Bank Of Sharjah : Pillar III Disclosures for Bank of Sharjah PJSC for the period ended 31 March 2024

Bank of Sharjah

Pillar 3 Report

31 March 2024

Bank of Sharjah P.J.S.C.
Pillar III Disclosure for the period ended 31 March 2024
Table of Contents
1.	Introduction	2
2.	Purpose and basis of preparation	2
3.	Overview of Pillar III	3
	3.1 Verification	4
	3.1 Implementation of Basel III standards and guidelines	4
4.	Key Metrics for the group (KM1)	5
5.	Overview of Risk Weighted Assets (OV1)	6
6.	Leverage Ratio	7
	6.1 Summary comparison of accounting assets versus leverage ratio exposure (LR1)	7
	6.2 Leverage ratio common disclosure template (LR2)	8
7.	Liquidity risk management	9
7.1 Eligible Liquid Asset Ratio (ELAR)	9
7.2 Advances to Stable Resources Ratio (ASRR)	9

1

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

1. Introduction

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

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

2. Purpose and Basis of preparation

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

Consequently, the Bank opted not to include comparative figures for Q1 2023 on the basis that the prior corresponding period reporting included these accounting anomalies that occurred prior to the effective date of the delinking on April 1, 2023.

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

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

The Pillar III report of the Group for the period ended 31 March 2024 comprises detailed information on the underlying drivers of risk-weighted assets (RWA), capital of the Bank, its wholly owned subsidiaries (together referred to as "The Group"). The report should be read in conjunction with the Group's reviewed Financial Statements as at 31 March 2024.

2

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

2. Purpose and Basis of preparation (continued)

The complete listing of all direct subsidiaries of Bank of Sharjah PJSC as at 31 March 2024 is as follows:

	Proportion of
	ownership	Year of	Year of	Country
Name of Subsidiary	interest	incorporation	acquisition	of incorporation	Principal activities
	2024	2023
Emirates Lebanon
Bank S.A.L.	100%	100%	1965	2008	Lebanon	Financial institution
						Investment in a financial
El Capital FZC	100%	100%	2007	2017	U.A.E.	institution
						Real estate development
BOS Real Estate FZC	100%	100%	2007	2007	U.A.E.	activities
BOS Capital FZC	100%	100%	2007	2007	U.A.E.	Investment
Polyco General
Trading L.L.C.	100%	100%	2008	2008	U.A.E.	General trading
						Investment & Real estate
Borealis Gulf FZC	100%	100%	2010	2010	U.A.E.	development activities
BOS Funding Limited	100%	100%	2015	2015	Cayman Islands	Financing activities
						Developing of real estate
Muwaileh Capital FZC	90%	90%	2010	2017	U.A.E.	& related activities
BOS Repos Limited	100%	100%	2018	2018	Cayman Islands	Financing activities
BOS Derivatives
Limited	100%	100%	2018	2018	Cayman Islands	Financing activities
						Facilitate the sale of real
GTW Holding LTD	100%	100%	2022	2022	U.A.E. (ADGM)	estate assets
						Facilitate the sale of real
GDLR Holding LTD	100%	100%	2022	2022	U.A.E. (ADGM)	estate assets
						Real estate development
BOS Real Estate Egypt	100%	100%	2023	2023	Egypt	activities

3. Overview of Pillar III

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

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

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

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

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

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Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

3. Overview of Pillar III (continued)

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

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

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

3.1 Verification

The Pillar 3 Disclosures for the period ending 31 March 2024 have been reviewed by the Group's internal auditors.

3.2 Implementation of Basel III standards and guidelines

The Group is compliant with Standardised Approach for Credit, Market and the Basic Indicator Approach for Operational Risk (Pillar 1) as of 31 March 2024.

