Q1. Discuss how Islamic bank?s compliance with Basel requirements of capital adequacy can be improved? (1 page)

Q2. Download the annual report of Commercial Bank of Dubai for the year 2014 and calculate the CAMEL ratios and show the full calculations. (2 pages)

All the details equations in the handout should be used.

CAMEL	Ratio	2013	2014
Capital Adequacy	Total Equity/Total Assets
Asset Quality	Total Loans / Total Assets
Management Quality	Operating Expense/ Total Assets
Earnings Efficiency	Net Income/Total Equity
Liquidity Risk	Loans / Total Deposits

Q3. Comment on the above results. ( 1 page)

ANNUAL REPORT 2014 His Highness Sheikh Khalifa bin Zayed Al Nahyan President of the UAE Ruler of Abu Dhabi His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum Crown Prince of Dubai His Highness Sheikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of the UAE Ruler of Dubai His Highness Sheikh Hamdan bin Rashid Al Maktoum Deputy Ruler of Dubai Minister of Finance of the UAE His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum Deputy Ruler of Dubai Our Purpose Building sustainable prosperity through extraordinary banking experiences Our Mission To be loved for our passion and excellence Our Values Authenticity Simplicity Partnership Innovation Responsibility Excellence 4 Commercial Bank of Dubai Contents Board of Directors 6 Chairman's Statement 8 General Management 10 The Report of the Board of Directors 12 Report of the Auditors to the Shareholders 24 Consolidated Statement of Financial Position 26 Consolidated Income Statement 27 Consolidated Statement of Comprehensive Income 28 Consolidated Statement of Changes in Equity 29 Consolidated Statement of Cash Flows 30 Notes to the Consolidated Financial Statements 31 Branches 96 Annual Report 2014 5 Board of Directors Mr. Saeed Ahmed Ghobash Mr. Khalid Abdul Wahed Mr. Omar Abdulla Al Futtaim Chairman Al Rostamani Director Deputy Chairman Mr. Hamed Ahmed Kazim Mr. Ali Fardan Al Fardan Mr. Mohammed Abdulrahman Director Director Al Jallaf Director 6 Commercial Bank of Dubai Mr. Shehab Mohamed Gargash Mr. Mana Mohammed Saeed Mr. Abdulla Saif Al Hathboor Director Al Mulla Director Director Mr. Abdul Wahid Abdul Rahim Mr. Abdulla Saeed Al Nabooda Al Ulama Director Director Shareholders 80% UAE Nationals 20% Dubai Government Annual Report 2014 7 Chairman's Statement Dear Shareholders, It is my pleasure, on behalf of the Board of Directors, the management and the staff of the Commercial Bank of Dubai, to review the Bank's activities, achievements and financial performance for the year 2014, while shedding some light on the most important events and changes on local, regional and international levels and their influence on banking and finance activities. 2014 witnessed significant economic developments at the international level, the most important of which was the continued fragile economic recovery in Europe, where nations are struggling to avoid sliding into recession again. We saw the introduction of some unorthodox policies in Japan in an attempt to bolster the domestic economy and the continuation of slowing growth in China. However, the picture was not totally grim. The US economy continued its moderate growth and the main emerging economies in Africa and some Asian and Latin American countries recorded good growth rates. At the local level, the economy of the United Arab Emirates recorded a strong performance despite the fall in oil prices, this demonstrates the success of the UAE's strategy to diversify its economic structure in order to achieve sustainable development and curb the impact of fluctuations in the prices and revenues of oil exports. The contribution of non-oil sectors in the GDP rose to 69%, which is a record high. The local economy registered strong growth of close to 5%. This has been supported considerably by continued government expenditure on infrastructure projects, especially in the sectors of energy, roads, housing, health, and education. Further investment in tourism, trade, services, manufacturing, and aviation has also played its part in the success. The non-oil sectors in the UAE's sustained economic growth helped to drive the country's GDP to approximately 1.54 trillion dirhams. 8 Commercial Bank of Dubai The year also witnessed the UAE making huge progress in its international rankings, including the Global Competitiveness Report, in which the country progressed upward by seven ranks compared to 2013. This bears testimony to the leading global role of the UAE, and the success of its efforts to realize the ambitious UAE Vision 2021 under the country's wise leadership. The UAE further enhanced its standing as a major active international trade center with the total value of non-oil external trade increasing to 1.55 trillion dirhams despite a decline in the international prices of goods. The strong growth in import, export and re-export transactions compensated for the fall in prices. The strong recovery in the tourism, retail, and services sectors continued with the UAE receiving record numbers of tourists and retail trade registering robust activity. Dubai International Airport gained the distinction of overtaking London Heathrow as the busiest airport in the world. Amidst all this, the real estate sector witnessed a fluctuating performance; after a strong first few months of the year, the sector witnessed a comparative slowdown during the second half. However, the continued increase in rents put the brakes on price regression. Government measures aimed at curbing speculation contributed to more depth and stability in the sector. In conjunction, the construction sector continued to recover as developers started new projects and completed previously suspended ones. The rise in rents and prices of goods contributed to an increase in the Consumer Price Index, which fluctuated around the 2.5% level. Local equity markets witnessed a dichotomous performance. After registering a big increase at the beginning of the year, speculation and profit-taking caused stock prices to lose most of these gains in spite of an improved financial performance by companies. The banking sector enjoyed a good year. Deposits continued to register healthy growth rates that strengthened the sector's liquidity and helped boost lending activity. This resulted in strong profit growth, even as banks continued to clean up their balance sheets by making adequate provisions with the support and guidance of the UAE Central Bank. CBD continued with its ambitious expansion plans alongside its commitment to enhance its financial solvency and the quality of its asset portfolio. The Bank's efforts to expand in the area of personal banking and network banking services bore positive fruit with a significant expansion in the customer base of these two segments. The Bank's continued success in enhancing its presence in the corporate banking segment, as well as with family groups, high net worth individuals and Islamic banking was supported by the creation of more products and services to meet the requirements of its growing customer base. These elements place the Bank in an ideal position to leverage the growth prospects of the national economy in the coming years. The momentum of growth and development that CBD has experienced underlines the success and resilience of its business strategy. The Bank posted a net profit of 1.2 billion dirhams, an increase of 19% compared with 2013, while \" \" CBD continued with its ambitious expansion plans alongside its commitment to enhance its financial solvency and the quality