qnb finance ltd - rns submit · qnb finance ltd financial ... preparation and fair presentation of...

QNB FINANCE LTD

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015

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Draft

Independent Auditors’ Report to the Shareholders of QNB Finance Limited

Report on the Financial StatementsWe have audited the accompanying financial statements of QNB Finance Limited (the “Company”)which comprise the statement of financial position as at 31 December 2015 and the statement ofcomprehensive income, statement of changes in equity and statement of cash flows for the year thenended, and a summary of significant accounting policies and other explanatory information.

Board of Directors' Responsibility for the Financial StatementsThe Board of Directors are responsible for the preparation and fair presentation of these financialstatements in accordance with International Financial Reporting Standards and for such internalcontrol as board of directors determine is necessary to enable the preparation of financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on our judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal controls relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by board of directors,as well as evaluating the overall presentation of the financial statements.

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

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position ofthe Company as at 31 December 2015, and its financial performance and its cash flows for the yearthen ended in accordance with International Financial Reporting Standards.

Ernst & YoungDoha - State of Qatar19 January 2016

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2015 2014Notes USD USD

ASSETAmounts due from Parent Company 6,034,706,272 7,855,748,123 Total Assets 6,034,706,272 7,855,748,123

LIABILITIES AND EQUITY

LIABILITIESDebt Securities 5 4,489,059,072 5,982,519,160 Other Borrowings 6 1,508,445,409 1,832,606,800 Other Liabilities 37,201,691 40,622,063 Total Liabilities 6,034,706,172 7,855,748,023

EQUITYShare Capital 7 100 100 Retained Earnings - - Total Equity 100 100 Total Liabilities and Equity 6,034,706,272 7,855,748,123

These financial statements were approved by the Board of Directors on 19 January 2016 and were signed on itsbehalf by:

………………………………………….. …………………………………………..Abdulla Mubarak Al-Khalifa Noor Mohd Al-NaimiDirector Director

QNB Finance Ltd.Statement of Financial Position

As at 31 December 2015

The attached notes 1 to 9 form an integral part of these financial statements.

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2015 2014 USD USD

IncomeInterest Income 172,717,349 181,873,811

ExpenseInterest Expense (172,717,349) (181,873,811) Profit for the Year - - Total Comprehensive Income for the Year - -


QNB Finance Ltd. Statement of Comprehensive IncomeFor the Year Ended 31 December 2015

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Share Capital Retained Earnings

Total

USD USD USD

Balance at 1 January 2014 100 - 100

Profit for the Year - - -

Total Comprehensive Income for the Year - - -

Balance at 31 December 2014 100 - 100

Balance at 1 January 2015 100 - 100

Profit for the Year - - -

Total Comprehensive Income for the Year - - -

Balance at 31 December 2015 100 - 100


For the Year Ended 31 December 2015Statement of Changes in Equity

QNB Finance Ltd.

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2015 2014 USD USD

Cash Flows from Operating ActivitiesProfit for the Year - - Adjustments for:Interest income (172,717,349) (181,873,811) Interest expense 172,717,349 181,873,811

- - Changes in Operating Assets:Changes in Due from Parent Company 5,725,522,005 (168,509,147) Net Cash from / (used in) Operating Activities 5,725,522,005 (168,509,147)

Cash Flows from Investing ActivityInterest received 174,055,301 174,055,301 Net Cash from Investing Activity 174,055,301 174,055,301

Cash Flows from Financing ActivitiesRepayment of Debt Securities (5,460,750,000) - Net proceeds from issuance of Other Borrowings 769,455,859 581,385,524 Repayment of Other Borrowings (1,038,534,048) (412,876,377) Interest paid (169,749,117) (174,055,301) Net Cash used in Financing Activities (5,899,577,306) (5,546,154)

Net increase in cash and cash equivalents - - Cash and cash equivalent at 1 January - -

Cash and cash equivalent as at 31 December - -

Statement Cash FlowsFor the Year Ended 31 December 2015

QNB Finance Ltd.


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1. CORPORATE INFORMATION

2. BASIS OF PREPARATION

a) Statement of compliance

b) Basis of measurement

c) Functional and presentation currency

d) Use of estimates and judgements

3. SIGNIFICANT ACCOUNTING POLICIES

a) Foreign Currencies

QNB Finance Ltd.

