Common Equity Tier 1 (CET1)

3,912,860

4,003,001

3,247,735

3,149,977

1a

Fully loaded ECL accounting model

3,856,939

3,956,383

3,134,690

3,039,395

2

Tier 1

3,912,860

4,003,001

3,247,735

3,149,977

2a

Fully loaded ECL accounting model Tier 1

3,856,939

3,956,383

3,134,690

3,039,395

3

Total capital

4,240,350

4,334,303

3,618,792

3,515,842

3a

Fully loaded ECL accounting model total capital

4,184,429

4,287,685

3,505,747

3,405,260

Risk-weighted assets (amounts)

4

Total risk-weighted assets (RWA)

27,905,075

28,205,402

31,428,477

30,791,161

Risk-based capital ratios as a percentage of RWA

5

Common Equity Tier 1 ratio (%)

14.02%

14.19%

10.33%

10.23%

5a

Fully loaded ECL accounting model CET1 (%)

13.82%

14.03%

9.97%

9.87%

6

Tier 1 ratio (%)

14.02%

14.19%

10.33%

10.23%

6a

Fully loaded ECL accounting model Tier 1 ratio

13.82%

14.03%

9.97%

9.87%

(%)

7

Total capital ratio (%)

15.20%

15.37%

11.51%

11.42%

7a

Fully loaded ECL accounting model total capital

15.00%

15.20%

11.15%

11.06%

ratio (%)

Additional CET1 buffer requirements as a percentage

of RWA

8

Capital conservation buffer requirement (2.5% from

2.50%

2.50%

2.50%

2.50%

2019) (%)

9

Countercyclical buffer requirement (%)

-

-

-

-

10

Bank D-SIB additional requirements (%)

-

-

-

-

11

Total of bank CET1 specific buffer requirements

2.50%

2.50%

2.50%

2.50%

(%) (row 8 + row 9+ row 10)

12

CET1 available after meeting the bank's minimum

4.70%

4.87%

1.01%

0.92%

capital requirements (%)

Leverage Ratio

13

Total leverage ratio measure

39,735,830

40,863,645

43,531,026

38,758,330

14

Leverage ratio (%) (row 2/row 13)

9.85%

9.80%

7.46%

8.13%

14

Fully loaded ECL accounting model leverage ratio

9.71%

9.68%

7.20%

7.84%

a

(%) (row 2A/row 13)

14

"Leverage ratio (%) (excluding the impact of any

b

applicable temporary exemption of central bank

9.85%

9.80%

7.46%

8.13%

reserves)"

Liquidity Coverage Ratio

15

Total HQLA

-

-

-

-

16

Total net cash outflow

-

-

-

-

17

LCR ratio (%)

-

-

-

-

Net Stable Funding Ratio

18

-

-

-

-

-

19

Total required stable funding

-

-

-

-

20

NSFR ratio (%)

-

-

-

-

ELAR

21

Total HQLA

4,407,093

3,958,740

4,853,306

3,258,010

22

Total liabilities

35,056,917

32,176,995

36,222,861

31,765,430

23

Eligible Liquid Assets Ratio (ELAR) (%)

12.57%

12.30%

13.40%

10.26%

ASRR

24

Total available stable funding

31,057,765

30,688,053

30,413,466

27,442,773

25

Total Advances

24,296,922

24,158,111

25,554,239

24,276,473

26

Advances to Stable Resources Ratio (%)

78.23%

78.72%

84.02%

88.46%

5

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

5. Overview of Risk Weighted Assets (OV1)

The following table provides an overview of RWAs, calculated in accordance with Basel III, by risk type and calculation approach.

Minimum

capital

RWA

RWA

RWA

requirements

30 September

30 June

31 December

30 September

2023

2023

2022

2023

AED 000

AED 000

AED 000

AED 000

1

Credit risk (excluding counterparty credit risk)

26,155,121

26,473,078

29,684,588

2,746,288

2

Of which: standardised approach (SA)

26,155,121

26,473,078

29,684,588

2,746,288

3

Of which: foundation internal ratings-based(F-IRB) approach

-

-

-

-

4

Of which: supervisory slotting approach

-

-

-

-

5

Of which: advanced internal ratings-based(A-IRB) approach

-

-

-

-

6

Counterparty credit risk (CCR)

-

-

-

-

7

Of which: standardised approach for counterparty credit risk

-

-

-

-

8

Of which: Internal Model Method (IMM)

-

-

-

-

9

Of which: other CCR

-

-

-

-

10

Credit valuation adjustment (CVA)

44,109

31,049

-

4,631

11

Equity positions under the simple risk weight approach

-

-

-

-

12

Equity investments in funds - look-through approach

-

-

-

-

13

Equity investments in funds - mandate-based approach

-

-

-

-

14

Equity investments in funds - fall-back approach

-

-

-

-

15

Settlement risk

-

-

-

-

16

Securitisation exposures in the banking book

-

-

-

-

17

Of which: securitisation internal ratings-based approach (SEC-

-

-

-

-

IRBA)