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Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

4. Key Metrics for the group (KM1)

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

			Mar 2024	Dec 2023	Sep 2023	Jun 2023
Available capital (amounts)	AED 000	AED 000	AED 000	AED 000
1		Common Equity Tier 1 (CET1)	3,657,867	3,700,274	3,912,860	4,003,001
1a		Fully loaded ECL accounting model	3,637,576	3,651,240	3,856,939	3,956,383
2		Tier 1	3,657,867	3,700,274	3,912,860	4,003,001
2a		Fully loaded ECL accounting model Tier 1	3,637,576	3,651,240	3,856,939	3,956,383
3		Total capital	3,988,536	4,024,445	4,240,350	4,334,303
3a		Fully loaded ECL accounting model total
		capital	3,968,246	3,975,411	4,184,429	4,287,685
Risk-weighted assets (amounts)
4		Total risk-weighted assets (RWA)	27,843,006	27,437,506	27,905,075	28,205,402
Risk-based capital ratios as a percentage of RWA
5		Common Equity Tier 1 ratio (%)	13.14%	13.49%	14.02%	14.19%
5a		Fully loaded ECL accounting model CET1 (%)	13.06%	13.31%	13.82%	14.03%
6		Tier 1 ratio (%)	13.14%	13.49%	14.02%	14.19%
6a		Fully loaded ECL accounting model Tier 1 ratio
		(%)	13.06%	13.31%	13.82%	14.03%
7		Total capital ratio (%)	14.33%	14.67%	15.20%	15.37%
7a		Fully loaded ECL accounting model total
		capital ratio (%)	14.25%	14.49%	15.00%	15.20%
Additional CET1 buffer requirements as a
percentage of RWA
8		Capital conservation buffer requirement (2.5%
		from 2019) (%)	2.50%	2.50%	2.50%	2.50%
9		Countercyclical buffer requirement (%)	-	-	-	-
10		Bank D-SIB additional requirements (%)	-	-	-	-
11		Total of bank CET1 specific buffer
		requirements (%) (row 8 + row 9+ row 10)	2.50%	2.50%	2.50%	2.50%
12		CET1 available after meeting the bank's
		minimum capital requirements (%)	3.83%	4.17%	4.70%	4.87%
Leverage Ratio
13		Total leverage ratio measure	40,604,088	40,742,956	39,735,830	40,863,645
14		Leverage ratio (%) (row 2/row 13)	9.01%	9.08%	9.85%	9.80%
14a		Fully loaded ECL accounting model leverage
		ratio (%) (row 2A/row 13)	8.96%	8.96%	9.71%	9.68%
14b		"Leverage ratio (%) (excluding the impact of
		any applicable temporary exemption of central
		bank reserves)"	9.01%	9.08%	9.85%	9.80%
Liquidity Coverage Ratio
15		Total HQLA	-	-	-	-
16		Total net cash outflow	-	-	-	-
17		LCR ratio (%)	-	-	-	-
Net Stable Funding Ratio
18		-	-	-	-	-
19		Total required stable funding	-	-	-	-
20		NSFR ratio (%)	-	-	-	-
ELAR
21		Total HQLA	4,324,397	6,068,218	4,407,093	3,958,740
22		Total liabilities	35,786,133	36,269,375	35,056,917	32,176,995
23		Eligible Liquid Assets Ratio (ELAR) (%)	12.08%	16.73%	12.57%	12.30%
ASRR
24		Total available stable funding	28,654,605	31,721,223	31,057,765	30,688,053
25		Total Advances	24,529,099	24,284,750	24,296,922	24,158,111
26		Advances to Stable Resources Ratio (%)	85.60%	76.56%	78.23%	78.72%
						5

Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

5. Overview of Risk Weighted Assets (OV1)

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

					Minimum
					capital
		RWA		requirements
		Mar 2024		Dec 2023	Mar 2024
		AED 000		AED 000	AED 000
1	Credit risk (excluding counterparty credit risk)	26,411,606		25,877,852	2,773,219
2	Of which: standardised approach (SA)	26,411,606		25,877,852	2,773,219
3	Of which: foundation internal ratings-based(F-IRB) approach	-		-	-
4	Of which: supervisory slotting approach	-		-	-
5	Of which: advanced internal ratings-based(A-IRB) approach	-		-	-
6	Counterparty credit risk (CCR)	-		-	-
7	Of which: standardised approach for counterparty credit risk	-		-	-
8	Of which: Internal Model Method (IMM)	-		-	-
9	Of which: other CCR	-		-	-
10	Credit valuation adjustment (CVA)	41,935		55,817	4,403
11	Equity positions under the simple risk weight approach	-		-	-
12	Equity investments in funds - look-through approach	-		-	-
13	Equity investments in funds - mandate-based approach	-		-	-
14	Equity investments in funds - fall-back approach	-		-	-
15	Settlement risk	-		-	-
16	Securitisation exposures in the banking book	-		-	-
17	Of which: securitisation internal ratings-based approach
	(SEC-IRBA)	-		-	-
18	Of which: securitisation external ratings-based approach
	(SEC-ERBA)	-		-	-
19	Of which: securitisation standardised approach (SEC-SA)	-		-	-
20	Market risk	480,841		272,735	50,488
21	Of which: standardised approach (SA)	480,841		272,735	50,488
22	Of which: internal models' approach (IMA)	-		-	-
23	Operational risk	908,624		1,231,102	95,405
24	Amounts below thresholds for deduction (subject to 250% risk
	weight)	-		-	-
25	Floor adjustment	-		-	-
26	Total (1+6+10+11+12+13+14+15+16+20+23)	27,843,006		27,437,506	2,923,515

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

Years	2020	2021	2022	2023	2024
Proportion of provision	100%	100%	75%	50%	25%

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Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

6. Leverage Ratio

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

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

		Mar 2024	Dec 2023
		AED 000	AED 000
1	Total consolidated assets as per published financial statements	39,045,773	39,459,680
	Adjustments for investments in banking, financial, insurance or commercial
2	entities that are consolidated for accounting purposes but outside the scope of
	regulatory consolidation	-	-
3	Adjustment for securitised exposures that meet the operational requirements for
the recognition of risk transference	415,885	-
4	Adjustments for temporary exemption of central bank reserves (if applicable)	-	-
	Adjustment for fiduciary assets recognised on the balance sheet pursuant to the
5	operative accounting framework but excluded from the leverage ratio exposure
	measure	-	-
6	Adjustments for regular-way purchases and sales of financial assets subject to
trade date accounting	-	-
7	Adjustments for eligible cash pooling transactions	-	-
8	Adjustments for derivative financial instruments	98,142	115,036
9	Adjustment for securities financing transactions (i.e. repos and similar secured
lending)	-	-
10	Adjustments for off-balance sheet items (i.e. conversion to credit equivalent
amounts of off-balance sheet exposures)	(1,384,050)	(1,403,846)
11	Adjustments for prudent valuation adjustments and specific and general
provisions which have reduced Tier 1 capital	-	-
12	Other adjustments	2,428,338	2,454,400
13	Leverage ratio exposure measure	40,604,088	40,625,270

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Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

