Europe Arab Bank plcLiquidiert

Europe Arab Bank plc

Frankfurt am Main

Jahresabschluss zum Geschäftsjahr vom 01.01.2017 bis zum 31.12.2017

ANNUAL REPORT

2017

DIRECTORS, OFFICERS AND PROFESSIONAL ADVISERS

Mr Nemeh Sabbagh

Chairman

Mr Ziyad Akrouk

Chief Executive Officer

Mr Achim Klueber

Executive Director

Sir Edward Leigh

Independent Non-Executive Director

Mr. Quentin Aylward

Independent

Non-Executive Director

(appointed 22 February 2017)

Mr Eric Modave

Non-Executive Director

Mr Ghassan Tarazi

Non-Executive Director

Directors

Mr. Nemeh Sabbagh

Chairman

Mr. Ziyad Akrouk

Chief Executive Officer

Mr. Achim Klueber

Executive Director

Sir Edward Leigh

Independent Non-Executive Director

Mr. David Somers

Independent Non-Executive Director

(resigned 10 March 2017)

Mr. Quentin Aylward

Independent Non-Executive Director

(appointed 22 February 2017)

Mr. Eric Modave

Non-Executive Director

Mr. Ghassan Tarazi

Non-Executive Director

Executive Management

Mr. Ziyad Akrouk

Chief Executive Officer

Mr. Achim Klueber

Managing Director -

Corporate & Institutional Banking

Mr. Charles Pickin

Chief Risk Officer

Mr. Dan Abulhawa

Head of Information Technology

Ms. Ekaterina Mihova

Head of Human Resources

Mr. Fadi Halout

Head of Private Banking

Mr. George Evans

Head of Operations

Mr. Mohammad Shoaib Memon

Chief Financial Officer

Mr. Neil Turnnidge

Head of Treasury

Ms. Nicola Christofides

Head of Compliance

Mr. Samir El-Sukhun

Head of Credit

Company Secretary

Mr Andrew Wilson

Registered Office

13 - 15 Moorgate

London EC2R 6ADe

Auditor

Ernst & Young LLP

Chartered Accountants and Statutory Auditor

London

United Kingdom

STRATEGIC REPORT

Cautionary Statement

This Strategic Report has been prepared solely to provide information to the shareholder to assess how the directors have performed their duty to promote the success of Europe Arab Bank plc. The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward looking information.

Overview

Europe Arab Bank ("EAB" or "the Bank") provides as its core businesses Corporate & Institutional Banking ("CIB"), Private Banking and Treasury services to its clients, operating through six offices in four European countries, focusing on business transacted between Europe & North America and the Middle East & North Africa ("MENA").

EAB is a wholly-owned subsidiary of Arab Bank plc ("the parent"), through which it has access to an extensive banking network in the MENA region. Arab Bank is the largest Arab banking network, with over 600 branches spanning five continents through Arab Bank PLC branches, subsidiaries, its sister company and associates.

Strategy and objectives

EAB's strategic objectives remain focused on the "Bridge to MENA" proposition. Our strategic goal is to remain a lean, customer focussed, niche bank that presents a seamless interface to the Arab Bank Group for customers in Europe, North America and MENA. We act as an integral part of the Arab Bank Group and complement the Group's footprint by extending coverage to and for European & North American clients into MENA and vice versa.

We are a niche bank, focused on delivering excellence and value to our clients and business partners, and generating sustainable profits for the shareholder.

Vision and values

We aim to be recognised as a pre-eminent bank for clients active in Europe & North America and the MENA. Our business is founded on a rich international heritage and experience, which we proactively share to the benefit of our clients. We use our local knowledge, expertise and understanding of the economic, political, social and commercial environments in Europe, North America and MENA to support the needs of our clients. Our clients come first; we are dedicated to working with them to build long term relationships and achieve lasting success.

Business Model

We operate a simple business model founded on three main business units, offering high service levels and building long-term relationships with clients and other stakeholders. We have offices in key strategic European centres: London, Paris, Frankfurt, Milan and an additional Private Banking branch in Cannes.

The key activities of the three main business units are:

Corporate and Institutional Banking

Corporate and Institutional Banking provides banking services to European, North American and MENA based companies and financial institutions. Our knowledge, expertise and coverage in MENA enables us to add value to our European and North American clients doing business in the Arab world. Similarly, our presence in and access to key financial centres in Europe allows us to serve our MENA based clients in Europe.

Country and product focussed teams work together to support clients across a wide range of markets and industry sectors. We also assist our clients in Trade Finance and Project Finance. Clients benefit from a comprehensive suite of products and services including short and medium term advances, Export Credit Agency (ECA) backed financings, guarantees, letters of credit, treasury products and bespoke solutions designed to meet specific business and industry needs.

Private Banking

Private Banking's key function is to provide banking services to high net worth individual clients through our offices in London, Paris and Cannes. Our team of international professionals, with Arab world and European experience, provide a service based on financial expertise, respect, trust and cultural understanding.

In addition to access to a range of current and saving accounts and deposits, we provide real estate lending, Non-EEA resident mortgages, securities dealing, foreign exchange dealing and safe deposit box services. Our products are tailored to meet the needs of our clients.

Treasury

Treasury is responsible for the day-to-day management of assets and liabilities, interest rate risk, foreign exchange risk and liquidity management. In addition, Treasury provides a range of financial products in money markets, capital markets, foreign exchange and derivative markets which can be tailored to meet the needs of the private and corporate clients and assist them in managing their risks.

Financial Review

EAB's net profit after taxation for 2017 was S3.6m (2016: S8.9m). The reduction in profit after tax is attributable to the challenging environment in our key markets, in particular the MENA region. Furthermore, the Bank had an increased provision requirement against a facility issued on behalf of a client which entered into significant financial difficulties.

Net interest & similar income ("NII") and net fee & commission income for 2017 were lower than 2016 largely due to reduced business activity in CIB as the fragile political environment and continuation of low oil prices had their impact on economic activity, infrastructure spending and thereby demand for financing in the MENA region. The reduction in income in CIB was offset by higher income in other business units.

Operating expenses remained low and similar to the 2016 levels.

Impairment related charges at S10.9mn (2016: S6.4m) for 2017 increased primarily due to an increased provision requirement on a guarantee facility provided on behalf of a client which entered into significant financial difficulties raising concerns over recoverability of the amount and the exposure thereof was fully provisioned.

Cash and balances with banks and securities principally relate to Treasury's assets and are primarily for liquidity purposes as well as generating a return on surplus liquidity. Cash and balances with banks reduced compared to 2016 largely due to a decrease in the overnight funds received from Arab Bank Group placed onwards with Central Banks. The securities balance at the end of 2017 largely comprised highly rated sovereign and multilateral institutional holdings for liquidity purposes and highly rated financial institutions.

Loans and advances to customers reduced compared to 2016 largely due to FX revaluation of foreign currency loans and some impact of slowdown in economic activity in the MENA region. The loan portfolio largely comprised of corporate lending to MENA active clients, project financing, real estate lending (residential and commercial) for prime UK properties and short-term trade related discounting and financing facilities.

Deposits by banks and sister companies reduced year on year largely due to reduced overnight balances from Arab Bank Group entities. Deposits by customers were impacted by FX revaluation of foreign currency deposits which otherwise remained largely stable. Customer deposits consist of corporates, sovereign institutions, small and medium enterprises and high net-worth individuals having strong relationships with EAB.

Capital of the Company comprises equity and US$ denominated perpetual subordinated notes (Tier 2 capital). The Company reduced its issued share capital and subordinated notes during the year following receipt of relevant approvals. The reduction was undertaken after consideration of capital efficiencies in association with the shareholder, whilst maintaining reasonable capital surplus in view of the business requirements. The Company still maintains healthy capital ratio as discussed further later.

Customer related contingent liabilities and commitments largely comprise unfunded assets arising out of our

Trade Finance business, and include letters of credit and guarantees and undrawn commitments.

^* Loan to deposit ratio adjusted to include certain central bank deposits as customer deposits.

Other Key Performance Indicators

EAB uses other Key Performance Indicators ("KPIs") to identify and monitor trends in the performance of the strategies employed. These KPIs are reviewed on a regular basis and form an integral part of the decision-making process.

Principal Risks and Uncertainties

EAB's risk appetite is articulated in the Board of Directors' approved Risk

Appetite Statements:

For each type of risk, there are also measures of the preferred or target amount of that risk, and/or the maximum capacity that can be borne by EAB.

The principal risks are discussed further below including the techniques applied to manage and mitigate those risks.

Notes 32 to 37 of the financial statements provide further information about these risks, the committees with responsibility for and the policies to manage the key risks including the derivative instruments used. Further details of EAB's regulatory capital ratios required under Pillar 3 are published on EAB's website. The total regulatory capital reported therein, prepared on a solo-consolidated basis, differs slightly from the balances shown in the Balance Sheet in light of adjustments in respect of certain reserves.

Regular management information is produced for various EAB committees and for the Board of Directors to report the risk profile. The Directors are confident that the current risk management structure is sufficient for identification, monitoring and management of significant financial risks to the business.