18

Of which: securitisation external ratings-based approach (SEC-

-

-

-

-

ERBA)

19

Of which: securitisation standardised approach (SEC-SA)

-

-

-

-

20

Market risk

298,052

293,482

336,096

31,295

21

Of which: standardised approach (SA)

298,052

293,482

336,096

31,295

22

Of which: internal models' approach (IMA)

-

-

-

-

23

Operational risk

1,407,793

1,407,793

1,407,793

147,818

24

Amounts below thresholds for deduction (subject to 250% risk

-

-

-

-

weight)

25

Floor adjustment

-

-

-

-

26

Total (1+6+10+11+12+13+14+15+16+20+23)

27,905,075

28,205,402

31,428,477

2,930,032

Pursuant to the above regulation, CBUAE issued a regulation for a 'Prudential Filter' that permits Banks to add back increase in IFRS 9 provisions (stage 1 and stage 2) to the regulatory capital over a transition period of 5 years, on a proportionate basis. The increase in IFRS 9 provision requirements is determined by calculating the difference between the IFRS 9 provision as of 31 December 2019 and the IFRS 9 provision as at the respective reporting date. The proportion of the increase in IFRS 9 provisions that is permitted to be added-back to regulatory capital from 1 January 2020 onwards will be phased out over a 5-year transition period as follows:

Years

2020

2021

2022

2023

2024

Proportion of provision

100%

100%

75%

50%

25%

6

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

6. Leverage Ratio

6.1 Summary comparison of accounting assets versus leverage ratio exposure (LR1)

The following table reconciles the total assets in the published financial statements to the leverage ratio exposure measure.

30 September

30 June

31 December

2023

2023

2022

AED 000

AED 000

AED 000

1

Total consolidated assets as per published financial

38,448,144

39,527,460

41,990,008

statements

Adjustments for investments in banking, financial,

2

insurance or commercial entities that are consolidated for

-

-

-

accounting purposes but outside the scope of regulatory

consolidation

Adjustment for securitised exposures that meet the

3

operational requirements for the recognition of risk

-

91,825

126,984

transference

4

Adjustments for temporary exemption of central bank

-

-

-

reserves (if applicable)

Adjustment for fiduciary assets recognised on the balance

5

sheet pursuant to the operative accounting framework but

-

-

-

excluded from the leverage ratio exposure measure

6

Adjustments for regular-way purchases and sales of

-

-

-

financial assets subject to trade date accounting

7

Adjustments for eligible cash pooling transactions

-

-

-

8

Adjustments for derivative financial instruments

161,138

83,892

27,091

9

Adjustment for securities financing transactions (i.e. repos

-

-

-

and similar secured lending)

10

Adjustments for off-balance sheet items (i.e. conversion to

(1,430,161)

(1,684,781)

(2,064,637)

credit equivalent amounts of off-balance sheet exposures)

11

Adjustments for prudent valuation adjustments and specific

-

-

-

and general provisions which have reduced Tier 1 capital

12

Other adjustments

2,556,709

2,845,249

3,451,580

13

Leverage ratio exposure measure

39,735,830

40,863,645

43,531,026

7

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

6. Leverage Ratio

6.2 Leverage ratio common disclosure template (LR2)

The table below provides a breakdown of the components of the leverage ratio denominator, as well as information on the actual leverage ratio, minimum requirements, and buffers as of period end.

30 September

30 June

31 December

2023

2023

2022

AED 000

AED 000

AED 000

1

On-balance sheet exposures (excluding derivatives and securities financing

37,431,136

38,499,630

40,909,267

transactions (SFTs), but including collateral)

2

Gross-up for derivatives collateral provided where deducted from balance sheet

-

-

-

assets pursuant to the operative accounting framework

3

(Deductions

of receivable assets for

cash variation

margin provided

in

-

-

-

derivatives transactions)

4

(Adjustment for securities received under securities financing transactions that

-

-

-

are recognised as an asset)

5

(Specific and general provisions associated with on-balance sheet exposures

-

-

-

that are deducted from Tier 1 capital)

6

(Asset amounts deducted in determining Tier 1 capital)

-

-

-

7

Total on-balance sheet exposures (excluding derivatives and SFTs) (sum

37,431,136

38,499,630

40,909,267

of rows 1 to 6)

Derivative exposures

8

Replacement

cost

associated with

all

derivatives

transactions (where

-

-

-

applicable net of eligible cash variation margin and/or with bilateral netting)

9

Add-on amounts for PFE associated with all derivatives transactions

-

-

-

10

(Exempted CCP leg of client-cleared trade exposures)

-

-

-

11

Adjusted effective notional amount of written credit derivatives

-

-

-

12

(Adjusted effective notional offsets and add-on deductions for written credit

-

-

-

derivatives)

13

Total derivative exposures (sum of rows 8 to 12)