6. Leverage Ratio

6.2 Leverage ratio common disclosure template (LR2)

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

		Mar 2024	Dec 2023
		AED 000	AED 000
	On-balance sheet exposures (excluding derivatives and securities financing
1	transactions (SFTs), but including collateral)	38,115,435	37,431,136
	Gross-up for derivatives collateral provided where deducted from balance sheet assets
2	pursuant to the operative accounting framework	-	-
	(Deductions of receivable assets for cash variation margin provided in derivatives
3	transactions)	(2,902)	22,222
	(Adjustment for securities received under securities financing transactions that are
4	recognised as an asset)	-	-
	(Specific and general provisions associated with on-balance sheet exposures that are
5	deducted from Tier 1 capital)	-	-
6	(Asset amounts deducted in determining Tier 1 capital)	-	-
	Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows
7	1 to 6)	38,112,533	37,453,358
	Derivative exposures		-
	Replacement cost associated with all derivatives transactions (where applicable net of
8	eligible cash variation margin and/or with bilateral netting)	3,857	1,313
9	Add-on amounts for PFE associated with all derivatives transactions	97,187	113,723
10	(Exempted CCP leg of client-cleared trade exposures)	-	-
11	Adjusted effective notional amount of written credit derivatives	-	-
	(Adjusted effective notional offsets and add-on deductions for written credit
12	derivatives)	-	-
13	Total derivative exposures (sum of rows 8 to 12)	101,044	115,036
	Securities financing transactions	-	-
	Gross SFT assets (with no recognition of netting), after adjusting for sale accounting
14	transactions	415,049	117,536
15	(Netted amounts of cash payables and cash receivables of gross SFT assets)	-	-
16	CCR exposure for SFT assets	836	147
17	Agent transaction exposures	-	-
18	Total securities financing transaction exposures (sum of rows 14 to 17)	415,885	117,683
	Other off-balance sheet exposures
19	Off-balance sheet exposure at gross notional amount	3,358,676	3,465,800
20	(Adjustments for conversion to credit equivalent amounts)	(1,384,050)	(1,403,846)
	(Specific and general provisions associated with off-balance sheet exposures
21	deducted in determining Tier 1 capital)	-	-
22	Off-balance sheet items (sum of rows 19 to 21)	1,974,626	2,061,954
	Capital and total exposures
23	Tier 1 capital	3,657,867	3,700,274
24	Total exposures (sum of rows 7, 13, 18 and 22)	40,604,088	40,742,956
	Leverage ratio
	Leverage ratio (including the impact of any applicable temporary exemption of
25	central bank reserves)	9.01%	9.08%
	Leverage ratio (excluding the impact of any applicable temporary exemption of
25a	central bank reserves)	9.01%	9.08%
26	CBUAE minimum leverage ratio requirement	4.00%	4.00%
27	Applicable leverage buffers	5.01%	5.08%

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Bank of Sharjah P.J.S.C.

Pillar III Disclosure for the period ended 31 March 2024

7.	Liquidity risk management
	7.1 Eligible Liquid Asset Ratio (ELAR)
					Mar 2024			Dec 2023
					AED 000			AED 000			AED 000			AED 000
	High Quality Liquid Assets			Nominal			Eligible			Nominal			Eligible
			Amount			Liquid Assets			Amount			Liquid Assets
Physical cash in hand at the bank + balance with the CBUAE	3,233,432						4,566,942
UAE Federal Government Bonds and Sukuks	73,460					73,460
Subtotal	3,306,892		3,306,892		4,640,402		4,640,402
UAE local governments publicly traded debt securities	5,000,000						5,000,000
UAE Public sector publicly traded debt securities	-						-
Subtotal	5,000,000		1,017,505		5,000,000		1,427,816
Foreign Sovereign debt instruments or instruments issued by
their respective central banks	-		-		-		-
Total			8,306,892		4,324,397		9,640,402		6,068,218
Total liabilities				35,786,133					36,269,375
Eligible Liquid Assets Ratio (ELAR)				12.08%					16.73%
	7.2 Advances to Stables Resources Ratio (ASRR)
												Mar 2024			Dec 2023
												AED 000			AED 000
Computation of Advances
Net Lending (Gross loans - specific and collective provisions + interest in suspense)		23,638,526		23,377,541
Lending to Non-banking financial institutions								24,247		25,430
Financial Guarantees & Stand-by LC (Issued - Received)								315,376		319,049
Interbank placements								550,950		562,730
Total Advances								24,529,099		24,284,750
Calculation of Net Stable Resources
Total capital + general provision								4,882,838		4,840,633
Deduct:
Goodwill and other intangible assets								-		-
Fixed Assets								1,257,822		1,281,870
Funds allocated to branches abroad								-		-
Unquoted Investments								120,219		120,221
Investment in subsidiaries, associates and affiliates								-		-
Total deduction								1,378,041		1,402,091
Net Free Capital Funds								3,504,797		3,438,542
Other stable resources:
Funds from the head office								-		-
Interbank deposits with remaining life of more than 6 months								-		-
Refinancing of Housing Loans								-		-
Borrowing from non-banking financial institutions								660,938		620,596
Customer Deposits								22,675,024		23,657,087
Capital market funding/ term borrowings maturing after 6 months from reporting date		1,813,846		4,004,998
Total other stable resources								25,149,808		28,282,681
Total Stable Resources								28,654,605		31,721,223
Advances to stable resources ratio								85.60%		76.56%

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