Employee Remuneration Policy

EAB's Remuneration Policy aligns with its business strategy, objectives, values and long-term interests and is in accordance with the applicable regulatory rules and expectations on remuneration, being applied in an appropriately proportionate manner. The Policy promotes sound risk management and requires an appropriate ratio between fixed and variable remuneration.

The purpose of the Policy is to:

The general principles of the Policy include:

Going Concern Basis

The business activities together with the performance and position, the principal risks and uncertainties and factors likely to affect its future development are set out in this Report. In addition, notes to the financial statements include the objectives, policies and processes for managing the capital; financial risk management objectives; details of financial instruments and hedging activities; and the exposure to credit, market, liquidity and other risks.

EAB maintains a capital surplus, and a strong liquidity base which have remained largely unaffected during the recent uncertain economic, political and social environment in its key markets. The customer base is sufficiently diverse, with operational revenues and funding levels remaining materially unaffected. In addition, EAB can benefit from financial and other support of Arab Bank Group. As a consequence, the Directors believe that EAB is well placed to manage its business risks successfully.

After making enquiries, the Directors have a reasonable expectation that the Bank has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Future Outlook

EAB expects to build on its results in the upcoming periods through execution of the clearly defined strategic objectives, with the aim of generating sustainable returns for the shareholder. The key risks have been noted above with the following potential challenges reiterated as they may affect the operating results in the upcoming periods:

Approved by the Board and signed on its behalf by:

Andrew Wilson

Company Secretary

Date: 06 February 2018

13 -15 Moorgate

London EC2R 6AD

The Board of Directors of EAB ("the Board") is responsible for the overall governance of the Bank and the Directors have sought to ensure that the standards of good practice set out in the UK Corporate Governance Code, although not directly applicable to EAB, are adhered to as considered appropriate.

The key objectives of the Board are to ensure that the business of the Bank is conducted in an efficient and effective manner in order to promote the success of the Bank within an established framework of effective systems of internal control, risk management and compliance, in accordance with regulatory requirements.

The primary responsibilities of the Board include:

The Directors who served during the period are listed in the Directors' Report. As at the end of the year, two of the serving Non-Executive Directors are independent from Arab Bank plc.

Six Board meetings were held in the year ended 31 December 2017 (including the annual Board strategy meeting), with 100% attendance by Board members.

The Board has compiled a list of matters reserved for which the Board's approval is required and has delegated authority and responsibility for day-to-day management of the Bank to the Chief Executive Officer, who is assisted by the Executive Committee.

To help carry out its responsibilities, the Board has also established the following committees with terms of reference setting out matters relevant to the committees' composition, responsibilities and administration:

Board Audit & Risk Committee

The Board Audit & Risk Committee's primary responsibilities are to:

The membership of the Committee comprises three Non-Executive Directors, two of whom are independent. Mr Quentin Aylward is the Chairman of the Committee. The other Committee members are Sir Edward Leigh and Mr Ghassan Tarazi. At the invitation of the Chairman of the Committee, the Chief Executive Officer, the Head of Internal Audit, the Chief Risk Officer, Head of Compliance, External Auditors and the Chief Financial Officer regularly attend meetings.

Key activities of the Committee for the year ended 31 December 2017 included:

Nomination & Remuneration Committee

The Nomination & Remuneration Committee's primary responsibilities are to:

The membership of the Committee comprises Non-Executive Directors, two of whom are independent. The members of the Committee are Mr Nemeh Sabbagh (Chairman of the Committee), Mr Quentin Aylward and Sir Edward Leigh.

Key routine activities for the year ended 31 December 2017 included:

A summary of EAB's employee Remuneration Policy is contained in the Strategic Report.

Executive Committee

The Executive Committee represents the principal forum for conducting the day-to-day business of the Bank. Whilst retaining the ultimate responsibility for the action taken, the Executive Committee at its discretion has delegated certain responsibilities to the following standing sub-committees:

The Directors present their annual report on the affairs of Europe Arab Bank plc ("EAB" or "the Bank" which includes the branches of Europe Arab Bank plc in France, Germany and Italy), together with the strategic report, corporate governance report, financial statements and auditor's report, for the year ended 31 December 2017. EAB is registered in England and Wales with number 5575857 and is authorised by the PRA and regulated by the FCA and the PRA.

Results

The profit after taxation for the year amounts to 63.6m (2016: S8.9m). The Directors do not propose any dividend to be paid for 2017 (2016: €nil).

Financial risk management objectives and policies

The Bank's objectives and policies with regard to financial and other risks are discussed in the Strategic Report and also set out in Note 32 to Note 37 to the financial statements, together with an indication of the exposure to financial risk.

Going concern and future developments

These Financial Statements have been prepared on a going concern basis as the Directors are satisfied that the Bank has the resources to continue in business for the foreseeable future. This is discussed further in the Strategic Report alongside the assessment of future outlook for the Bank.

Changes in Accounting Policies

Changes in accounting policies during the year are included in Note 1 of the financial statements.

Consolidated Financial Statements

The Bank has availed itself of the exemption under Section 401 of the Companies Act 2006 and has not published consolidated financial statements for the Bank and its subsidiaries. For further details refer to note 1(v).

Post-balance Sheet Events

There are no unadjusted or reportable events subsequent to the balance sheet date.

Directors

The Directors who served during the year were as follows:

Mr. Nemeh Sabbagh - Chairman

Mr. Ziyad Akrouk - Chief Executive Officer

Mr. Achim Klueber - Executive Director

Sir Edward Leigh - Independent Non-Executive Director

Mr. David Somers - Independent Non-Executive Director

(resigned 10 March 2017)

Mr. Quentin Aylward - Independent Non-Executive Director

(appointed 22 February 2017)

Mr. Eric Modave - Non-Executive Director

Mr. Ghassan Tarazi - Non-Executive Director

None of the Directors holds or has held shares in the Bank or any of its subsidiaries.

Directors' indemnities

The Articles of Association of EAB provide that, subject to the Companies Act 2006, Directors and other officers are entitled to be indemnified out of the assets of the Bank against all costs, charges, expenses, losses or liabilities arising in connection with the performance of their functions. Such indemnity provisions have been in place during the period and remain in force at the date of this report; appropriate insurance cover in respect of such liability is maintained.

Auditors

Each of the persons who is a Director at the date of approval of this report confirms that:

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Ernst & Young LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

The Bank has a policy governing the appointment of the external auditor for non-audit engagements, which allows monitoring of independence of the external auditor.

Finally, the Directors would like to extend their gratitude to all the staff for their continued commitment to EAB and contributions during 2017.

Approved by the Board and signed on its behalf by:

Andrew Wilson Company

Secretary Date: 06 February 2018

13 -15 Moorgate

London

EC2R 6AD

The directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable UK law and regulations.

Company law requires the directors to prepare such financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

Approved by the Board and signed on its behalf by:

Andrew Wilson

Company Secretary

Date: 06 February 2018

13 -15 Moorgate

London

EC2R 6AD

STABLILITY IN TIMES OF UNCERTAINTY

Europe Arab Bank continues to deliver services and solutions on which clients can depend. Our 'Bridge to MENA' proposition is built on solid foundations, backed by the strength and network of the Arab Bank Group. We continue to work with our clients to enable them to pursue their financial goals with confidence.

CORPORATE & NSTITUTIONAL

With one of the most distinctive propositions in our industry, an unparalleled regional network, and specialist expertise, Europe Arab Bank remains uniquely positioned to serve corporations and institutions across Europe and the MENA region.

PRIVATE BANKING

Our Private Banking clients benefit from the best of all worlds: the extensive Arab Bank Group network, modern banking combined with traditional values, a highly personalised service and a bespoke range of lending, deposit and transaction services.

TREASURY SERVICES

Treasury provides tailor-made risk management solutions in the money, FX and derivative markets and plays a central role in managing the Bank's liquidity.

INDEPENDENT AUDITOR'S REPORT

to the members of Europe Arab Bank plc

Opinion

We have audited the financial statements of Europe Arab Bank plc ("the Bank") for the year ended 31 December 2017 which comprise the Income Statement, Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, the Cash Flow Statement and the related notes 1 to 37, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU).

In our opinion, the financial statements:

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report below. We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

Overview of the audit approach

Key Audit Matters

- Inadequate provisions for impaired credit facilities

- Improper recognition of fee and commission income

- IT Systems and controls

Materiality

- Overall materiality of 65.6 million which represents 2% of the Bank's total equity

Performing a first year audit

In preparation for our first year audit of the 31 December 2017 financial statements, we undertook procedures to establish our independence from the Bank. This involved ceasing commercial relationships and ensuring that all staff who work on the audit were independent of the Bank and of Arab Bank Group. We used the time prior to commencing any audit work to gain an understanding of the business issues and meet with key management. We met the non-executive directors and, alongside the predecessor auditor, we attended the Board Audit and Risk Committee as observers. We reviewed the predecessor auditor's working papers while identifying and assessing the risks, judgements and potential audit and accounting issues documented by the predecessor auditors. We used the understanding that the audit team had formed to establish our audit base and assist in the formalisation of our audit strategy for the 2017 audit. This involved gaining an understanding of the key processes and controls over financial reporting.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine the extent of our audit work. This enables us to form an opinion on the financial statements. We take into account size, risk profile, organisation of the Bank, effectiveness of controls, and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of any misstatements identified in the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the purposes of our audit of the financial statements to be 65.6 million, which is 2% of the Bank's equity. We determined our materiality based on equity rather than on profits or revenues because the Bank's profitability is low relative to the balance sheet size, and also our expectation is that the main users of the financial statements, such as the Prudential Regulatory Authority and the immediate and ultimate controlling party, view capital preservation as a key consideration.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Bank's overall control environment, our judgement was that an appropriate performance materiality was 50% of our planning materiality, namely 62.8 million.