-

-

-

Securities financing transactions

-

-

-

14

Gross SFT assets

(with no recognition of netting), after adjusting for sale

-

91,825

126,984

accounting transactions

15

(Netted amounts of cash payables and cash receivables of gross SFT assets)

22,222

(9,440)

(4,371)

16

CCR exposure for SFT assets

138,916

93,331

31,461

17

Agent transaction exposures

18

Total securities financing transaction exposures (sum of rows 14 to 17)

161,138

175,716

154,074

Other off-balance sheet exposures

19

Off-balance sheet exposure at gross notional amount

3,573,717

3,873,080

4,532,322

20

(Adjustments for conversion to credit equivalent amounts)

(1,430,161)

(1,684,781)

(2,064,637)

21

(Specific and general provisions associated with off-balance sheet exposures

-

deducted in determining Tier 1 capital)

22

Off-balance sheet items (sum of rows 19 to 21)

2,143,556

2,188,299

2,467,685

Capital and total exposures

23

Tier 1 capital

3,912,860

4,003,001

3,247,735

24

Total exposures (sum of rows 7, 13, 18 and 22)

39,735,830

40,863,645

43,531,026

Leverage ratio

25

Leverage ratio (including the impact

of any applicable temporary

9.85%

9.80%

7.46%

exemption of central bank reserves)

25a

Leverage ratio (excluding the impact of any applicable temporary exemption

9.85%

9.80%

7.46%

of central bank reserves)

26

CBUAE minimum leverage ratio requirement

4.00%

4.00%

4.00%

27

Applicable leverage buffers

5.85%

5.80%

3.36%

8

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 30 September 2023

7. Liquidity risk management

7.1 Eligible Liquid Asset Ratio (ELAR)

30 September 2023

30 June 2023

31 December 2022

AED 000

AED 000

AED 000

AED 000

AED 000

AED 000

Nominal

Eligible

Nominal

Eligible

Nominal

Eligible

High Quality Liquid Assets

Amount

Liquid Asset

Amount

Liquid Asset

Amount

Liquid Asset

Physical cash in hand at the bank +

3,296,670

2,990,542

3,904,846

balance with the CBUAE

UAE Federal Government Bonds and

73,460

36,730

73,460

Sukuks

Subtotal

3,370,130

3,370,130

3,027,272

3,027,272

3,978,306

3,978,306

UAE governments publicly traded debt

4,125,000

2,716,825

875,000

securities

UAE Public sector publicly traded debt

-

-

-

-

-

securities

Subtotal

4,125,000

1,036,963

2,716,825

931,468

875,000

875,000

Foreign Sovereign debt instruments or

instruments issued by their respective

-

-

-

-

-

-

central banks

Total

7,495,130

4,407,093

5,744,097

3,958,740

4,853,306

4,853,306

Total liabilities

35,056,917

32,176,995

36,222,861

Eligible Liquid Assets Ratio (ELAR)

12.57%

12.30%

13.40%

7.2 Advances to Stables Resources Ratio (ASRR)

30 September

30 June

31 December

2023

2023

2022

AED 000

AED 000

AED 000

Computation of Advances

Net Lending (Gross loans - specific and collective provisions + interest

23,393,167

23,256,172

24,872,878

in suspense)

Lending to Non-banking financial institutions

24,780

25,070

24,784

Financial Guarantees & Stand-by LC (Issued - Received)

318,536

320,986

656,577

Interbank placements with a remaining life of more than 3 months

560,439

555,883

-

Total Advances

24,296,922

24,158,111

25,554,239

Calculation of Net Stable Resources

Total own funds

5,030,393

5,024,740

4,839,290

Deduct:

Goodwill and other intangible assets

-

-

22,111

Fixed Assets

1,322,860

1,353,894

1,537,942

Funds allocated to branches abroad

-

-

-

Unquoted Investments

142,320

153,319

239,171

Investment in subsidiaries, associates and affiliates

-

-

-

Total deduction

1,465,180

1,507,213

1,799,224

Net Free Capital Funds

3,565,213

3,517,527

3,040,066

Other stable resources:

Interbank deposits with remaining life of more than 6 months

-

-

-

Refinancing of Housing Loans

-

-

-

Deposits from non-banking financial institutions remaining life of

334,402

245,104

139,766

more than 6 months

85% of the rest of NBFI Deposits

132,393

277,721

615,245

Total customer deposits with remaining life of more than 6 months

11,425,711

10,855,798

5,346,129

85% of the rest of Customer Deposits

11,585,257

11,778,422

18,671,857

Capital market funding/ term borrowings maturing after 6 months from

4,014,789

4,013,481

2,600,403

reporting date

Total other stable resources

27,492,552

27,170,526

27,373,400

Total Stable Resources

31,057,765

30,688,053

30,413,466

Advances to stable resources ratio

78.23%

78.72%

84.02%

9

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Disclaimer

Bank of Sharjah PJSC published this content on 24 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 November 2023 15:49:34 UTC.