of its asset portfolio. The Bank's efforts to expand in the area of personal banking and network banking services bore positive fruit assets increased by 5.5% over the previous year, reaching 46.9 billion dirhams. During the year, CBD's Board of Directors and executive management worked hard on multiple components of the bank's strategy that focuses on strengthening the Bank's leading position at the local and regional levels; upgrading performance and efficiency across all functions; improving customer service significantly and expanding into new growth segments. This will continue to bolster the Bank's revenues, profits and growth prospects as well as shareholder returns, while maintaining the quality of its credit portfolio by adopting lending policies based on discretion, intimate knowledge of markets and clients, and a proactive approach to any unfavorable developments in the market. In 2014, we also focused on building the Bank's capability and readiness to handle evolving client needs through an approach that focuses on developing our human resources, particularly our National staff. We adopted the latest technologies to allow us to face challenges and capitalize on emerging opportunities. We continue to ensure that the Bank's growth is in line with the aspirations and ambitions of its shareholders, while, at the same time, continuing to play a vital and ever-increasing role in enhancing the development of the UAE under its wise leadership. I would like to take this opportunity to offer my heartfelt thanks and appreciation to the Bank's shareholders, clients and other stakeholders for their confidence and support; to offer my gratitude to the Bank's management and employees for their unceasing efforts to support the Bank's growth and to produce the encouraging results we have achieved. Best Regards, Saeed Ahmed Ghobash Chairman Annual Report 2014 9 General Management First row (from left to right): Mr. Peter Baltussen Chief Executive Officer Mr. Yaqoob Yousuf Hassan* Mr. Ibrahim Abdulla Mr. Thomas Pereira Mr. Murray Sims Deputy Chief Executive Secretary to the Board of Directors General Manager, Administration and Human Resources Second row (from left to right): Mr. Mahmoud Hadi Chief Operations Officer Chief Financial Officer General Manager Personal Banking Group Third row (from left to right): Mr. Alain Renaud General Manager Corporate, Commercial and Investment Banking Mr. Fahad Al Muhairi General Manager Attijari Al Islami *Retired since July 2014 10 Commercial Bank of Dubai From left to right Othman Bin Hendi Frans Jan Burkens Stephen Davies Deputy General Manager, Deputy General Manager, Head of Credit Personal Banking Corporate Banking John Tuke Head of Treasury and Asset and Liability Management Abdul Rahim Al Nimer Deputy General Manager, Commercial Banking Shorouk Al Redha Head of Human Resources Moukarram Atassi Head of Investment Group Ahmed Al Aboodi Head of Special Credit Asem Fikree Chief Information Officer Nabil Tayyeb Deputy General Manager, Attijari Al Islami Anoop Sapra Head of Internal Audit Akram Gharabeh Head of Financial Control Hassan Al Redha Head of Financial Institutions Ra'ed Abubaker Regional Manager, Abu Dhabi Region Srikanth Das Head of Corporate Credit Maher Al Marzouqi Deputy Head of Commercial Banking Amer Al Shamali Head of Business Development - CCIB Masood Safar Head of AML and Compliance Stelios Michaelides Head of Strategic Planning Lakshmanan Sankaran Head of Operations and Trade Finance Yousif Al Suwaidi Head of Sales and Distribution Tariq Bin Hendi Deputy Head of Corporate Advisory Nasser Alnajjar Head of Central Operations Tanveer Islam Head Of Corporate Products Souhayel Tayeb Ph.D Head of Legal Department Laurent Hawath Head of Commodity Finance Frederick Carstens Deputy Head of Human Resources Jamal Saleh Head of Risk Management Waleed Mohammed Bin Suloom Assistant General Manager, Administration Mohamed Nassim Faiz Hussain Al Balooshi Head of HR Business Head of Debt Capital Partners Market & Syndications Akram Skaik Head of Private banking Mohammed Ali Redha Head of Business Banking Annual Report 2014 11 Board of Directors Report 2014 The audited financial statements in this Annual Report have been prepared in accordance with International Financial Reporting Standards (IFRS) and include Basel II Pillar III annual disclosures. FINANCIAL HIGHLIGHTS Commercial Bank of Dubai (CBD) reported net profit of AED 1.2 billion for the year ended 31st December 2014; an increase of 19% over the AED 1.01 billion recorded a year earlier. The record 2014 net profit was achieved on the back of a collaborative effort from all of the lines of business, which has further diversified the Bank's revenues. CBD's personal banking strategy saw the launch of its next generation online banking platform, unveiling of the first of its planned digital kiosks at Dubai Men's College targeting the young UAE population and a comprehensive re-alignment of its sales and distribution philosophy. At the same time, CBD has already commenced the process of re-aligning its corporate and commercial banking business, with the addition of value added services like corporate finance and debt capital markets advisory. Operating Income: Operating income for the year reached an all-time high of AED 2.24 billion which was 10.2% higher than AED 2.03 billion for the year ended 2013. The increase in operating income was largely driven by a 9.3% increase in net interest income from AED 1.45 billion in 2013 to AED 1.58 billion for the full year ended 2014 and a 12.5% increase in noninterest income from AED 584.2 million to AED 657.5 million for the same periods. 12 Commercial Bank of Dubai \" \" CBD's personal banking strategy saw the launch of its next generation online banking platform and unveiling of the first of its planned digital kiosks Operating Expenses: Operating expenses increased by 20.2% to AED 754.4 million for the year ended 2014 (2013: AED 627.6 million). The Bank's personal banking strategy entails investments in its sales & distribution network as well as digital banking. The strategy led to 35% growth of the personal banking assets portfolio. CBD has also invested in specialist resources to support its corporate banking growth strategy. The cost-toincome ratio marginally increased to 33.7% as a result. Impairment Allowances: Impairment provisions net of recoveries reduced from AED 395 million booked during 2013 to AED 283.7 million in 2014. Overall asset quality continued to improve, as evidenced by the non-performing loan (NPL) ratio dropping from 10.1% as at end of Dec-13 to 9.2% as at end of Dec-14. Meanwhile the impaired loan coverage ratio improved from 84.9% as at end of Dec-2013 to 93.7% as at 31 December 2014. Net Profit: The net profit for the year 2014 amounted to AED 1,202.3 million, up by 19% as compared to AED 1,010 million for 2013. A sixth consecutive year of growth in annual profit is testimony to the consistency of CBD's performance and reaffirms the overall strategy as formulated under the guidance of its Board of Directors. Return on average assets for the year ended 31 December 2014 improved to 2.6% from 2.4% for the year ended 2013. Return on average equity increased to 16.7% for the year ended 31 December 2014 when compared to 15.1% for the year ended 31 December 2013. Assets and Liquidity: CBD reported total assets of AED 46.9 billion as at 31 December 2014 5.5% higher than AED 44.5 billion as at 31 December 2013. Customers' loans & advances stood at AED 32.2 billion, 6.2% higher when compared to AED 