Reporting threshold - an amount below which identified misstatements are considered as being clearly trivial.

We have agreed with the Board Audit & Risk Committee that we would report to them all uncorrected audit differences in excess of 60.279 million, which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluated any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Bank and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities including fraud

The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Bank and management.

Our approach in respect of irregularities, including fraud, was as follows:

This report is made solely to the Bank's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Bank's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank and the Bank's members as a body, for our audit work, for this report, or for the opinions we have formed.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor's report.

Other matters we are required to address

INCOME STATEMENT

Year ended 31 December 2017

STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2017

BALANCE SHEET

As at 31 December 2017

Assets

These financial statements were approved by the Board of Directors and authorised for issue on 06 February 2018. Signed on behalf of the Board of Directors:

Company Registration No. 5575857

STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2017

CASH FLOW STATEMENT

Year ended 31 December 2017

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2017

1. ACCOUNTING POLICIES

Corporate information

Europe Arab Bank plc is incorporated and registered in England and Wales and provides a wide range of banking and financial services including Corporate & Institutional Banking, Private Banking and Treasury services. The registered offce is at 13-15 Moorgate, London EC2R 6AD.

Basis of preparation

The financial statements of Europe Arab Bank plc ('the Bank') have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. IFRS comprise accounting standards issued by the International Accounting Standards Board (IASB). The financial statements are presented in Euros (e), which is the functional currency of the Bank. The financial statements have been prepared under a going concern basis as set out in the Strategic Report.

Accounting Convention

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Adoption of new and revised standards

The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).

Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible temporary difference related to unrealised losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12

The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10-B16, apply to an entity's interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.

Annual Improvements to IFRSs 2015-2017 Cycle

The amendments are in the nature of clarifications rather than substantive changes to existing requirements.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

In July 2014, the IASB issued IFRS 9 Financial Instruments, the standard that will replace IAS 39 for annual periods on or after 1 January 2018, with early adoption permitted. The Bank has set up a multidisciplinary implementation team with members from business and support functions to prepare for IFRS 9 implementation. The Bank's assessment of impact of adoption of IFRS 9 at present is summarised below:

Classification and measurement

From a classification and measurement perspective, the new standard will require all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the entity's business model for managing the assets and the instruments' contractual cash flow characteristics. The IAS 39 measurement categories will be replaced by: fair Value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI), and amortised cost. IFRS 9 will also allow entities to continue to irrevocably designate instruments that qualify for amortised cost or fair value through OCI instruments as FVPL, if the designation eliminates, or significantly reduces, the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis. Equity instruments that are not held for trading may be irrevocably designated as FVOCI, with no subsequent reclassification of gains or losses to the income statement.

The accounting for financial liabilities will largely be the same as the requirements of IAS 39, except for the treatment of gains or losses arising from an entity's own credit risk relating to liabilities designated at FVPL. Such movements will be presented in OCI with no subsequent reclassification to the income statement, unless an accounting mismatch in profit or loss would arise.

Having completed its initial assessment, the Bank has concluded that:

Hedge accounting

IFRS 9 allows entities to continue with the hedge accounting under IAS 39 even when other elements of IFRS 9 become mandatory on 1 January 2018. Based on its analysis, the Bank has decided to continue to apply hedge accounting under IAS 39.

Impairment of financial assets

IFRS 9 will fundamentally change the loan loss impairment methodology. The standard will replace IAS 39's incurred loss approach with a forward-looking expected loss (ECL) approach. The Bank will be required to record an allowance for expected losses for all loans and other debt financial assets not held at FVPL, together with loan commitments and financial guarantee contracts. The allowance is based on the expected credit losses associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination, in which case, the allowance is based on the probability of default over the life of the asset.

To calculate ECL, the Bank will estimate the risk of a default occurring on the financial instrument during its expected life. ECLs are estimated based on the present value of all cash shortfalls over the remaining expected life of the financial asset, i.e., the difference between: the contractual cash flows that are due to the Bank under the contract, and the cash flows that the Bank expects to receive, discounted at the effective interest rate of the loan.

In comparison to IAS 39, the Bank expects the impairment charge under IFRS 9 to be more volatile than under IAS 39. Based on the analysis to date, the Bank anticipates based on preliminary figures an increase in loss allowance for an amount of EUR 3.0mn resulting in an equal negative impact on equity, on the adoption of the new impairment requirements under IFRS 9.

Disclosure requirements

IFRS 9 also introduces expanded disclosure requirements. These are expected to change the nature and extent of the Bank's disclosures about its financial instruments and impairment.

Regulatory capital

The Bank is in the process of evaluating how the new ECL model will impact the Bank's regulatory capital. At present the impact is not considered to be material.

The Directors do not expect that the adoption of the following standards will have a material impact on the financial statements of the Bank in future periods, except where noted:

Significant accounting policies

(a) Interest and similar income and expense

Interest and similar income on financial assets that are classified as loans and receivables, held to maturity, fair value through profit and loss or available for sale, and interest expense on financial liabilities other than those at fair value through profit or loss, are recognised in the 'Interest and similar income' and 'Interest and similar expense' sections of the income statement using the effective interest rates of the financial assets or financial liabilities to which they relate.

The effective interest rate is the rate that exactly discounts the expected future cash payments or receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount of the instrument. Calculation of the effective interest rate takes into account fees receivable that are an integral part of the instrument's yield, premiums or discounts on acquisition, early redemption fees and transaction costs.

(b) Non-interest income: Fee and commission income

Fee and commission income is accounted for depending on the services to which the income relates:

(c) Net trading income

Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and related dividends.

(d) Financial assets

The Bank classifies its financial assets in the following categories:

Management determines the classification of financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise financial assets that are held for trading, and those designated by management as being at fair value through profit or loss on initial recognition.

Financial assets are classified as held for trading if they are acquired principally for the purposes of generating a profit from short-term fluctuations in price or dealers' margin, or form part of a portfolio of similar assets for which there is evidence of a recent actual pattern of short-term profit-taking, or are derivatives (not designated into a qualifying hedge relationship).

Financial assets may be designated at fair value through profit or loss only if such a designation: (a) eliminates or significantly reduces a measurement or recognition inconsistency; (b) applies to a group of financial assets, financial liabilities, or both that the Bank manages and evaluates on a fair value basis; or (c) relates to an instrument that contains an embedded derivative which is not evidently closely related to the host contract.

Financial assets at fair value through profit or loss are recognised initially at fair value, with transaction costs recognised in the income statement. Subsequently, gains and losses arising from changes in fair value are recognised as they arise in the income statement. The method of determining fair value is described in note 1 (h) of these financial statements.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified upon initial recognition as available for sale or at fair value through profit and loss.

Loans and receivables are initially recognised at fair value including direct and incremental transaction costs and are subsequently measured at amortised cost, using the effective interest rate method (note 1 (a)), less any impairment losses.

Held to maturity investments

Held to maturity investments are non-derivative financial assets including debt securities with fixed or determinable payments that the management has the positive intention and ability to hold to maturity.

Held to maturity assets are initially recognised at fair value including direct and incremental transaction costs and are subsequently measured at amortised cost, using the effective interest rate method (note 1 (a)), less any impairment losses.

Available for sale financial assets

Available for sale assets are non-derivative financial assets including debt securities that are designated as available for sale on initial recognition or are not classified into any of the other categories described above.

Available for sale assets are initially recognised at fair value including direct and incremental transaction costs. They are subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate component of shareholders' equity in other comprehensive income (OCI), until sale or impairment, when the cumulative gain or loss is transferred to the income statement. Interest determined using the effective interest method (note 1 (a)), impairment losses, and translation differences on monetary assets and dividends received where the right to receive payment is established are recognised in the income statement.

The method of determining fair value is described in note 1(h) of these financial statements.

Regular way purchases and sales of financial assets

All regular way purchases and sales of financial assets are recognised on the trade date, which is the date the Bank commits to purchase assets. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulators or convention in marketplace.

(e) Impairment of financial assets

The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a portfolio of financial assets not carried at fair value through the profit or loss is impaired. A financial asset or portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events since initial recognition of the assets have adversely affected the amount or timing of future cash flows from the assets.

Financial assets held at amortised cost

If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as held to maturity or loans and receivables has been incurred, the amount of impairment loss is measured as the difference between the asset or group of assets carrying amount and the present value of estimated future cash flows from the asset or group of assets discounted at the effective interest rate determined on initial recognition.

