Mashreqbank PJSC — Management Reports 2021

Feb 10, 2021

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Management Discussion & Analysis Report Year End 2020

10[th] February 2021

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Mashreq posts AED 5.1 Billion Revenue for YE 2020

Dubai, UAE; 10[th] February 2021: Mashreq, one of the leading financial institutions in the UAE, has reported its financial results for the year ending 31[st] December 2020.

• YoY decline in revenue by 14.1% to AED 5.1bn

• The decline is mainly driven by the low interest rate regime, the impact of the pandemic and slower economic activities as a result of the lower oil prices.

• Non-interest income to operating income ratio remained strong at 48%, an industry leading position in the UAE.

• Newly introduced digital channels supported a 55% increase in the client base, where CASA balances witnessed a 23.5% YoY increase of AED 8.9bn.

• 84% of retail clients were onboarded digitally and corporate payments shifted to 100% digital during the year, substantiating the effectiveness of the bank’s transformation strategy.

•

Expenses & Revenues from Operations

• While we continued to invest in our transformation programs across all verticals, which will be crucial for delivering our future strategic objectives, our operational costs saw a drop of 5% driven mainly by the digitization efficiencies. However, YoY overall costs position was up by 12.3% due to one off cost associated with branches rationalization in UAE and enablement of remote working for our global staff during the pandemic.

• Income from operations before risk charges was AED 2.2bn, which is down 34.6% YoY, a result of the drop in revenue and one-off operational costs.

• Impairment Allowance: charge of AED 3.4bn up from AED 1.2bn in FY’19

• Despite the pandemic the quality of the international corporate book along with that of retail banking remained intact. However, the UAE Corporate portfolio was impacted over the course of the year, particularly within a few sectors such as contracting and healthcare.

• NPL ratio is 5.1% and coverage is 130% reflecting prudent measures taken to maintain the quality of the portfolio.

• Net Profit down: AED 1.3bn loss from AED 2.1bn profit in FY’19

• This is a direct result of lower operating income and higher risk charges.

•

Adequate Liquidity & Capital position

• Capital adequacy ratio at 16.0% and Tier 1 capital ratio at 14.9%

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• We proactively managed our liquidity position throughout the year and have consistently taken a conservative approach to our liquidity position. At year end liquidity coverage ratio (LCR) stood at 160% and loans to deposits (LTD) ratio is 81% signifying a solid liquidity position.

Management Comments:

H.E AbdulAziz Al Ghurair, Chairman of Mashreq, said: “COVID-19 has been both a significant disruptor as well as a catalyst for positive change in business operations. The pace of vaccine rollout in the UAE as well as in other countries provides us with cautious optimism that the regional and global economies will steadily recover as the year progresses, fuelling future growth.

These have been unprecedented times, and our focus throughout has been to work closely with our clients, and colleagues, delivering uninterrupted services, consistency of standards and the safest possible working environment. I am very proud of how our people have risen to the challenge, and gone above and beyond for all our clients.

In 2020, we focused on enhancing our already advanced digital transformation, delivering innovative digital, AI and data-centric solutions, and completely new propositions for our clients. We also continued to invest in fundamental programmes that will position this bank for long term growth, as our industry changes shape around us, and to keep pace with the technologies that drive us forward. I firmly believe this is the right strategy, for our shareholders, for this country, and for our clients. Mashreq is, and will continue to be, a core contributor to the UAE economy for many years to come.”

Ahmed Abdelaal, Group CEO, Mashreq Bank, said: “Over the course of 2020, we actively managed our position and took a prudent approach to safeguard Mashreq’s position, whilst doing everything in our power to help our customers prosper. We expect to see a challenging first half in 2021, but are cautiously optimistic for a recovery in the second half.

As we begin to look forward, it is important to recognise that the future of banking is rapidly merging with the trajectory of technology. We believe investments in our digital platforms and operating model will deliver sustainable savings in the long term, and position us strongly for this existential change impacting our industry.

Our strategy is clear; we will continue to focus on customer-centricity, which we believe will fuel future growth. We will continue to invest in strategic digital fundamentals, which deliver

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sustainable efficiencies and growth. Further building and growing our international franchise will allow us to continue to connect the UAE with financial centres and trade around the world and access a global pool of talent to further accelerate this growth. And we will continue to strive to be first to market with innovative products and solutions, that our customers want and need.