The Company is a wholly owned subsidiary of Qatar National Bank S.A.Q.

QNB Finance Ltd (the "Company") was incorporated on 18 October 2010 and registered as an exempt company withlimited liability in Cayman Islands. The principal purpose of the Company is to raise funding through the internationalcapital markets to lending to Qatar National Bank S.A.Q. (the "Bank" or "Parent Company"). All the Debt Securities andOther Borrowings issued by the Company are irrevocably and unconditionally guaranteed by the Bank. The registeredoffice of the Company is situated at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

Notes to the Financial Statements

The financial statements have been prepared on the historical cost basis. The statement of financial position has beenpresented based on liquidity.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected.

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below.

As at and for the Year Ended 31 December 2015

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

These financial statements have been presented in US Dollars, which is the Company's functional currency. All financialinformation presented in US Dollars has been rounded to the nearest US Dollar (USD).

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimatesand assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, incomeand expenses. Actual results may differ from these estimates.

Impairment of amounts due from Parent Company

Amounts which are not individually significant, but which are past due, are assessed collectively and an allowance for impairment applied according to the length of time past due, based on historical recovery rates.

The financial statements are denominated in US Dollars. Transactions in other foreign currencies are translated into USDollars at the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated inforeign currencies are translated into US Dollars at the rates ruling at the statement of financial position date. Foreigncurrency differences resulting from the settlement of foreign currency transactions and arising on translation at periodend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statementof comprehensive income.

An estimate of the collectible amount of account receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and have been consistently applied by the Company.

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QNB Finance Ltd.Notes to the Financial Statements


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b) Revenue RecognitionInterest income is recognised in the income statement using the effective interest rate method.

c) Financial Instruments

(i) Non-derivative financial assets

Initial Recognition

Derecognition

(ii) Non-derivative financial liabilities

Initial Recognition

Derecognition

d) Impairment of financial assetsAssets carried at amortised cost

Financial instruments comprise financial assets and financial liabilities. Financial assets consists of amounts due fromParent Company and financial liabilities consist of debt securities, other borrowings and certain other liabilities.

Debt securities and other borrowings are recognised initially at fair value. Subsequent to initial recognition, all financialliabilities are measured at amortised cost.

All financial liabilities are recognised on the trade date, which is the date that the Company becomes a party to thecontractual provisions of the instrument.

Financial liabilities are derecognised when they are extinguished, that is when the contractual obligation is discharged,cancelled or expired.

The Company assesses at each reporting date whether there is objective evidence that a financial asset or group offinancial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses areincurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initialrecognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flowsof the financial asset or group of financial assets that can be reliably estimated.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, andonly when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realisethe asset and settle the liability simultaneously.

Amounts due from Parent Company has been recognised initially at fair value. Subsequent to the initial recognition it ismeasured at amortised cost less any impairment losses, if any.

All financial assets are recognised on the trade date, which is the date that the Company becomes a party to thecontractual provisions of the instrument.

Financial assets are derecognised when the contractual right to receive cash flows from the assets have expired, orwhen the Company has transferred the contractual right to receive cash flows of the financial assets.

Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of afinancing arrangement by the Company on terms that the Company would not otherwise consider, indications that aborrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable datarelating to a group of assets such as adverse changes in payment status of borrowers or issuers.

Impairment is the difference between carrying amount and the present value of the estimated future cash flowsdiscounted at the original effective interest rate.

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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

e) New Standards and Amendments to Standards

Standard Defined Benefit Plans: Employee Contributions (Amendment to IAS 19)Annual Improvements 2010 - 2012 CycleAnnual Improvements 2011 - 2013 Cycle

Standards issued but not yet effective

IFRS 9 Financial Instruments (Effective 1 January 2018).IFRS 14 Regulatory Deferral Accounts (Effective 1 January 2016).IFRS 15 Revenue from Contracts with Customers (Effective 1 January 2018).Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisition of Interests (Effective 1 January 2016).

Amendments to IAS 27: Equity Method in Separate Financial Statements (Effective 1 January 2016).Amendments to IAS 1: Disclosure Initiative (Effective 1 January 2016).Amendments to IFRS 10, IFRS 12 and IAS 28: Applying the Consolidation Exception (Effective 1 January 2016).