Impairment losses are recognised in the income statement and the carrying amount of the financial assets or group of financial assets are reduced by establishing an allowance for impairment losses.

If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

When an asset is uncollectable, it is written off against the related provision for impairment. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the income statement.

Allowances for impairment represent management's estimate of losses incurred at the balance sheet date. Impairments are calculated on an individual and collective basis using discounted expected future cash flows. Subjective judgements are made in this process. Changes in these estimates could result in a change in allowances and have a direct impact on the impairment charge.

For all reversals of impairments, it is noted that the decrease in the impairment loss related objectively to an event occurring after the initial impairment was recognised, for example from an improvement in the debtor's previous credit rating. None of the reversals of impairments has caused the assets to have a carrying value higher than its amortised cost if the impairment had never been recognised.

In determining the recoverability of the asset, the Bank considers any change in the credit quality from the date the credit was initially granted up to the reporting date.

Assets classified as available for sale

When a decline in the fair value of an available for sale financial asset has been recognised in OCI and there is objective evidence of impairment, the cumulative loss, being the difference between the asset's acquisition cost and its current fair value, less any impairment loss on that asset previously recognised in the income statement is removed from equity and recognised in the income statement.

If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases, and the increase can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The amount of the reversal is recognised in the income statement.

Impairment losses on available for sale equity instruments are not reversed through the income statement.

(f) Financial liabilities

The Bank classifies its financial liabilities in the following categories:

Management determines the classification of all financial liabilities at initial recognition.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss comprise financial liabilities that are held for trading, and those designated by management as being at fair value through profit or loss on initial recognition.

Financial liabilities are classified as held for trading if they are acquired principally for the purposes of generating a profit from short-term fluctuations in price or dealers margin, or form part of a portfolio of similar liabilities for which there is evidence of a recent actual pattern of short-term profit-taking, or they are derivatives (not designated into a qualifying hedge relationship).

Financial liabilities may be designated at fair value through profit or loss only if such a designation: (a) eliminates or significantly reduces a measurement or recognition inconsistency; (b) applies to a group of financial assets, financial liabilities, or both that the Bank manages and evaluates on a fair value basis; or (c) relates to an instrument that contains an embedded derivative which is not evidently closely related to the host contract.

Financial liabilities at fair value through profit or loss are recognised initially at fair value, with transaction costs recognised in the income statement.

Subsequently, gains and losses arising from changes in fair value are recognised as they arise in the income statement.

Other financial liabilities

Other financial liabilities are measured at amortised cost, using the effective interest rate method (note 1 (a)).

(g) Derecognition of financial assets and liabilities

Financial assets are derecognised when the right to receive cash flows from the assets has expired; or when the Bank has transferred its contractual right to receive the cash flows of the financial assets, and substantially all the risks and rewards of ownership; or where control is not retained.

Financial liabilities are derecognised when they are extinguished, that is when all obligations are discharged, cancelled or have expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.

(h) Determining fair value

All financial instruments are recognised initially at fair value. The fair value of a financial instrument on initial recognition is normally the transaction price.

Subsequently, the fair value of financial instruments that are quoted in an active market are based on bid price (for assets) and offer price (for liabilities). Where there is no quoted market price in an active market, fair values are determined using valuation techniques which refer to observable market data. These include comparison with similar market instruments where market observable prices exist, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.

Where the fair value cannot be reliably determined for an investment in an equity instrument, the instrument is measured at cost.

(i) Derivatives

Derivatives are classified as held for trading and accounted for in accordance with note 1 (d) unless they are designated into a qualifying hedge relationship.

Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative. Derivative assets and liabilities arising from different transactions are only offset in accordance with note 1 (k) below.

Hedge accounting

The Bank makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from highly probable forecast transactions and firm commitments. In order to manage particular risks, the Bank applies hedge accounting for transactions which meet specified criteria.

At inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk management objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedge relationship at inception and on an ongoing basis.

At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order to qualify for hedge accounting. A formal assessment is undertaken by comparing the hedging instrument's effectiveness in offsetting the changes in fair value attributable to the hedged risk in the hedged item, at inception and on an ongoing basis. A hedge is expected to be highly effective if the changes in fair value attributable to the hedged risk during the period for which the hedge is designated were offset by the hedging instrument in a range of 80% to 125% and were expected to achieve such offset in future periods. Hedge ineffectiveness is recognised in the income statement in 'Net trading income'. Meanwhile, the cumulative change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item in the statement of financial position and is also recognised in the income statement in Net trading income.

Embedded derivatives

Derivatives may be embedded in other financial instruments. Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host contract; the terms of the embedded derivative are the same as those of a stand-alone derivative; and the combined contract is not held for trading or designated at fair value through profit or loss.

(j) Sale and repurchase agreements

Investment and other securities may be lent or sold subject to a commitment to repurchase them (a 'repo'). Such securities are retained on the balance sheet when substantially all the risks and rewards of ownership remain with the Bank, and the counterparty liability is included separately in deposits by banks on the balance sheet as appropriate. Similarly, where the Bank borrows or purchases securities subject to a commitment to resell them (a 'reverse repo') but does not acquire the risks and rewards of ownership, the transactions are treated as collateralised loans, and the securities are not included in the balance sheet. The difference between sale and repurchase price is accrued over the life of the agreements using the effective interest method (see note 1(a)).

(k) Offset of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet where there is a legal right to offset the recognised amounts and the parties intend to settle the cash flows on a net basis, or realise the asset and settle the liability simultaneously.

(l) Investment in subsidiaries

Investment in equity instruments of subsidiaries is accounted for as Available for Sale.

(m) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Property, plant and equipment are depreciated at their depreciable amounts according to the straight-line method over the estimated useful life of each class of asset. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. The useful life for each class of asset is as follows:

At each balance sheet date property, plant and equipment are assessed for indications of impairment. If indications are present, these assets are subject to an impairment review. The impairment review comprises a comparison of the carrying amount of the asset with its recoverable amount: the higher of the asset's net selling price and its value in use. Net selling price is calculated by reference to the amount at which the asset could be disposed of in a binding sale agreement in an arm's length transaction evidenced by an active market or recent transactions for similar assets. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset's continued use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis.

The carrying values of fixed assets are written down by the amount of any impairment and this loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset's recoverable amount.

The carrying amount of the fixed asset will only be increased up to the amount that it would have been had the original impairment not been recognised.

(n) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The useful life for each class of intangible asset is as follows:

Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

At each balance sheet date, the Bank reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any).

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(o) Leases

Operating lease rentals payable are recognised as an expense in the income statement on a straight-line basis over the lease term unless another systematic basis is more appropriate.

(p) Employee benefits

Short-term employee benefits, such as salaries, paid absences and other benefits, are accounted for on an accruals basis over the period which employees have provided services in the year. Bonuses are recognised to the extent that the Bank has a present obligation to its employees that can be measured reliably. All expenses related to employee benefits are recognised in the income statement in staff costs, which is included within operating expenses.

The Bank provides both defined benefit and defined contribution pension scheme for its staff.

For the defined benefit retirement benefit scheme, the cost of providing benefits is determined using the projected unit credit method with actuarial valuations being carried at the end of each reporting period. Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are recognised immediately in the balance sheet with a charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not recycled. Past service cost is recognised in the income statement in the period of scheme amendment. Net-interest is calculated by applying a discount rate to the net defined benefit liability or asset.

The retirement benefit obligation recognised in the balance sheet represents the deficit or surplus in the Bank's defined benefit scheme. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the scheme or reductions in the future contributions to the scheme.

For defined contribution schemes, the Bank recognises contributions due in respect of the accounting period in the income statement. Any contributions unpaid at the balance sheet date are included as a liability.

(q) Provisions

Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a current legal or constructive obligation as a result of past events, and a reliable estimate can be made of the amount of the obligation.

(r) Taxes

Income tax on the profit or loss for the year comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in shareholders' equity, in which case it is recognised in shareholders' equity.

Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous year.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax is determined using tax rates and legislation enacted, or substantively enacted, by the balance sheet date and is expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

(s) Foreign currencies

Transactions in foreign currencies are translated into Euros at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euros at the rates of exchange ruling at the balance sheet date. Foreign exchange differences arising on translation are recognised in profit or loss except for differences arising on cash flow hedges. Non-monetary items denominated in foreign currencies that are stated at fair value are translated into Euros at foreign exchange rates ruling at the dates the values were determined. Translation differences arising on non-monetary items measured at fair value are recognised in profit or loss except for differences arising on available-for-sale non-monetary financial assets, such as equity shares, which are included in the available-for-sale reserve in equity unless the asset is the hedged item in a fair value hedge.

(t) Capital instruments

The Bank classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. An instrument is classified as a liability if it is a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or financial liabilities on potentially unfavourable terms. An instrument is classified as equity if it evidences a residual interest in the assets of the Bank after the deduction of liabilities. The components of a compound financial instrument issued by the Bank are classified and accounted for separately as financial liabilities or equity as appropriate.

(u) Cash and cash equivalents

Cash and cash equivalents comprise cash and balances with central banks of a short-term nature.