I would like to thank our customers, staff, and shareholders for their unwavering commitment and support.

-ends-

Financial Highlights:

Financial Highlights:
YE 2020 Financial Highlights	Annual Trend				Quarterly Trend
Statement of Profit/(Loss) (AED mn)	YE		∆ %		4Q	3Q	4Q	∆ %
	2020	2019	YoY		2020	2020	2019	QoQ	YoY
Net Interest Income & Income from Islamic Financing Fee and commision Investment Income Insurance,FX & Other Income	2,676	3,707	(27.8) (10.7) 114.6 20.6		616	561	960	9.9	(35.8)
	1,220	1,365			284	283	327	0.5	(13.3)
	321	150			32	67	39	(52.0)	(17.3)
	931	772			244	229	142	6.6	72.4
Total Operating Income	5,148 5,994 (14.1)				1,177 1,140 1,468 3.2 (19.8)
Operating Expenses	(2,945)	(2,623)	12.3		(1,061)	(629)	(629)	68.7	68.6
Operating Profit	2,203 3,371 (34.6)				116 511 838 (77.3) (86.1)
Impairment Allowance Tax Expense Non-ControllingInterest	(3,357)	(1,212)	176.9 127.7 2.3		(1,714)	(665)	(507)	157.9	237.8
	(52)	(23)			(19)	(12)	(7)	63.9	170.4
	(73)	(71)			(13)	(18)	(16)	(27.6)	(18.9)
Net Profit/ (Loss) for the Period	(1,278) 2,065 (161.9)				(1,630) (183) 308 - -
(Loss)/Earning per share[AED] Balance Sheet(AED mn)	(7.20)	11.63	- ∆ %		(9.18)	(1.03)	1.73	-	-
	Dec	Dec			Dec	Sep	Dec	∆ %
	2020	2019	YoY		2020	2020	2019	QoQ	YTD
Total Assets Loans and Advances Customer Deposits Shareholder's Funds	158,523	159,431	(0.6) (6.1) (3.0) (9.8)		158,523	169,724	159,431	(6.6)	(0.6)
	71,533	76,167			71,533	73,942	76,167	(3.3)	(6.1)
	88,261	90,969			88,261	94,716	90,969	(6.8)	(3.0)
	19,431	21,533			19,431	21,003	21,533	(7.5)	(9.8)
			∆ bps
	Dec	Dec			Dec	Sep	Dec	∆ bps
Key Ratios(%)	2020	2019	YoY		2020	2020	2019	QoQ	YTD
CAR (Capital Adequacy ratio) Tier 1 Ratio Loan-to-Deposits Return-on Assets Return-on-Equity	16.01	16.28	(27) (28) (268) - -		16.01	17.42	16.28	(141)	(27)
	14.87	15.15			14.87	16.29	15.15	(142)	(28)
	81.05	83.73			81.05	78.07	83.73	298	(268)
	(0.88)	1.49			(0.88)	0.31	1.49	-	-
	(6.24)	9.91			(6.24)	2.21	9.91	-	-

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Exhibits:

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Revenue -14.1%
AED Mn
5,994
5,148
2019 2020
Loans Deposits
AED Mn
-6.1% -3.0%
76,167 90,969
71,533
88,261
Dec-19 Dec-20 Dec-19 Dec-20
Capital adequacy ratio Tier 1 Ratio
%
16.3 15.9 17.0 17.4 16.0 15.1 14.8 15.9 16.3 14.9
4Q’19 1Q’20 2Q’20 3Q’20 4Q’20 4Q’19 1Q’20 2Q’20 3Q’20 4Q’20
Coverage ratio (RHS) NPL ratio (LHS) %
8 130.3 150
116.8 120.4
6 101.4 95.8
100
4
2 3.6 4.4 4.6 4.2 5.1 50
0 0
4Q’19 1Q’20 2Q’20 3Q’20 4Q’20
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For media enquiries, please contact: For investor relations enquiries, please contact: Rana AlBorno Ali Zaigham Agha

Ali Zaigham Agha Investor Relations, Mashreq Tel: 04 –2077543 Email: AliAgha@mashreq.com

Public Relations, Mashreq Tel: 04 –6083629 Email: RanaAlB@mashreq.com