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (Effective 1 January 2016).

The adoption of the above did not result in any changes to previously reported net profit or equity of the Company.

The following amendments to IFRS and new IFRSs have been applied by the Company in preparation of these financial statements. The below were effective from 1 January 2015:

The below mentioned standards, interpretations and amendments to standards are not yet effective. The Company is currently evaluating the impact of these new standards. The Company will adopt these new standards on the respective effective dates.

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4. FINANCIAL RISK MANAGEMENT I. Financial Instrumentsa) Definition and Classification

b) Fair Value of Financial Instruments

II. Risk Management a) Risk Management Framework

Risk management structure

Risk Measurement and Reporting Systems

b) Credit Risk

Gross maximum exposure to credit risk is shown below: 31 December

2015 31 December

2014 USD USD

Amounts due from Parent Company 6,034,706,272 7,855,748,123 Total Credit Risk Exposure 6,034,706,272 7,855,748,123

Furthermore, the Company follows the Parent Company's risk management framework and risk management approach.

Financial instruments cover all financial assets and liabilities of the Company. Financial assets include amounts duefrom the Parent Company and financial liabilities represent debt securities, other borrowings and certain other liabilities.

Fair values of all the financial assets and liabilities approximate to their carrying amounts.

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other partyto incur a financial loss.

The Parent Company is ultimately responsible for identifying and controlling risks. However, there are separateindependent bodies responsible for managing and monitoring risks.

The independent risk control process does not include business risks such as changes in the environment, technologyand industry. They are monitored through the Parent Company's strategic planning process.

Risk is limited in the Company’s activities and it is managed through a process of ongoing identification, measurementand monitoring, subject to risk limits and other controls at the Parent Company level. This process of risk managementis critical to the Company's continuing profitability. The main risks arising from the Company’s financial instruments arecredit risk, liquidity risk and market risk.

Note 3 explains the accounting policies used to recognise and measure financial instruments.

Monitoring and controlling risks is primarily performed based on limits established by the Parent Company. These limitsreflect the business strategy and market environment of the Company as well as the level of risk that the ParentCompany is willing to accept.

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4. FINANCIAL RISK MANAGEMENT (CONTINUED)II. Risk Management (Continued)c) Liquidity Risk

2015 Within 1 - 3 3 - 12 1 - 5 More than1 Month Months Months Years 5 Years Total

USD USD USD USD USD USDDebt Securities 2,947,313 29,375,000 837,591,938 3,942,500,000 - 4,812,414,251 Other Borrowings 475,245 112,168,476 749,235,751 743,489,141 - 1,605,368,613 Other liabilities - 37,201,691 - - - 37,201,691 Total Liabilities 3,422,558 178,745,167 1,586,827,689 4,685,989,141 - 6,454,984,555

2014 Within 1 - 3 3 - 12 1 - 5 More than1 Month Months Months Years 5 Years Total

USD USD USD USD USD USD

Debt Securities 5,049,526 13,461,806 1,593,610,609 3,803,527,396 1,005,699,749 6,421,349,086 Other Borrowings 524,896,052 183,108,960 373,279,480 762,216,204 - 1,843,500,696 Other liabilities - 40,622,063 - - - 40,622,063 Total Liabilities 529,945,578 237,192,829 1,966,890,089 4,565,743,600 1,005,699,749 8,305,471,845

d) Market RiskCurrency Risk

Interest Rate Risk

e) Fair values

2015 2014 2015 2014USD USD USD USD

Due from Parent Company 6,034,706,272 7,855,748,123 6,034,706,272 7,855,748,123 Debt securities 4,489,059,072 5,982,519,160 4,525,700,000 6,045,056,103 Other borrowings 1,508,445,409 1,832,606,800 1,680,101,666 1,830,659,824 Other Liabilities 37,201,691 40,622,063 37,201,691 40,622,063



Carrying value Fair value

Fair value measurements for debt securities were based on Level 1 measurement techniques and fair values for other borrowings were based on Level 2 measurement techniques as per IFRS 13.