30.3 billion as at 31 December 2013. - Emphasis on its personal banking offering resulted in a 35% increase in gross loans from AED 3.3 billion as at 31 December 2013 to AED 4.4 billion as at 31 December 2014. - The Bank continued to grow its corporate banking business where gross lending increased by 4% from AED 29.1 billion as at end of December 2013 to AED 30.1 billion as at 31 December 2014. Customers' deposits at AED 32.2 billion were 3.9% over the AED 30.9 billion as at end of 2013. Advances to stable resources ratio at 82.6% as at 31 December 2014 against 80.9% as at 31 December 2013 compared to the regulatory maximum ratio of 100%. Liquidity coverage ratio as calculated per Basle-III guidelines was 109.1% as at 31 December 2014 whilst the minimum stipulated ratio is 50%. Capital Adequacy: The Bank is robustly capitalized with total capital of AED 7.7 billion as at 31 December 2014. Capital adequacy ratio as per BASEL II was at 18.1% as at 31 December 2014 against regulatory requirement of 12%, while Tier 1 capital ratio was at 16.8% as at 31 December 2014. The Board of Directors has proposed a 50% dividend for the year, with 25% paid as cash, AED 561 million (2013: AED 612 million) and 25% as bonus shares, AED 561 million (2013: AED 204 million) subject to the agreement of the shareholders at the Annual General Assembly Meeting. CORPORATE GOVERNANCE CBD continued to follow international best practice in its Corporate Governance framework which was revised in 2013. The framework is created on principles of fair treatment for all stakeholders and to provide a basis for an inclusive relationship between the Bank, its Board of Directors, its Shareholders and other stakeholders including customers, regulators and supervisors. Board of Directors The Board of Directors has collective responsibility for the long term success of CBD and to provide overall direction, supervision and control. It has complete responsibility for the Bank's operations and financial stability. The Board sets CBD's strategic objectives and has oversight responsibility over the executive management. It also ensures the effectiveness of internal control systems and keeps a watch on the extent to which the Bank implements strategic plans and approved policies. In addition, it is responsible for the credibility of the Bank's financial reports, the application of appropriate risk policies as well as compliance with all laws and regulations in force. The formation of the Board of Directors is governed by the Federal Law No. 8 of 1984 (as amended). The current Board comprises of eleven members elected for tenure of three years. CBD's Board of Directors held a total of eight meetings during 2014 with a combined total of twenty four working hours. Annual Report 2014 13 Board of Directors Report 2014 Continued The Board has delegated authority to CBD's executive management to enter into transactions which are consistent with the Bank's Risk Strategy and policy guidelines (as described on pages 64 to 70 of the audited financial statements). Board Committees The Board has delegated specific responsibilities to committees as shown in the following table. Each Committee has a defined charter. The Board and its committees are supplied with complete and timely information to enable it to discharge its responsibilities. In this respect, the Board, its committees and all the directors have access to senior management, external consultants and advisors. For details about corporate governance, board committees, management committees and control environment please see pages 64 to 73 of the audited financial statements. Credit & Investment Committee (CIC) CIC oversees the quality of the Bank's Credit & Investment portfolio and effectiveness of its credit policies and approves loans and investment above delegated limits. Audit, Risk & Compliance Committee (ARCC) ARCC assists the Board of Directors in overseeing the Bank's financial reporting system, internal control and risk management framework, audit functions, legal and regulatory requirements. 14 Commercial Bank of Dubai \" \" CBD's corporate banking division had another strong year in 2014, with total revenue growth of 9% Nomination & Remuneration Committee (NRC) NRC reviews and approves HR strategy and key policies as well as CBD's compensation program in order to attract, retain and motivate its employees. Special Credit Committee (SCC) SCC reviews and follows up exposures which are delinquent or where significant financial difficulty of the borrower is evident and negotiates debt restructuring and repayments, evaluates adequacy of provisions for nonperforming loans and reviews the overall performance of the credit portfolio. Strategy and Transformation Committee (STC) STC assists the Board of Directors in fulfilling its oversight responsibilities relating to the Bank's strategic plans and initiatives in support of its strategy. It initiates, reviews and evaluates the Bank's growth strategy including inorganic growth. It also initiates, reviews and assesses responses to external developments and factors such as changes in the economy, industry trends, competition and technology. CORPORATE BANKING CBD's corporate banking division had another strong year in 2014, with total revenue growth of 9%. Despite an increasingly competitive environment, CBD expanded and consolidated its relationships with clients from both the public and private sectors. Its growth strategy has been focused on companies involved in trade and manufacturing, along with growth sectors such as healthcare services and education. The result has been an increased level of business volume across customer segments (local and international companies) and products. The new growth strategy has led to a year-on-year increase of fee and commission income of 21% primarily from higher transaction banking activity across Trade +16%, Cash Management +29% and from participation in syndicated loans +15% and Financial Institutions transactions +22%. Moreover, the sector focus has already shown results with strong growth in sectors such as transportation and education. COMMERCIAL BANKING CBD's commercial banking division had a good year, with revenue growth of 6% in 2014. Loan volumes were strong with 17% year-on-year growth, and yields remaining at the higher end of the market; while fee and commission income progressed significantly at an annual rate of 19%. Fee income growth was driven by all transaction banking products, i.e. Trade +18% and Cash Management +28%. While retaining a high market share in its UAE client base, with many businesses being family-owned, CBD has made strong progress in the expatriate segment, particularly through collaboration and agreements with key free zones such as: - Agreements were signed during the year with JAFZA, Saif Free Zone, and Hamriyah Free Zone Authority subsequent to which it organized several customer and product seminars to showcase CBD's range of solutions designed to meet its clients' business requirements; - CBD held discussions with Dubai Multi Commodities Centre (DMCC) to offer funding solutions for the diamond industry and the commodities sector ; - Strategic partnerships were forged with key Abu Dhabi-based entities such as Abu Dhabi Education council (ADEC), Masdar, Industrial City of Abu Dhabi (ICAD) and Khalifa Industrial Zone Abu Dhabi (KIZAD); - Specialist relationship managers were hired to provide an expanded range of services in Free Zone areas. SPECIALIST PRODUCTS CBD offers its corporate and commercial banking clients a traditional