(v) Segment reporting

The Bank's segmental reporting is based on the following strategic business units: Corporate & Institutional Banking; Treasury; Private Banking and Others (which includes centralised functions).

(w) Company only financial statements

The Bank is a wholly-owned subsidiary of Arab Bank plc, a company incorporated in Jordan and registered at Shmeisani PO Box 144186, Amman 11814, Jordan, and in accordance with Section 401 of the Companies Act 2006, is not required to produce, and has not published, consolidated financial statements.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Bank's financial statements requires management to make judgements, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The critical accounting judgements are noted below.

(i) Fair value of financial instruments

Where the fair values of financial assets and liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include use of mathematical models. The inputs to these models are largely derived from observable market data, but where observable market data is not available, judgement is required to establish fair values.

(ii) Impairment losses on loans and advances

The Bank reviews its individually significant loans and advances on an individual and collective basis at each balance sheet date to assess whether an impairment loss should be recorded in the income statement. In particular, judgement by management is required in estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Bank makes judgements about the borrowers' financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment loss allowance on an individual or collective basis.

(iii) Impairment of financial investments

The Bank reviews its financial investments at each balance sheet date to assess whether they are impaired. This requires similar judgement as applied to the individual assessment of loans and advances.

(iv) Retirement benefit obligations

The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of the plan, such estimates are subject to uncertainty.

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2017

2. INTEREST AND SIMILAR INCOME AND EXPENSE

3. FEES AND COMMISSION INCOME AND EXPENSE

Fees arising from trust and other fiduciary activities that result in the holding of assets on behalf of individuals, trusts or other institutions amounted to €83,955 (2016: €111,094).

4. NET TRADING GAINS

Net interest income on held for trading financial instruments has been included in Interest and similar income and expense (note 2).

5. OTHER OPERATING INCOME

6. OTHER OPERATING EXPENSES

Auditor's remuneration

Amounts paid and payable to the Bank's principal auditor, Ernst & Young LLP and its affiliated firms (2016: Deloitte LLP) were as follows:

7. STAFF COSTS

The average number of permanent persons employed by the Bank in 2017 was 131 (2016: 130). Of these, 50 (2016: 49) were employed in the strategic business units and credit administration; 60 (2016: 61) were employed in the support units and 21 (2016: 20) were employed in control risk functions. The total number of persons employed at the end of 2017 was 131 (2016: 131).

8. IMPAIRMENT LOSS EXPENSE

9. TAX CREDIT

The actual tax credit (2016: charge) differs from the expected tax credit (2016: charge) computed by applying the standard rate of UK corporation tax of 19.25% (2016: 20%) as follows:

10. DEFERRED TAX

Deferred tax assets recognised by the Bank and movements thereon during the current reporting period in respect of:

At the balance sheet date, the Bank has unused tax losses of €361m (2016: €351 m) and other temporary differences of €27m (2016: €31m) available for offset against future profits. A deferred tax asset has been recognised on losses of €12m (2016: nil) and gross temporary differences of €14m (2016: €9m). No deferred tax asset has been recognised in respect of the remaining €349m (2016: €351m) of losses and €13m (2016: €22m) of other temporary differences at the balance sheet date due to limited certainty with respect to availability of suitable future profits.

11. CASH AND BALANCES AT CENTRAL BANKS

12. DUE FROM BANKS

13. FAlR VALUE THROUGHP ROFIT OR LOSS

14. LOANS AND ADVANCES TO CUSTOMERS

15. FINANCIAL INVESTMENTS

16. IMPAlRMENT LOSS ALLOWANCES

The policy on impairment measurement is provided in the accounting policies note 1 (e) and details of the methodology in note 33. Impairment loss allowance includes collective impairment of €5m (2016: €14.3m).

Included in the impairment allowance are assets with a balance of €30.1m (2016: €6.8m) which have been placed under administration and/or liquidation.

17. DERIVATIVES

The Bank's objectives and policies on managing the risks that arise in connection with derivatives are included in note 1 (i) and note 34.

The gross notional amounts represent the amounts of all outstanding contracts at year-end. It is the sum of the absolute amount of all purchases and sales of derivative instruments. The notional amounts of the derivatives provide a basis for comparison with instruments recognised on the balance sheet, but does not indicate the amounts of future cash flows involved or the current fair value of the instruments and therefore, do not indicate the Bank's exposure to credit or price risks.

Derivatives are measured at their fair value, which is calculated as the present value of future expected net contracted cash flows at market related rates as of the balance sheet date.

The Bank enters into the following main types of derivative contracts:

Interest rate swaps

These are agreements between two parties to exchange periodic payments of interest over a set period based on notional principal amounts. The Bank enters into interest rate swaps, exchanging fixed rates for floating rates of interest based on notional amounts.

Interest rate futures

Interest rate futures are derivative contracts that allow the buyer and seller agreeing to future delivery of an interest bearing asset and lock in a certain price for a future date.

Currency forward contracts

Forward foreign exchange contracts are over the counter (OTC) agreements to deliver, or take delivery of, a specified amount of an asset or financial instrument based on a specified rate applied against the underlying asset or financial instrument, at a specified date.

Derivative financial instruments held or issued for trading purposes

Most of the Bank's derivatives trading activities relate to deals with customers that are normally offset by transactions with other counterparties. The Bank may also, from time to time, take limited short term positions within the prescribed market risk limits approved by the Board of Directors. Also included under the classification are any derivatives entered into for risk management purposes that do not meet the IAS39 hedge accounting criteria.

Derivative financial instruments held or issued for hedging purposes

As part of its asset and liability management, the Bank uses derivatives for hedging purposes in order to reduce its exposure to market risk. This is achieved by hedging specific financial instruments, portfolios of fixed rate financial instruments and forecast transactions.

The accounting treatment, explained in note 1 (i) hedge accounting, depends on the nature of the item hedged and compliance with IAS39 hedge accounting criteria.

The fair values (FV) and notional amounts of derivative instruments are set out in the following table:

Fair value hedges

Fair value hedges are used by the Bank to protect it against changes in the fair value of financial assets and financial liabilities due to movements in interest rates. The financial instruments hedged for interest rate risk include fixed rate loans, available-for-sale debt securities and other borrowed funds. The Bank uses interest rate swaps and interest rate futures to hedge interest rate risk.

Gains or losses due to changes on fair value hedges for the year:

The wholly owned subsidiaries of the Bank and their activities are noted below. The registered address of all the subsidiaries is 13-15 Moorgate, London, EC2R 6AD.

Movement in value of investment in subsidiaries

19. OTHER INTANGIBLE ASSETS

20. PROPERTY, PLANT AND EQUIPMENT

21. OTHER ASSETS

22. RETIREMENT BENEFITS - DEFINED BENEFIT SCHEME

The Bank sponsors the plan which is a funded defined benefit arrangement, closed to new members and future accrual. This is a separate trustee administered fund holding the pension plan assets to meet long term pension liabilities for around 444 past employees as at 31 December 2017 (31 December 2016: 444). The level of retirement benefit is principally based on salary earned in the last three years of employment prior to leaving active service and is linked to changes in inflation up to retirement.

The scheme is subject to the funding legislation, which came into force on 30 December 2005, outlined in the Pensions Act 2004. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension plans in the UK.

The trustees of the scheme are required to act in the best interest of the plan's beneficiaries. The appointment of the trustees is determined by the plan's trust documentation. It is policy that one third of all trustees should be nominated by the members.

A full actuarial valuation was carried out as at 31 December 2015 in accordance with the scheme funding requirements of the Pensions Act 2004 and the funding of the plan is agreed between the Bank and the trustees in line with those requirements. These in particular require the surplus/deficit to be calculated using prudent, as opposed to best estimate actuarial assumptions.

The actuarial valuation as at 31 December 2015 showed a deficit of €9.7m. The Bank has agreed with the trustees that it will aim to eliminate the deficit over a period of 7 years from 1 January 2017 by the payment of annual contributions of €1.4m in respect of the deficit. In addition and in accordance with the actuarial valuation, the Bank has agreed with the trustees that it will meet expenses of the scheme and levies to the Pension Protection Fund.

For the purposes of IAS19 the actuarial valuation as at 31 December 2015 has been updated on an approximate basis to 31 December 2017. There have been no changes in the valuation methodology adopted for this period's disclosures compared to the previous period's disclosures.

(a) Amounts for the current and previous periods

(b) Changes in the present value of defined benefit obligation

(c) Changes in the fair value of plan assets

The actual return on plan assets for the year ended 31 December 2017 was €4.4m (2016: €12m).

(d) Total expense recognised in the income statement

(e) Total amount included in other comprehensive income

(f) Assets

(g) Principal assumptions in determining the defined benefit obligation

The mortality assumptions adopted imply the following life expectancies:

(h) Sensitivity

The sensitivities shown above are approximate. Each sensitivity considers one change in isolation. The inflation sensitivity includes the impact of changes to the assumptions for revaluation and pension increases.

The average duration of the defined benefit obligation at the period ended 31 December 2017 is 20 years.