There have been no transfers between Level 1 and Level 2. (2014: Nil)

Liquidity risk is the risk that an entity will be unable to meet its funding requirements. The contractual maturities of assetsand liabilities have been determined on the basis of the remaining period at the end of the reporting period to thecontractual maturity date. Management monitors the maturity profile to ensure that adequate liquidity is maintained. Thetable below shows the maturity profile of the Company's financial liabilities at 31 December based on contractualundiscounted repayment obligations.

The Company is not exposed to any currency risk as the risk arising from the respective financial liabilities have an equaland opposite impact to the financial assets of the Company. Also all currency risks are borne by the Parent Company.

The Company is not exposed to any interest risk as the risk arising from the respective financial liabilities have an equaland opposite impact to the financial assets of the Company. Also all interest rate risks are borne by the Parent Companyand a significant portion of the Company's financial assets and financial liabilities comprise of fixed rate debt securities.

The table below shows the fair values of the financial assets and financial liabilities of the Company as at the end of the year.

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5. DEBT SECURITIES 31 December

2015 31 December 2014 USD USD

Face Value of the Bonds 4,500,000,000 6,000,000,000Less: Unamortised discount (10,940,928) (17,480,840)

4,489,059,072 5,982,519,160

As at 31 December 2015Currency Amount Issue

PriceCoupon Maturity Date Amounts in USD (net

of unamortised discount)

USD 1,000,000,000 99.631% 3.375% 22-Feb-17 999,139,600 USD 1,000,000,000 99.293% 2.125% 14-Feb-18 997,110,071 USD 1,000,000,000 99.216% 2.875% 29-Apr-20 995,127,975 USD 750,000,000 99.459% 2.750% 31-Oct-18 747,681,426 USD 750,000,000 100.000% 3M LIBOR +125bps 31-Oct-16 750,000,000

4,489,059,072


PriceCoupon Maturity Date Amounts in USD (net

of unamortised discount)

USD 1,500,000,000 99.017% 3.125% 16-Nov-15 1,497,406,493 USD 1,000,000,000 99.631% 3.375% 22-Feb-17 998,414,527 USD 1,000,000,000 99.293% 2.125% 14-Feb-18 995,786,751 USD 1,000,000,000 99.216% 2.875% 29-Apr-20 994,027,249 USD 750,000,000 99.459% 2.750% 31-Oct-18 746,884,140 USD 750,000,000 100.000% 3M LIBOR +125bps 31-Oct-16 750,000,000

5,982,519,160

6. OTHER BORROWINGSFollowing is the list of other borrowings by the Company:As at 31 December 2015Currency Amount Issue

PriceCoupon Maturity Date Amounts in USD

HKD 184,000,000 100% 2% 20-Dec-17 23,739,817 HKD 155,000,000 100% 2% 29-Jan-18 19,998,215 CHF 200,000,000 100% 3M LIBOR +53bps 13-May-16 201,551,985 CHF 200,000,000 100% 0.5% 27-Jun-16 201,551,985 USD 60,000,000 100% 3M LIBOR +72bps 24-Feb-16 60,000,000 USD 35,000,000 100% 3M LIBOR +104bps 21-Feb-17 35,000,000 USD 43,000,000 100% 3M LIBOR +40bps 26-Aug-16 43,000,000 USD 50,000,000 100% 3M LIBOR +40bps 27-Feb-16 50,000,000 EUR 125,000,000 100% 3M EURIBOR +12bps 21-Apr-16 136,269,056 EUR 25,000,000 99.97% 0.12% 12-May-16 27,250,840 EUR 80,000,000 100% 3M EURIBOR +13bps 18-Jul-16 87,212,196 EUR 100,000,000 100% 3M EURIBOR +38.25bps 27-Oct-16 109,015,245 EUR 25,000,000 100% 3M EURIBOR +36bps 20-Feb-17 27,253,811 EUR 31,000,000 100% 3M EURIBOR +44bps 20-Apr-17 33,794,726 EUR 30,000,000 100% 3M EURIBOR +42bps 20-Apr-17 32,704,574 EUR 60,000,000 100.228% 3M EURIBOR +42bps 20-Apr-17 65,537,458 CNY 160,000,000 100% 5.38% 26-Mar-18 24,640,571 CNY 190,000,000 100% 5.1% 1-Apr-18 29,260,678 CNY 200,000,000 100% 5% 2-Apr-18 30,800,714 EUR 90,000,000 100% 3M EURIBOR +41bps 23-Jun-17 98,113,721 USD 15,000,000 100% 3M LIBOR +78bps 16-Nov-17 15,000,000 USD 50,000,000 100% 3M LIBOR +67bps 23-Jun-17 50,000,000