range of corporate banking services: bilateral lending, syndicated finance, trade finance, payments, cash management and treasury services. In 2014 CBD has added two new products corporate advisory and commodity finance. Trade Finance Globalization and the introduction of free trade agreements have made international trade more dynamic and challenging. During 2014, CBD created a Trade Sales Team comprising experienced trade products specialists, with a mandate to augment the trade portfolio in both the corporate and commercial segments. The trade sales team introduced the concept of \"Trade Advisory\" for valued corporate and commercial clients and offered an additional channel of engagement through seasoned trade professionals. During 2014, the \"Bene Marketing Approach\" was also introduced in order to effectively utilize correspondent bank/country limits through primary market short tenor trade deals which resulted in soliciting greater export volumes and corresponding revenues through discounting of export LCs advised through CBD counters. Annual Report 2014 15 The Report of the Board of Directors Continued The African trade corridor has also been on the trade sales forefront during 2014 to enhance CBD's geographical coverage of the African market. African country and bank limits were established along with strategic tie-ups with renowned Export Credit Agencies (ECAs), which resulted in capturing cross border trade opportunities offered by African markets. Transactional Banking/ Payments and Cash Management Throughout 2014, CBD's Payments and Cash Management team continued to provide high level of payment collections and liquidity management services to clients, which has led to very strong year-on-year growth of 29% in fees and commission. Further, a new corporate card payment product was introduced with good uptake and utilization from its customers. This product will become more relevant as the UAE Government moves away from cash towards e-services. Debt Capital Markets (DCM) The debt capital markets and syndications department is responsible for all loan underwriting and secondary market loan activities. The department worked closely with relationship managers to originate, structure, underwrite, and distribute syndicated loans and bonds covering many sectors including acquisition finance, leveraged finance, project finance, real estate, and public finance. The DCM business has grown substantially in 2014 with 15% increase in fees, driven by increased focus on fee-based income and the aim of enhancing the CBD product suite for wholesale clients, particularly GREs and large corporates. 16 Commercial Bank of Dubai \" \" CBD continued the aggressive growth of its personal banking customer base using a blend of state of the art technology, expanded distribution channels, market-friendly products, and a relationship-driven approach During 2014, CBD has won a number of large, high-profile financing mandates as lead arranger and underwriter, executing eight transactions with a combined transaction value of more than AED 1.9 billion. Commodity Finance In line with the emergence of the UAE as a regional commodity trade hub, CBD created a department whose purpose is to seek business from local, regional and international commodity traders in the energy, agribusiness, metals and precious gems segments. A senior specialized banker supervises its fast growing activity in the diamond trade business, and African trade corridor strategy. Corporate Advisory CBD constantly strives to offer its corporate and commercial clients more sophisticated products and services. With that in mind, and the recent hiring of a new General Manager for Corporate, Commercial and Investment Banking in 2014, CBD set up a corporate advisory team to offer its clients investment banking advice and services, focused on M&A (sell-side and buyside), equity capital markets (especially IPOs and private placements) and financing advisory. CBD's clients are continuously growing and evolving their businesses, and the corporate advisory team can now help them move beyond a traditional lending relationship with the Bank into a more creative and dynamic relationship, supported by exceptional advice and service. PERSONAL BANKING CBD continued the aggressive growth of its personal banking customer base using a blend of state of the art technology, expanded distribution channels, marketfriendly products, and a relationship-driven approach. This helped the Bank significantly expand the customer base in 2014, as well as the division's contribution to overall revenues. Total personal banking asset growth of 35% compared extremely favourably with the market as a whole. During the course of 2014 a number of projects were launched as part of the division's strategy to be recognized by consumers and competitors as a leading service provider in the UAE for affluent customers, professionals and small enterprises competing on the basis of comprehensive, personalized, quality service provided across both traditional and digital channels. In particular, emphasis was given to developing a comprehensive network strategy for the division's branches including the design of an entirely new look, feel, zoned and branded branch concept which, going forward, will be the future model for all branches. A revised customer value proposition for the division's affluent customers was also developed and a completely new service, distribution, sales and customer value proposition for the small business customer segment was launched. An entirely new \"digital\" kiosk was launched following a partnership agreement with the Higher Colleges of Technology, Dubai Men's College. This new and refreshing approach to banking will, after testing, be the blue-print for the future kiosk strategy that will be implemented going forward. Client centricity and customer engagement were also areas of particular focus in 2014. A new service quality function, encompassing the existing contact center (\"Voice of Customer\"); Business Process Engineering Unit and complaint management units were set-up and a comprehensive plan drawn up to ensure that going forward, client engagement features at the heart of everything the division undertakes. Personal Banking unveiled its new website, bringing the next generation of online banking to customers' smartphones, laptops, and desktops. The new platform brings an innovative and personalized customer experience, which includes Sara, the first virtual banking assistant, and the personal financial management tool, the most revolutionary way to analyze spending patterns, putting customers in total control of their finances, thereby helping them make smarter choices and achieve long-term financial goals. Sara, is an avatar that chats intelligently and guides customers every step of the way, round the clock. Through Sara, CBD is able to engage online visitors in a conversational and friendly manner. While increasing customer engagement and overall satisfaction, Sara can also help bridge a real-time live dialog with the CBD call center in a live web chat. CBD also initiated a brand new trend in banking services by introducing banking transactions through Facebook, the most widespread social networking website. This is the first time that a UAE bank has adapted its financial services specifically for Facebook. The initiative is the first in the region and one of only three in the world. Annual Report 2014 17 The Report of the Board of Directors Continued Online banking customers with a Facebook account can