The scheme typically exposes the Bank to actuarial risks such as investment risk, interest rate risk, mortality risk and longevity risk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to plan liabilities. This would detrimentally impact the balance sheet position and may give rise to increased charges in future. This effect would be partially offset by an increase in the value of the plan's bond holdings. Additionally, caps on inflationary increases are in place to protect the plan against extreme inflation. Finally, the trustees have in part managed these risks by securing some pensioner liabilities with insurance policies which exactly match the benefits provided under the scheme.

23. DEPOSITS BY BANKS

24. CUSTOMER ACCOUNTS

25. OTHER LIABILITIES

26. SUBORDINATED LIABILITIES

The Notes are perpetual, subordinated to all other creditors and are listed on the Channel Islands Stock Exchange. The Notes count as upper tier 2 capital for the Bank's regulatory capital base. During the year the Bank made a partial repayment to note holders (2016: €nil).

27. SHARE CAPITAL

During the year the issued share capital of the Bank was reduced by cancellation and extinguishment of 40,000,000 of the issued ordinary shares of €1 each and the amount so reduced was repaid to the ordinary shareholder (2016: €nil).

28. CONTINGENT LIABILITIES AND COMMITMENTS

In the ordinary course of business, the Bank enters into transactions which expose it to tax, legal and business risks. Provisions are made for known liabilities which are expected to materialise. Contingent obligations and banking commitments, which the Bank has entered into on behalf of customers and for which there are corresponding obligations from customers, are not included in assets and liabilities.

Letters of credit, acceptances and guarantees commit the Bank to make payments on behalf of customers in the event of a specific act including relating to imports and exports of goods.

Unused credit facilities and forward contract trades refer to commitments to make loans and revolving credits.

Commitments generally have fixed expiry dates or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. The potential credit loss is less than the total commitments since most commitments to extend credit are contingent upon customers maintaining specific standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Operating lease commitments

Where the Bank is the lessee, the future minimum lease payments under non-cancellable building operating leases are as follows:

The Bank leases various offices, branches and other premises under non-cancellable operating lease arrangements. The leases have various terms, escalation and renewal rights at the prevailing market rates. There are no contingent rents payable.

29. RELATED PARTY DISCLOSURE, INCLUDING DIRECTORS' EMOLUMENTS

The immediate and ultimate controlling party of the Bank and the parent of the smallest and the largest company into which the results of the Bank are consolidated is Arab Bank plc, a company incorporated in Jordan. Details of transactions between the Bank and related parties are disclosed below:

(a) Trading transactions

During the year, the Bank entered into the following trading transactions with related parties:

^* Fellow subsidiaries include subsidiaries of parent company, Arab Bank plc.
^** Associates include entities where the parent company, Arab Bank plc, has a significant influence over the financial and operating policy decisions, and in which it holds between 20% and 50% of the voting rights.

The above transactions were unsecured and settled in cash. In addition, the transactions were typically made in the ordinary course of business and substantially on the same terms as for comparable transactions with third party counterparties. The expense recognised in the year for bad or doubtful debts in respect of the amounts owed by a related party was €nil (2016: €nil).

(b) Compensation of key management personnel

The remuneration of Directors and other members of key management during the year were as follows:

The information above includes executive Directors' remuneration detailed below.

The emoluments of the highest paid Director including pension and social security contributions amounted to €1,120,417 (2016: €1,024,305).

Transactions with key management personnel and each of their connected persons

Directors, other key management personnel and their connected persons have undertaken the following transactions with the Bank in the normal course of banking business.

The transactions with key management personnel and their connected persons were transacted in the normal course of business with terms prevailing for comparable transactions and on the same terms and conditions applicable to other employees of the Bank.

30. FAIR VALUES OF FINANCIAL INSTRUMENTS

The table on page 48 provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into

Levels 1 to 3 based on the degree to which the fair value is observable:

There have been no transfers between level 1 and level 2 (2016: € nil).

Reconciliation of Level 3 fair value measurements of financial assets

For financial assets and liabilities carried at amortised cost, the Directors do not anticipate the fair values to be materially different from the book values considering the underlying nature of the portfolios except for the following:

The Bank did not hold any material compound instruments or embedded derivatives at the year end (2016: € nil).

31. OPERATING SEGMENTS

For management purposes, the Bank is organised into three strategic business units based on products and services as follows:

Management monitors the operating results of each of the business units separately for the purpose of performance assessment. Certain items of revenue and costs are managed on a central basis and are not allocated to business units. Interest or similar income is reported net. Management primarily relies on net interest revenue, not the gross interest revenue and expense amounts. No revenue transactions with a single nonrelated customer or counterparty amounted to 10% or more of the total revenue of the Bank in 2017 or 2016.

The assets and liabilities held by the business units of the Bank are detailed below:

32. RISK MANAGEMENT POLICIES

The Bank's Risk Appetite is approved by the Board of Directors, and defines the types and amounts of risk that the Bank is willing to take in pursuit of its business strategy. This is reviewed regularly and provides qualitative statements, quantitative measures and detailed underlying limits for the purposes of the management and monitoring of risk appetite.

The Bank's risks are managed taking into account the following principles:

The Bank maintains high standards of internal controls, with clear accountabilities for risk management, applying a governance model which enables oversight and management of risks.

The Board of Directors has an established Committee of the Board, the Board Audit & Risk Committee, to assist the Board of Directors in fulfilling its oversight responsibilities. The function of the Board Audit & Risk Committee is to encourage and safeguard the highest standards of integrity, financial reporting, risk management and internal control on behalf of the Board of Directors.

The Chief Risk Officer ("CRO") is a senior executive who works closely with the Chief Executive Officer ("CEO"), and liaises with the Board of Directors through the Board Audit & Risk Committee. The CRO is responsible for ensuring that effective best practice risk mitigation is in place in the Bank. The CRO is tasked with taking a comprehensive view of risks that might impact on the Bank, embedding an effective EAB Risk Management (ERM) Framework into the overall strategy and operations, and continually strengthening the Bank's approach to risk management.

EAB's risk governance is predicated on the industry standard three lines of defence model. Line One includes the Strategic Business Units and Support Units and has the responsibility for risk management and control. Line Two is responsible for risk oversight, providing independent oversight and challenge of risk and compliance issues, and includes Risk and Compliance. Line Three is Internal Audit and is responsible for risk assurance, providing confirmation that Lines One and Two are operating effectively and in accordance with the stipulated risk governance arrangements. The roles and responsibilities of the Risk function in Line Two are further defined under three headings: Oversight and assurance, Challenge and Coordination.

The information in note 32 to note 37 describes the main banking risks, committees with responsibility for these risks and the policies of the Bank to manage them. The Directors are confident that the current risk management structure is sufficient for identification, monitoring and control of significant financial risks to the Bank at present.

33. CREDIT RISK

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Bank. The Bank has adopted a policy of dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from default.

The Executive Credit Committee is responsible for approving credit recommendations and making other credit decisions in accordance with the delegated lending authorities within the Credit Policy Manual. This includes decisions on individual credits, and reviewing and making recommendations above the delegated authorities, to the Board Panel, which consists of the Chairman, Chief Executive Officer and a Non-Executive Director.

The Bank's lending priorities are a function of the credit skills and experience of its lending officers. For reasons of safety and soundness and to maintain the quality of the portfolio, the Bank will concentrate in those areas in which it has a competitive advantage, knowledge of the particular market and a good understanding of the commercial and political risks involved within those markets.

The Credit Policy Manual refers to all direct (loans or overdrafts), indirect (third-party credit risk guaranteed by the borrower) and contingent (letters of credit) credit exposures. It includes details on lending authorities, large exposures, portfolio management, transactions with parent and affiliates, country risk exposure, problematic exposures, limit management (e.g. obligor, industry & country limits), collateral and provisioning. The Board of Directors approves the Credit Policy Manual and any interim amendments.

The Bank also measures concentration exposure to each industry sector and country of risk. Credit exposures are also stress tested regularly. Portfolio risk and credit stress testing are reviewed by the Executive Risk and Compliance Committee, chaired by the CEO.

Impairment

The Bank's policy is to recognize impairment provisions in a timely manner through a focused approach to problem assets on the balance sheet. Impairment reviews including recommendations for new impairment provisions or releases of previously recognised impairment provisions are carried out regularly. These include both specific and collective impairment provisions.

Certain factors determine whether a specific impairment provision should be considered, and these include, but are not limited to:

In addition, a collective impairment assessment has been carried out for a set of financial assets with similar risk characteristics using the Bank's internal credit rating system. This involves application of judgemental assumptions including potential impairment on default and loss given default.

Quality of Assets

Financial assets split by external ratings, where available, for 2017:

Financial assets split by external ratings, where available, for 2016:

Loans and advances to customers split by Bank's internal credit rating system:

Internal ratings are mapped to a range of external ratings but also take into account other behavioural aspects of the counterparty and historical performance.

Concentration of Risk

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be affected by changes in economic, political or other conditions. The Bank monitors credit concentration risk through the Executive Risk and Compliance Committee and in turn reports material exposures and concerns to the Board Audit and Risk Committee and the Board of Directors.