The table shows below the details of the debt securities issued:



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6. OTHER BORROWINGS (CONTINUED)As at 31 December 2015 (Continued)Currency Amount Issue


USD 15,000,000 100% 3M LIBOR +90bps 2-Nov-17 15,000,000 USD 50,000,000 100% 3M LIBOR +63.75bps 5-May-17 50,000,000 SGD 28,000,000 100% 2.36% 5-Oct-17 19,803,381 AUD 30,000,000 100% 3.76% 15-Dec-20 21,946,436

1,508,445,409



CHF 300,000,000 100% 3M LIBOR +40bps 12-Jan-15 303,152,040USD 100,000,000 100% 1M LIBOR +58bps 23-Jan-15 100,000,000EUR 100,000,000 100% 3M EURIBOR +19.75bps 24-Jan-15 121,514,902EUR 150,000,000 100% 3M EURIBOR +26.25bps 20-Feb-15 182,272,353USD 100,000,000 100% 3M LIBOR +50bps 30-Apr-15 100,000,000USD 50,000,000 100% 3M LIBOR +80bps 16-Jul-15 50,000,000USD 50,000,000 100% 3M LIBOR +75bps 16-Sep-15 50,000,000HKD 400,000,000 100.00% 0.54% 18-Sep-15 51,580,827EUR 96,000,000 100% 3M EURIBOR +16.1bps 23-Dec-15 116,654,306USD 60,000,000 100% 3M LIBOR +72bps 24-Feb-16 60,000,000USD 50,000,000 100% 3M LIBOR +40bps 27-Feb-16 50,000,000CHF 200,000,000 100% 3M LIBOR +53bps 13-May-16 202,101,360CHF 200,000,000 100% 0.5% 27-Jun-16 202,101,360USD 43,000,000 100% 3M LIBOR +40bps 26-Aug-16 43,000,000EUR 100,000,000 100% 3M EURIBOR +38.25bps 27-Oct-16 121,514,902USD 35,000,000 100% 3M LIBOR +104bps 21-Feb-17 35,000,000HKD 184,000,000 100% 2% 20-Dec-17 23,727,180HKD 155,000,000 100% 2% 29-Jan-18 19,987,570

1,832,606,800

7. ISSUED CAPITAL

8. MATURITY OF ASSETS AND LIABILITIES At 31 December 2015

USD USD USDASSETSAmounts due from Parent Company 1,703,052,998 4,331,653,274 6,034,706,272 TOTAL ASSETS 1,703,052,998 4,331,653,274 6,034,706,272

LIABILITIESDebt Securities 750,000,000 3,739,059,072 4,489,059,072 Other Borrowings 915,851,307 592,594,102 1,508,445,409 Other liabilities 37,201,691 - 37,201,691 TOTAL LIABILITIES 1,703,052,998 4,331,653,174 6,034,706,172

At 31 December 2014ASSETSAmounts due from Parent Company 2,613,202,984 5,242,545,139 7,855,748,123 TOTAL ASSETS 2,613,202,984 5,242,545,139 7,855,748,123

LIABILITIESDebt Securities 1,497,406,493 4,485,112,667 5,982,519,160 Other Borrowings 1,075,174,428 757,432,372 1,832,606,800 Other liabilities 40,622,063 - 40,622,063 TOTAL LIABILITIES 2,613,202,984 5,242,545,039 7,855,748,023

Current portion Non current

portion Total

The issued and paid up share capital of the Company as at 31 December 2015 is USD 100 (31 December 2014: USD 100). All shares carry equal voting rights.



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9. RELATED PARTIESThe Company has transactions in the ordinary course of business with the Parent Company. At the end of thereporting period, such significant balances include the below:

31 December 2015 31 December 2014 USD USD

Statement of Financial Position ItemsDue from Parent Company 6,034,706,272 7,855,748,123

Income Statement ItemsInterest Income 172,717,349 181,873,811



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