manage their daily banking needs without having to leave the platform they enjoy spending time on. Customers can perform a number of tasks such as checking their current and savings accounts and credit card balances without leaving Facebook. They can also pay CBD credit cards, as well as transfer money between their CBD accounts and apply for CBD products. They can also track their expenses. With the objective of providing a wide array of financial options to its customers and, in effect, become a onestop financial shop, CBD launched bancassurance products across all branches in 2014. The launch of the bancassurance business is in line with CBD's multidimensional, multi-product approach to the needs of its customers. CBD's cards division also witnessed innovative and customer-oriented initiatives in 2014. All customer debit cards were upgraded to MasterCard with embedded \"chip and pin\" security. The transition from the previous cards was completed for all cardholders. The new microchip-embedded cards provide CBD's customers with a more advanced level of payment security than cards with a magnetic stripe. In keeping with CBD's philosophy of offering customers the best of everything in the financial services space, the interest rate charged to the Bank's credit card customers was reduced to 1.5 percent per month, compared to the 3 percent or more market norms. This rate applies to all credit cards offered by CBD, including World MasterCard; Visa Infinite, Signature and Classic; MasterCard Gold; and e-Tijari Web Card. The exciting new positioning has generated significant interest from existing as well as non-CBD customers. The personal 18 Commercial Bank of Dubai \" \" 2014 was a good year for Attijari Al Islami, which recorded consistent growth and delivered notable achievements along the path of commitment towards excellence through high standards of customer service and a range of innovative new Islamic product offerings. banking division's achievements are in consonance with CBD's philosophy of providing a more engaging customer experience in a competitive market. TREASURY & ASSET AND LIABILITY MANAGEMENT The Treasury business, in 2014, was impacted by the continued low levels of interest rates and the increased competition in the foreign exchange (FX) markets. Treasury Sales: During 2014, the Bank focused on strengthening Treasury product sales offerings. CBD introduced new documentation, updated policies and procedures, launched new products and upgraded staffing to offer improved services to its clients. The results were evident in the latter part of 2014 when CBD achieved record Treasury sales to clients despite competition for FX business from other local banks resulting in finer margins during the year. The sales desk now offers a full range of treasury products to support clients in mitigating the risks in their business associated with Foreign Exchange, Interest Rates and Commodities. The Bank received number of inquiries from clients who were considering fixing their borrowing costs in anticipation of future interest rate rises following the end of the asset purchase program (quantitative easing) by the US Federal Reserve. The Treasury sales team provided these clients with bespoke solutions. Trading and Liquidity: During 2014, ongoing low US interest rates and increased liquidity in the local market resulted in downward pressure on AED deposit rates. CBD was able to take advantage of these factors to reduce its cost of funds to record low levels; in fact, its cost of funds was amongst the lowest of all the UAE banks and thus an important contributing factor to the Bank's net interest income. Early in the year CBD renewed its Euro Medium Term Note (EMTN) program but due to its comfortable funding levels, the Bank did not enter into any new related transactions in 2014. ATTIJARI AL ISLAMI 2014 was a good year for Attijari Al Islami, CBD's Islamic Banking division, which recorded consistent growth and delivered notable achievements along the path of commitment towards excellence through high standards of customer service and a range of innovative new Islamic product offerings. The Bank's Islamic financing increased by 12 percent continuing the remarkable growth levels achieved since the division was established in 2009. CBD has 24 Attijari Al Islami centres and four dedicated Islamic units across the UAE. During the year Attijari Al Islami introduced new product offerings such as Sukuk Murabaha and Commodity Murabaha to facilitate retail customers' cash and buy-out requirements under the umbrella of its Absher Personal Finance. CBD also introduced a group scheme through which it offered employees of approved corporate entities the full range of retail Islamic products on preferential pricing and terms. The Attijari Al Islami Sharia Supervisory Board comprises three leading scholars in the field of Islamic Banking. The role of these scholars is to review the operations of Attijari Al Islami, supervise its development of Islamic products, and determine the Sharia compliance of the Bank's existing and new products. Attijari Al Islami is ready to move ahead with more ambitious plans to take the country's Islamic financial industry to the next level. INFORMATION TECHNOLOGY 2014 was a rewarding year for CBD's Information Technology Department. IT continued modernizing its infrastructure, security and application-delivery platforms while remaining agile and responsive to business needs and customer demands. More than thirty projects were successfully delivered, of which many had clearly defined business benefits while others provided the foundations for future business growth. Some of the key initiatives completed during the year are: New Internet Banking: CBD was the first bank in the region to launch advanced personal finance management and virtual assistant (Sara) modules as part of its new Internet banking's feature-rich interface. Facebook Banking: The first in the region and one of only three in the world, this initiative enables CBD customers to login to their Facebook accounts and perform banking transactions. Customer Visit Management System: This enables priority queuing for VIP customers and improves customer turn-around times. Utility Payment Gateway: This was enhanced and made more robust, to enable additional payment options such as Western Union. Annual Report 2014 19 The Report of the Board of Directors Continued CBD Financial Services System: The CBDFS System was upgraded to provide a better customer experience through a new interface. Digital Kiosk: CBD has launched its first model digital branch to provide an innovative digital experience to customers in the Higher Colleges of Technology. Express Account Opening: Customers can now visit CBD branches with a valid Emirates ID and open an account within a few hours. CBD IT was rated best in the world in the ICMG World Architecture Awards for \"Driving Transformation and Change\". The ICMG WAA is a global award across more than 24 countries, including the USA, France and South Africa. CBD is certified for ISO 9001:2008 \"Quality Management System\" and 10002:2004 \"Customer Satisfaction\". In addition, many CBD IT staff are certified in various disciplines like TOGAF, COBIT, PRINCE2, PMP, Green-IT, Six Sigma Green-Belt etc. The Bank is committed to enhancing technology to enable it to introduce innovative banking products in an efficient, contemporary way, to optimize banking convenience, and thereby attract and retain customers. HUMAN RESOURCES AND TRAINING CBD grew its headcount by 6 