Industrial exposure to financial assets and credit related contingent liabilities and commitments as at 31 December 2017:

Industrial exposure to financial assets and credit related contingent liabilities and commitments as at 31 December 2016:

Geographical exposure to financial assets and credit related contingent liabilities and commitments as at 31 December 2017:

Geographical exposure to financial assets and credit related contingent liabilities and commitments as at 31 December 2016:

Credit derivatives and collateral

The Bank did not hold any credit derivatives during the year (2016: €nil) to reduce the exposure to credit risk on any of the instruments.

The Bank accepts certain forms of collateral subject to legal review and appropriate documentation in accordance with the Credit Policy Manual. As a principle, assets held as collateral in favour of the Bank must be sufficiently liquid and their value over time sufficiently stable to provide the Bank with acceptable certainty as to the value of the risk mitigation upon which it relies. Exceptions have to be approved through the credit process.

The Credit Department keeps a comprehensive record of collateral received. The Bank primarily accepts the following forms of collateral, subject to meeting the necessary legal and risk requirements:

The Credit Department is responsible for regular updates to the valuation of the underlying collateral as required by the Credit Policy Manual. The documentation entered into with the obligor specifies the Bank's rights and ability to liquidate the collateral, if required. The Executive Credit Committee is responsible for decisions regarding liquidation or appropriation of collateral based on recommendations from the Head of Credit and advice from the Legal Department.

During the year, and also in the preceding year, there was no possession of underlying collateral by the Bank.

The carrying amount of financial assets recorded in the balance sheet, net of any allowances for losses, represents the Bank's maximum exposure to credit risk without taking account of any collateral obtained. The fair value of collateral and security enhancements held against loans or advances to customers is shown below:

Offsetting of financial assets and liabilities

The Bank does not regularly use netting agreements except those embedded within the ISDA agreements, plus specific netting agreements with certain Arab Bank Group entities largely for contingent facilities.

34. MARKET RISK

The Bank's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Risks are managed individually through the use of limits and restricting product exposures. The Asset & Liability Committee ("ALCO") sets and monitors the market risk limits and meets once a month but receives risk reports regularly. The Committee is also convened whenever the business encounters heightened market risk conditions.

(a) Interest Rate Risk Management

The Bank is exposed to interest rate risk as entities in the Bank borrow / lend funds at both fixed and floating interest rates. The Bank identifies the following types of interest rate risk:

The interest rate risks that have been identified can have an impact on both the earnings and economic value of the Bank and as a consequence the Board of Directors seeks to manage these risks to ensure the achievement of its business objectives.

The ALCO manages interest rate risk by the establishment of a Market Risk Policy that reflects the overall risk appetite. The overall risk appetite is approved by the Board of Directors and reviewed regularly.

The ALCO manages interest rate risk through the use of:

The day-to-day management of interest rate risk lies with the Treasury team. The monitoring and reporting of interest rate risk on a daily basis is performed by an independent Treasury Valuation Control function that reports to the CFO. The system of controls over interest rate risk is subject to oversight by the Market and Liquidity Risk Control team which reports to the Chief Risk Officer.

The following tables provide a summary of the interest rate re-pricing profile of the Bank's assets and liabilities. Assets and liabilities have been allocated to time bands by reference to the earlier of the next interest rate reset date and the contractual maturity date. Financial assets and liabilities with a floating rate are exposed to cash flow interest rate risk, and this risk is reflected predominantly in the time bands below twelve months.

Financial assets and liabilities with a fixed rate are exposed to fair value interest rate risk, which is reflected predominantly in the time bands beyond twelve months. Financial assets and liabilities not directly exposed to interest rate risk will appear in the non-interest bearing time band. The table does not take account of notional amount of derivative financial instruments whose effect is to alter the interest basis of the Bank's assets and liabilities.

(b) Foreign Currency Risk Management

Most of the Bank's activities fall into one of three currencies: EUR, GBP and USD. However, the Bank has business interests in a number of different geographic regions and thus additional foreign currency positions are held.

The Bank identifies foreign exchange rate risk as the risk to future cash-flows from adverse foreign exchange movements.

Foreign exchange rate risk can have an impact on both the earnings and economic value of the Bank and as a consequence the Board of Directors seeks to manage these risks to ensure the achievement of its business objectives.

The ALCO manages foreign exchange rate risk by the establishment of a Market Risk Policy that reflects the overall risk appetite and which is approved by the Board of Directors and reviewed regularly.

The ALCO manages foreign exchange risk through the use of:

Management information systems are in place to measure foreign exchange risk, which is measured as the estimate of the exposures/liabilities accepted in non-Euro currencies which are not offset by a corresponding position or derivative transaction. The day-to-day management of foreign exchange risk lies with the Treasury team. The monitoring and reporting of foreign exchange risk on a daily basis is performed by an independent Treasury Valuation Control function that reports to the Chief Finance Officer. The system of controls over foreign exchange risk is subject to oversight by the Market and Liquidity Risk Control team which reports to the Chief Risk Officer. Senior management receive market risk reports, including foreign exchange, and are notified immediately of any breaches of the foreign exchange limits.

Utilisation of foreign exchange limits is measured as the sum of the absolute Euro equivalent values of all non-Euro currency positions. Throughout the period the utilisation has not exceeded the limit.

The net carrying amount of the Bank's foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:

(c) Sensitivity Analysis

The following table details the Bank's sensitivity to various risk variables. The analysis has been performed using the following assumptions:

All scenarios should be considered in isolation as they represent different risks and were calculated holding all other variables constant.

The impact on the Bank's equity of the above was not considered material.

Foreign currency risk sensitivity

The net impact of changes in foreign exchange rates on the Bank's foreign currency assets and liabilities, including derivative positions, at the reporting date are shown in the table below:

35. LIQUIDITY RISK

The ultimate responsibility for liquidity risk management and for setting the Bank's Liquidity Risk Appetite rests with the Board of Directors, with the ALCO having responsibility to build an appropriate liquidity risk management framework for the management of the Bank's short, medium and long-term funding and liquidity management requirements on a day-to-day basis. The Bank manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring actual, forecast and stressed cash flows and matching the maturity profiles of financial assets and liabilities.

The measurement, management and monitoring of Liquidity Risk in EAB incorporates liquidity policies, systems and controls that the Bank have implemented to manage Liquidity Risk within tolerance levels approved by the Board of Directors. These incorporate a range of tools to calculate key liquidity metrics, measure and monitor these against risk appetite limits and stress test the Bank's cash flows including its contingent liabilities. The Bank's Internal Liquidity Adequacy Assessment Process (ILAAP) document sets out the details of its approach to measuring, monitoring and controlling liquidity risk.

The Bank follows a conservative approach to liquidity risk, and maintains a liquid asset buffer of High Quality Liquid Assets as required by European Union (EU) regulation in addition to a portfolio of marketable securities which is held as a liquidity buffer if short-term funds are urgently needed. The Bank assesses its exposure to liquidity risk in three main categories and seeks to ensure that appropriate mitigation is effected where possible, and that adequate insurance and contingency plan steps have been adopted to address the possibility of severe liquidity shocks.

The three categories are:

The Bank has also identified several risk factors which form components of the Bank's overall liquidity risk profile. These include but are not limited to:

Wholesale secured and unsecured funding risk

Tactical Liquidity management is performed by Treasury under delegated authority from ALCO. Structural liquidity management is carried out by ALCO, within the parameters set out in the Bank's ILAAP document.

The Treasury team is responsible for intra-day and end-of-day liquidity. Liquidity risk is measured at an overall Bank level through regular reporting produced by the Regulatory Reporting team within Finance. Additional reporting is provided in the form of monthly liquidity reports submitted to the PRA. Regulatory liquidity requirements are calculated and monitored internally on a daily basis and are complemented by other internal liquidity limits set by the Bank. The system of controls over liquidity risk is subject to oversight by the Market and Liquidity Risk Control team which reports to the Chief Risk Officer.

The ALCO is responsible for monitoring and reviewing liquidity positions and ensuring these positions are within the limits set.

The following tables analyse assets and liabilities into relevant maturity groupings based on the remaining period to contractual maturity. The maturity profiles disclosed below do not include the impact of behavioral characteristics observed by the Bank. This has a material impact on the maturity profile and forms a key part of our liquidity management and stress testing. In addition, the Bank also maintains a portfolio of marketable trading securities that can be liquidated in the event of unforeseen interruption of cash flow.

Liquidity risk financial liabilities

The table on page 60 details the Bank's remaining contractual maturity for its non-derivative financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities except where the Bank is entitled and intends to repay the liability before its maturity.

The table below presents the contractual maturity date of letters of credit, financial guarantees and un-drawn committed facilities issued by the Bank.

The following table details the Bank's expected maturity for its derivative financial instruments. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. The table below presents the contractual maturity date of derivative financial instruments that will be settled on a net basis.

The table below presents the contractual maturity date of derivative financial instruments that will be settled on a gross basis (i.e. forward currency contracts).

Encumbered assets

Certain assets are pledged as collateral to secure liabilities under repurchase agreements, Credit Support Annex ("CSA") for derivative liabilities and as security deposits relating to futures, options and exchange memberships. The holders of these securities do not have the right to sell or re-pledge the asset except where specifically disclosed.

The aggregate amount of collateral pledged under CSAs is €5.7m (2016: €10.1m).