percent in 2014 to 1,230 and takes pride in recognizing and rewarding staff for their achievements, with a special focus on promoting 20 Commercial Bank of Dubai \" \" Corporate Social Responsibility is a core element of CBD's mission, vision and values. The Bank's CSR policies are continuously reviewed and aligned with the needs of the society and environment deserving UAE Nationals to key senior management positions. At the end of 2014, the actual number of UAE Nationals made up 41 percent of the Bank's employees, many of whom are in key leadership positions. Given the success of the initial two management trainee programs for Emirati candidates, another program was started at the end of 2014. The third program has nine UAE Nationals engaged in an 18-month management training program. They will undergo a carefully planned series of training programs as well as on-the-job training and, through this process, be groomed to take on leadership roles in CBD. To further support its Emiratization policy, the Bank again took part in four National Career Fairs in Abu Dhabi, Dubai, Sharjah and Ajman, as well as career open days with six universities in Dubai and Sharjah. CBD also supported local initiatives through the National HR Development and Employment Authority in Abu Dhabi, Dubai and Sharjah. To underscore CBD's leadership status in Emiratization in the UAE banking sector, the Bank was awarded the UAE National Resources Development Award. CBD's efforts have also been recognized by the GCC Social Affairs and Labor Ministers Council with an award honoring the Bank's contributions to localization. CBD also won the Dubai Human Development Award from the Department of Economic Development in Dubai, as well as the Human Resources Development Award from the Emirates Institute for Banking and Financial Studies. To ensure that the successful transfer of skills continues to take place within CBD, just over 90 managers were trained in coaching skills during 2014. CBD also ran best-in-class individual competency assessments on their top hundred leaders and top sixty relationship managers to determine development needs. Individual plans have been developed and the customized interventions will be delivered in 2015 to ensure that CBD continues to provide extraordinary banking experiences to all of its customers. During 2014 the new CBD purpose, mission and values were developed and communicated to its employees through an experiential event facilitated by fifty of its own staff. Throughout 2015, the new values will be cascaded into the organization and will also form the core fabric of the key performance drivers for 2015. Transfusion and Research Services at the UAE Ministry of Health to provide blood for thalassemia patients in the country. The Bank once again collaborated with Dubai Sports Council to organize the fourth edition of the CBD Youth Athletics Competition, Dubai's biggest athletics tournament for young athletes from public and private schools. The Olympics-like event witnessed immense sportsmanship and camaraderie among the athletes, and unstinting support for the competitors from their classmates, teachers, and families. The Bank's active CSR calendar included silver sponsorship by Attijari Al Islami of the 10th World Islamic Economic Forum in Dubai; platinum sponsorship of the Fourth Annual Middle East Accountancy and Finance Excellence Awards organized by ICAEW in Dubai; and strategic sponsorship of the Sheikha Latifa Childhood and Youth Creativity Awards. CORPORATE SOCIAL RESPONSIBILITY The Bank's CSR practices are in line with society's values, principles and needs. This is based on the belief that businesses have the responsibility to operate ethically and with integrity. The Bank aims to fulfil its role as a responsible corporate citizen through a CSR framework that addresses all its stakeholders. As part of its CSR, CBD organized a blood donation day in co-operation with the Department of Blood Annual Report 2014 21 Major Indicators 7.68% 35,757 36,783 38,509 38,241 39,298 44,476 46,917 771 803 821 822 859 1,010 1,202 4.63% 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 28,423 28,052 30,943 32,161 28,906 29,114 28,420 28,596 29,575 33,118 35,204 3.34% 29,210 3.77% 27,928 Net Prot 25,755 Total Assets 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 Customer's Deposits and Islamic customer's deposits 22 Commercial Bank of Dubai Gross loans and advances and islamic nancing Report of the Auditors to the Shareholders Consolidated Statement of Financial Position Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Annual Report 2014 23 Report of the Auditors to the Shareholders 24 Commercial Bank of Dubai Report of the Auditors to the Shareholders (continued) Annual Report 2014 25 Consolidated statement of financial position As at 31 December 2014 2014\t2013 Note AED'000 AED'000 ASSETS Cash and balances with Central Bank 5 5,450,145\t6,132,063 Due from banks 6 1,565,312\t1,662,172 Loans and advances and Islamic financing 7 32,167,216\t30,287,385 Investment securities 8 5,587,998\t4,228,653 Investment in associate 9 84,590\t72,862 Investment properties 10 249,991\t259,853 Property and equipment 11 323,852\t321,273 Other assets 12\t1,488,150\t1,511,930 ------------------------------------------------------------------------------------------------------------ Total assets 46,917,254 44,476,191 =========================================================================================================== LIABILITIES AND EQUITY LIABILITIES Due to banks 13 1,097,926\t499,259 Customers' deposits and Islamic customers' deposits 14 32,161,339\t30,942,680 Notes and medium term borrowings 15 4,021,998\t4,014,806 Other liabilities 16 1,825,578\t1,803,057 ------------------------------------------------------------------------------------------------------------ Total liabilities 39,106,841 37,259,802 ------------------------------------------------------------------------------------------------------------ EQUITY Share capital 17 2,242,187\t2,038,352 Legal reserve 17 1,380,495\t1,379,813 Capital reserve 17 38,638\t38,638 General reserve 17 1,121,095\t1,100,000 Cumulative changes in fair values of AFS investments and cash flow hedge instruments 17 69,808\t54,712 Reserve for proposed bonus issue 17 560,547\t203,835 Proposed cash dividend 17 560,547\t611,506 Proposed directors' remuneration 17 10,540\t11,000 Retained earnings 1,826,556\t1,778,533 ------------------------------------------------------------------------------------------------------------ Total Equity 7,810,413 7,216,389 ------------------------------------------------------------------------------------------------------------ 46,917,254 44,476,191 Total liabilities and equity =========================================================================================================== These consolidated financial statements were approved and authorized for issue by the Board of Directors on 28th of January 2015. The attached notes on pages 31 to 95 form part of these consolidated financial statements. Mr. Saeed Ahmed Ghobash Chairman The report of the Auditors is set out on pages 24 and 25. 26 Commercial Bank of Dubai Mr. Peter Baltussen Chief Executive Officer Consolidated income statement For the year ended 31 December 2014 Note 2014 2013 AED'000 AED'000 Interest income and income from Islamic financing 18 1,827,058\t1,766,533 Interest expense and distributions to Islamic depositors 19 (244,093)\t(317,864) ----------------------------------------------------------------------------------------------------------- Net interest income and net income from Islamic financing 1,582,965 1,448,669 20 405,389\t354,918 Net gains from foreign exchange and derivatives 119,450\t113,469 Net fees and commission income Net gains from investments at fair value through profit or loss - held for trading 21 2,506\t1,604 Net gains from sale of available-for-sale investments 72,271\t51,239 Share of profit of associate 9 17,567\t17,337 22 6,579\t6,254 Other income 33,703\t39,404 Dividend income ----------------------------------------------------------------------------------------------------------- Total operating income 2,240,430 2,032,894 Impairment allowances on loans and advances and Islamic financing 7 (347,288)\t(419,208) Recoveries 63,548\t24,155 ----------------------------------------------------------------------------------------------------------- Total net income 1,956,690 1,637,841 ----------------------------------------------------------------------------------------------------------- General and administrative expenses Depreciation and amortization 23 (708,738)\t(581,382) 10,11 (45,696)\t(46,224) ----------------------------------------------------------------------------------------------------------- Total operating expenses (754,434) (627,606) ----------------------------------------------------------------------------------------------------------- Net profit for the year 1,202,256 1,010,235 ========================================================================================================== Basic and diluted earnings per share 25 AED 0.54 AED 0.45 ========================================================================================================== The attached notes on pages 31 to 95 form part of these consolidated financial statements. Appropriations have been reflected in the consolidated statement of changes in equity. The report of the Auditors is set out on pages 24 and 25. Annual Report 2014 27 Consolidated statement of comprehensive income For the year ended 31 December 2014 2014\t2013 AED'000 AED'000 Net profit for the year 1,202,256 1,010,235 ------------------------------------------------------------------------------------------------------------ Other comprehensive income : Changes in fair value of effective portion of cash flow hedge (349) Changes in available-for-sale investments: Realized gains on sale of available-for-sale investments Amortization of reclassified investments Share of other comprehensive income of associate (72,271)\t(51,239) - 3,608 305 - Revaluation of available-for-sale investments 87,411\t79,810 Net change in available-for-sale investments 15,445 32,179 ------------------------------------------------------------------------------------------------------------ Other comprehensive income for the year 15,096 32,179 ------------------------------------------------------------------------------------------------------------ Total comprehensive income for the year 1,217,352 1,042,414 =========================================================================================================== Balances of all items included in other comprehensive income (as above) for the year ended 31 December 2014 and 2013 could be recycled to consolidated income statement in subsequent periods. The attached notes on pages 31 to 95 form part of these consolidated financial statements. The report of the Auditors is set out on pages 24 and 25. 28 Commercial Bank of Dubai Consolidated statement of changes in equity For the year ended 31 December 2014 Cumulative in changes fair values of AFS investments Share and cash Attributable Legal Capital General Flow hedge Retained capital reserve reserve Proposed Non- to equity\tControlling reserve instruments earnings\tdistributions of the parent AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 At 1 January 2013 2,038,352\t1,379,683 38,638 1,100,000 22,533\t1,595,295 622,506 interest Total AED'000 AED'000 AED'000 6,797,007 13,577\t6,810,584 Transactions with owners, recorded directly in equity Cash dividend paid for 2012 (30%) - - - - - Proposed cash dividend for 2013 (30%) - - - - - (611,506) 611,506 Proposed bonus issue for 2013 (10%) - 203,835 Share of Directors' remuneration of associate\t- - (611,506) - - - - (203,835) - - - - (526) (611,506) - - - (526) - (611,506) - - - - - (526) Redemption of units of funds -\t-\t- - -\t- Comprehensive income Net profit for the year - - - - Other comprehensive income for the year - - - - 32,179 - 1,010,235 32,179 1,010,235 - - (13,577) (13,577) - 1,010,235 - - 32,179 - 1,010,235 - 32,179 Total comprehensive income - - - - - 1,042,414 -\t1,042,414 Directors' remuneration paid for 2012 - - - - - - (11,000) (11,000) - (11,000) Proposed directors remuneration for 2013 - - - - - (11,000) 11,000 - - - Transfer to legal reserve - 130 - - - (130) - - - - ------------------------------------------------------------------------------------------------------------ At 31 December 2013 2,038,352\t1,379,813 38,638 1,100,000 54,712\t1,778,533 826,341 7,216,389 -\t7,216,389 Transactions with owners, recorded directly in equity Cash dividend paid for 2013 (30%) -\t-\t- - -\t- (611,506) (611,506) - (611,506) Proposed cash dividend for 2014 (25%) -\t-\t- - - (560,547) 560,547 Bonus shares issued for 2013 (10%) - -\t- 203,835\t-\t- - -\t- (203,835) - -\t-\t- - - (560,547) 560,547 - -\t- Proposed bonus issue for 2014 (25%) Share of Directors' remuneration of associate - - - - - (822) - (822) -\t(822) Comprehensive income Net profit for the year Other comprehensive income for the year Total comprehensive income - - - - -\t1,202,256 - 1,202,256 -\t1,202,256 -\t-\t- - 15,096\t- - 15,096 - 15,096 - - - - - 15,096\t1,202,256 1,217,352 -\t1,217,352 Directors' remuneration paid for 2013 -\t-\t- - -\t- (11,000) (11,000) - (11,000) Proposed directors remuneration for 2014 -\t-\t- - - (10,540) 10,540 - -\t- Transfer to legal reserve - 682\t- - - (682) - -\t- - Transfer to General reserve -\t-\t- 21,095 - (21,095) - - -\t- ------------------------------------------------------------------------------------------------------------ At 31 December 2014 2,242,187 1,380495 38,638 1,121,095 69,808 1,826,556 1,131,634 7,810,413 -\t7,810,413 =========================================================================================================== The attached notes on pages 31 to 95 form part of these consolidated financial statements. The report of the Auditors is set out on pages 24 and 25. Annual Report 2014 29 Consolidated statement of cash flows For the year ended 31 December 2014 2014 2013 AED'000 AED'000 OPERATING ACTIVITIES Net profit for the year 1,202,256 1,010,235 Adjustments for: Depreciation and amortization 45,696 46,224 Gain on disposal of property and equipment (40) (647) Dividend income (6,579) (6,254) Share of profit of associate (17,567) (17,337) Amortization of securities 59,986 31,303 Loss on sale of subsidiary - 269 Net unrealized losses on investments at fair value through profit or loss - held for trading net of forex translation 6,576 944 Realized gains on sale of investments (73,994) (52,323) Net unrealized losses /(gains) on derivatives 2,667\t(2,739) Amortization of medium term borrowings 7,192\t7,613 ------------------------------------------------------------------------------------------------------------ 1,226,193\t1,017,288 ------------------------------------------------------------------------------------------------------------ Increase in statutory reserve with the Central Bank (279,361) (253,378) Increase in negotiable Central