The Bank has pledged €47.7m (2016: €57.9m) worth of investment securities and cash as collateral against its clearing operations.

36. OPERATIONAL RISK

The Bank is exposed to risk of loss arising from failures in systems, internal processes, human error and from external events. The Bank actively manages operational risk, including cyber security in accordance with regulation and guidance from the UK Financial Conduct Authority ("FCA") and Prudential Regulation Authority ("PRA"), as well as guidelines stipulated by other regulatory bodies.

The objective is to maintain high standards of operational risk management and the Bank has consequently adopted key tools such as Risk and Control Self Assessment, and operational risk issue and event reporting.

Independent review and oversight of Operational Risk is provided by the Head of Operational Risk who reports to the Chief Risk Officer. This structure is supported by functional and geographic Operational Risk liaisons, an Operational Risk Committee, an Operational Risk Policy, and systems and controls which set the standards, approach and framework for identifying, assessing, measuring, reporting, controlling and managing operational risks.

The Bank adopts the standardised approach for calculating Operational Risk capital as set out in the CRR and consequently embarks on rigorous risk identification exercises to establish any Pillar Two requirement for Operational Risk.

37. CAPITAL MANAGEMENT AND RISK

The Bank maintains an actively managed capital base to cover risks inherent in the business. The primary objectives of the Bank's capital management are to ensure that the Bank complies with both external and internal capital requirements and that the Bank maintains healthy capital ratios in order to support its business and maximise shareholders' value.

The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions, risk characteristics of its activities and regulatory requirements.

The adequacy of the Bank's capital is monitored using, amongst others, the rules and ratios established by the PRA. During the past year, the Bank had complied in full with all its externally imposed capital requirements.

Europe Arab Bank's capital comprises net equity of €278m (2016: €312m) and perpetual subordinated liabilities of €104m (2016: €239m). The subordinated liabilities count as upper tier 2 capital for the regulatory capital base. The regulatory capital base differs slightly from amounts reported above due to differing treatment of certain reserves and consolidation adjustments.

The Bank's Internal Capital Adequacy Assessment Process (ICAAP) document sets out the details of its approach to measuring, monitoring and controlling capital risk and to managing its capital.

Europe Arab Bank plc

UNITED KINGDOM

Telephone country code: 44

Head Office

13 - 15 Moorgate

London EC2R 6AD

Tel.(0)20 7315 8500

Fax. (0)20 7600 7620

Private Banking

35 Park Lane

Mayfair

London W1K 1RB

Tel.(0)20 7355 8230

Fax. (0)20 7499 4193

FRANCE

Telephone country code: 33

Paris

P.O. Box 319

75365 Paris Cedex 08

26 Avenue des Champs

Elysées

75008 Paris

Tel. (0)1 45 61 60 00

Fax. (0)1 42 89 09 78

Cannes

45/47 La Croisette

06400 Cannes

Tel. (0)4 93 38 01 01

Fax. (0)4 93 99 59 39

GERMANY

Telephone country code: 49

Frankfurt

Niedenau 61-63

D-60325 Frankfurt am Main

Tel. (0)69 242 590

Fax. (0)69 235 471

ITALY

Telephone country code: 39

Milan

Corso Matteotti 1A

20121 Milan

Tel. (02) 7639 8521

Fax. (02) 7821 72

Arab Bank plc

JORDAN

Telephone country code: 962

Head office

General Management

P.O. Box 950544

Amman 11195

Tel. (6) 560 0000

Fax. (6) 560 6793

ALGERIA

Telephone country code: 213

15 Al-Sa'ada Street, Shabani

Haidara Valley

Tel. (21) 60 87 14

Fax. (21) 48 00 01

BAHRAIN

Telephone country code: 973

(No area code required)

Manama

P.O. Box 813

Building 540

Road 1706 - Block 317

Diplomatic Area

Kingdom of Bahrain

Tel. (2) 1754 9000

Fax. (2) 1754 1116

EGYPT

Telephone country code: 20

Cairo

P.O. Box 68

46 Gamet

El Dowal El Arabia St.

Al-Mohandesseen - Al Giza

Building No. 50

Tel. (2) 33328500

Fax. (2) 33328618

LEBANON

Telephone country code: 961

Beirut

P.O. Box 11-1015

Riad El-Solh Square

Banks Street

Commercial Buildings Co. Bldg.

Tel. (1) 980 246-9

Fax. (1) 980 803, 980 299

LIBYA

Telephone country code: 218

Wahda Bank

P.O. BOX 452 Banghazi

Tel. 61 222 4256

Fax. 61 222 4122

MOROCCO

Telephone country code: 212

Casablanca

P.O. Box 13810

174 Mohammad V Street

Tel. (5) 2222 3152

Fax. (5) 2220 0233

PALESTINE

Telephone country code: 970

Ramallah

P.O. Box 1476

Grand Park Hotel Street Al Masyoon

Ramallah

Tel. (2) 297 8100

Fax. (2) 298 2444

QATAR

Telephone country code: 974

(No area code required)

Doha

P.O. Box 172

Grand Hammed Area

Avenue no. 119

Tel. 4438 7777

Fax. 4438 7677

SINGAPORE

Telephone country code: 65

(No area code required)

Singapore

80 Raffles Place

32 - 20 UOB Plaza 2

Singapore 048624

Tel. (65) 653 300 55

Fax. (65) 653 221 50

UAE (UNITED ARAB EMIRATES)

Telephone country code: 971

Abu Dhabi

Al Nasr St, Skh

Tahnoon Bin Mohammad

Building

Tel. (2) 639 2225

Fax. (2) 621 2370

Dubai

Building 2 - Level 6 Emaar Square

Downtown Dubai

P.O. Box 11364

Tel. (4) 373 7400

Fax. (4) 338 5022

USA

Telephone country code: 1

New York (Federal Agency - New York)

150 East 52nd Street, 9th Floor

New York NY 10022

Tel. (212) 715 9700

Fax. (212) 593 4632

YEMEN

Telephone country code: 967

Sana'a

P.O. Box 475 & 1301

Zubairi St.

Tel. (1) 276 585/93

Fax. (1) 276 583

Subsidiary & Affiliate Companies

AUSTRALIA

Arab Bank Australia Ltd

Telephone country code: 61

Sydney

P.O. Box N645

Grosvenor Place NSW 1220

Level 7

20 Bridge Street

Sydney NSW 2000

Tel. (2) 937 789 00

Fax. (2) 922 154 28

JORDAN

Telephone country code 962

Amman

Islamic International Arab Bank Plc

Wasfi Al-Tal st.(Gardens)

P.O. Box 925802

Amman 11190

Tel. (6) 569 4901

Fax. (6) 569 4914

Al-Arabi Investment Group Co

P.O. Box 143156

11814 Al-Rabieh

Abdullah Bin Rawaha St.

Bldg No (1)

Amman

Tel. (6) 552 2239

Fax. (6) 551 9064

LEBANON

Arab Investment Bank S.A.L.

Telephone country code 961

Beirut

P.O. Box 2230 - 1107 - 7000

Riad El Solh Square.

Banks Street

Commercial Buildings Co. Bldg

Tel. (1) 985111

Fax. (1) 987333

OMAN

Oman Arab Bank S.A.O.C.

Telephone country code: 968

North Ghubra

P.O. Box 2010

Postal Code No.112 Ruwi

Tel. 24754 000

Fax. 24797 736

SAUDI ARABIA

Arab National Bank

Telephone country code 966

Riyadh

P.O. Box 56921

King Faisal Street

11564

Tel. (11) 402 9000

Fax. (11) 402 7747

SUDAN

Arab Sudanese Bank

Telephone country code: 249

Khartoum

Wahat El- Khartoum Towers

P.O. Box 955

Baladiyeh St

Tel. (15) 655 0001

Fax. (15) 655 0003

SWITZERLAND

Arab Bank (Switzerland) Ltd

Telephone country code: 41

Geneva

Place Longemalle 10 - 12

P.O. Box 3575

CH - 1211 Geneva 3

Tel. (22) 715 1211

Fax. (22) 715 1311

SYRIA

Arab Bank -Syria

Telephone country code 963

Damascus

P.O. Box 38

Mahdi Ben Baraka St.

Abu Rummana

Damascus

Tel. (11) 3348 125

Fax. (11) 3349 844

TUNISIA

Arab Tunisian Bank

Telephone country code: 216

Tunis

P.O. Box 520

9 Rue Hedi Nouira

Tunis 1001

Tel. (71) 351 155

Fax. (71) 342 852

TURKEY

Turkland Bank A.S.

Telephone country code: 90

Istanbul

19 Mayis Mah.

19 Mayis Cad

Sisli Plaza, A Block No. 7

34360 Sisli

Tel. (212) 368 3434

Fax. (212) 368 3535

INVESTORS IN PEOPLE

www.eabplc.com

(c) Europe Arab Bank plc 2018. All Rights Reserved. Registered in England and Wales number 5575857. Registered Office: 13 - 15 Moorgate, London EC2R 6AD. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Not all products and services are regulated by the Financial Conduct Authority and the Prudential Regulation Authority.