Bank certificate of deposits with original maturity of more than three months (100,000) - Increase in loans and advances and Islamic financing, net (1,879,831) (3,085,775) Decrease /(increase) in other assets 62,572 (42,633) Increase in due to banks with original maturity of more than three months 50,000\t- Increase in customers' deposits and Islamic customers' deposits 1,218,659 2,890,691 (Decrease) / increase in other liabilities (19,287) 194,731 Directors' remuneration paid (11,000)\t(11,000) ------------------------------------------------------------------------------------------------------------ Net cash flow from operating activities 267,945 709,924 ------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchase of investments (3,857,159)\t(3,231,321) Purchase of property and equipment (41,129) (30,098) Increase in investment properties (net) (102)\tDividend received 11,901 11,577 Proceeds from sale of investments 2,520,386 1,404,759 Proceeds from sale of subsidiary - 14,675 Proceeds from sale of equipment 2,858\t1,678 ------------------------------------------------------------------------------------------------------------ Net cash flow used in investing activities (1,363,245) (1,828,730) ------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Notes and medium term borrowings - 1,815,986 Dividend paid (611,506)\t(611,506) ------------------------------------------------------------------------------------------------------------ Net cash flow (used in) / from financing activities (611,506) 1,204,480 ------------------------------------------------------------------------------------------------------------ Net (decrease) /increase in cash and cash equivalents (1,706,806) 85,674 Cash and cash equivalents at 1 January 5,169,019\t5,083,345 ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at 31 December Note 26 3,462,213 5,169,019 =========================================================================================================== Supplemental disclosure: Interest income and income from Islamic financing received Interest expense and distributions to Islamic depositors paid The attached notes on pages 31 to 95 form part of these consolidated financial statements. The report of the Auditors is set out on pages 24 and 25. 30 Commercial Bank of Dubai 1,856,172\t1,758,134 272,847\t298,889 Notes to the consolidated financial statements For the year ended 31 December 2014 1. LEGAL STATUS AND ACTIVITIES Commercial Bank of Dubai PSC (\"the Bank\") was incorporated in Dubai, United Arab Emirates (U.A.E.) in 1969 and is registered as a Public Shareholding Company (PSC) in accordance with Federal Law No. 8 of 1984 (as amended). The Bank is listed on the Dubai Financial Market. The Bank's principal activity is commercial banking. The consolidated financial statements of the Group for the year ended 31 December 2014 comprise the results of the Bank and its subsidiaries (together referred to as \"the Group\"). Details about subsidiaries and associates CBD Financial Services LLC, is registered as a limited liability company in accordance with Federal Law No. 8 of 1984 (as amended) in Dubai, United Arab Emirates. The Bank holds a 100% interest. Its principal activity is broking for local shares and bonds. Attijari Properties LLC, is registered as a limited liability company in accordance with Federal Law No. 8 of 1984 (as amended) in Dubai, United Arab Emirates. The Bank holds a 100% interest. Its principal activity is buying & selling of real estate and selfowned property management services. National General Insurance Co. (PSC) is an associate of the Bank and is listed in Dubai Financial Market. It underwrites all classes of life and general insurance business as well as certain reinsurance business. The Bank holds 17.8% interest in \"National General Insurance Co. (PSC)\". The management believes that it has significant influence on the associate by virtue of it having representation on the board of directors of the Associate. The registered address of the Bank is Al Ittihad Street, P.O. Box 2668, Dubai, United Arab Emirates. 2. BASIS OF PREPARATION a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and comply with relevant laws of the U.A.E. Along with these consolidated financial statements, the Group has presented Basel II Pillar 3 disclosures in accordance with the guidelines issued by the Central Bank of the UAE. The application of Basel II Pillar 3 guidelines has impacted the type and amount of disclosures made in these consolidated financial statements, but has no impact on the reported profits or financial position of the Group. In accordance with the requirements of Basel II, the Group has provided full comparative information. As required by the UAE Securities and Commodities Authority (SCA) notification number 85/2009 dated January 6, 2009, the Group's exposure in cash and advances with Central Bank of the UAE, Due from Banks and Investment Securities outside the UAE have been presented under the respective notes. b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: Derivative financial instruments are measured at fair value; Financial instruments classified as fair value through profit or loss, held for trading and available for sale are measured at fair value; Recognised assets and liabilities that are hedged item in a fair value hedge transaction are measured at fair value in respect of the risk that is hedged; and Granted land is valued at market value on the date of grant. c) Functional and presentation currency The consolidated financial statements are presented in United Arab Emirates Dirhams (\"AED\"), which is the Bank's functional currency, rounded to the nearest thousand unless otherwise stated. d) Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity are disclosed in Note 3 (y). Annual Report 2014 31 Notes to the consolidated financial statements (continued) For the year ended 31 December 2014 2. BASIS OF PREPARATION (continued) e) Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries, which it controls, as at 31 December 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Group's voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements of the Group from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) is attributed to the equity holders of the parent of the Group and non-controlling interest. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the cumulative translation differences recorded in equity Derecognises the carrying amount of any non-controlling interest Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in consolidated income statement. Reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. (i) Subsidiary The subsidiary is an entity that is controlled by the Bank. Control exists when the Bank has power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiary are included in the consolidated financial statements from the date control commences until the date that control ceases. (ii) Associate An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The Group's investments in its associate are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. The statement of profit or loss reflects the Group's share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognised directly in the equity of 32 Commercial Bank of Dubai Notes to the consolidated financial statements (continued) For the year ended 31 December 2014 2. BASIS OF PREPARATION (continued) e) Basis of consolidation (continued) (ii) Associate (continued) the associate, the Group recognises its share of any changes, when applicable, in