Condensed Consolidated ank Consolidated Financial Statements – 31 December 2025

Draft Subject to QCB Approval of Financial Statements

DUKHAN BANK Q.P.S.C.

CONSOLIDATED FINANCIAL STATEMENTS

As at and for the year ended 31 December 2025

CONTENTS PAGES

Independent auditor's report 1-6

Consolidated statement of financial position 7

Consolidated statement of income 8

Consolidated statement of comprehensive income 9

Consolidated statement of income and attribution related to quasi-equity 10

Consolidated statement of changes in equity 11-12

Consolidated statement of cash flows 13

Consolidated statement of changes in off-balance sheet assets

under management 14

Notes to the consolidated financial statements 15-95

Draft Subject to QCB Approval of Financial Statements

Supplementary information to the consolidated financial statements 96-97

Report on the audit of the consolidated financial statements

Our opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Dukhan Bank (Q.P.S.C.) (the "Bank") and its subsidiaries (together the "Group") as at 31 December 2025 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as modified by the Qatar Central Bank (QCB).

What we have audited

The Group's consolidated financial statements comprise:

• The consolidated statement of financial position as at 31 December 2025;

• The consolidated statement of income for the year then ended;

• The consolidated statement of comprehensive income for the year then ended;

• The consolidated statement of income and attribution related to quasi-equity for the year then ended;

• The consolidated statement of changes in equity for the year then ended;

• The consolidated statement of cash flows for the year then ended;

• The consolidated statement of changes in off-balance sheet assets under management for the year then ended; and

  Draft Subject to QCB Approval of Financial Statements

• The notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

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

Independence

We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as applicable to audits of consolidated financial statements of public interest entities and the ethical requirements that are relevant to our audit of the consolidated financial statements in the State of Qatar. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the ethical requirements in the State of Qatar.

https://www.pwc.com

PricewaterhouseCoopers - Qatar Branch, P.O.Box 6689, Doha, Qatar T: +974 4419 2777, F: +974 4467 7528

Ministry of Commerce and Industry Licence number 6 / Qatar Financial Markets Authority License number 120155

Our audit approach

Overview

Key audit matters

• Impairment of financing facilities

  As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

  We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

  Draft Subject to QCB Approval of Financial Statements

  Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

  
  
  

  Key audit matters (continued)

  Key audit matter How our audit addressed the key audit matter

Impairment of financing facilities

Impairment allowances represent the Directors' best estimate of the losses arising from credit risk and particularly from financing facilities (financing assets and off-balance sheet financing). As described in the summary of significant accounting policies to the consolidated financial statements, the impairment losses have been determined in accordance with FAS 30.

We focused on this area because the Directors make complex and subjective judgements over both the amount and the timing of recognition of impairment, such as:

Draft Subject to QCB Approval of Financial Statements

• Determining criteria for significant increase in credit risk.

• Choosing appropriate models and assumptions for the measurement of Expected Credit Losses (ECL) including Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD).

• Establishing the relative weighting of forward-looking scenarios for each type of product/ market and the associated ECL.

• Establishing groups of similar assets for the purpose of measuring the ECL.

• Determining disclosure requirements in accordance with the FAS.

  Further, financing assets and off-balance sheet financing are material within the overall context of the consolidated financial statements.

  The Group's gross financing facilities that are subject to credit risk, include financing assets (net of deferred profit) amounting to QAR 93,939 million, and off- balance sheet finance amounting to QAR 44,619 million as at 31 December 2025, disclosed in note (10) and note (30) to the consolidated financial statements.

  
  
  

  Information on the credit risk and the Group's credit risk management is provided in note 4 to the consolidated financial statements.

  Our audit procedures in relation to this key audit matter included the following:

• Assessed and tested the design and operating effectiveness of the relevant key controls around origination and approval of financing facilities, monitoring of credit exposures, and impairment calculation.

• Evaluated the appropriateness of the Group's impairment provisioning policy in accordance with the requirements of FAS 30.

• Used our own internal experts to independently assess the reasonableness of the ECL methodology developed and applied by Directors including model risk parameters (PD, LGD, and EAD), forward-looking information, associated weighting, and staging analysis.

• Obtained an understanding of and compared inputs used in the ECL calculation to the observable data sets.

• Tested a sample of financing facilities to determine the appropriateness and application of staging criteria.

• Obtained an understanding of the methodology used to identify and calculate individual impairment allowance for stage 3 exposures and tested a sample of such exposures against the methodology.

• Obtained samples of the latest available credit reviews and checked that they include appropriate assessment and documentation of borrowers' ability to meet repayment obligations (principal, profit, and fees).

• Evaluated the adequacy of the consolidated financial statements disclosures to determine if they were in accordance with the requirements of FAS 30 and QCB regulations.

Other information

The Directors are responsible for the other information. The other information comprises the Board of Directors' Report (but does not include the consolidated financial statements and our auditor's report thereon), which we obtained prior to the date of this auditor's report, and the complete annual report, which is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the complete annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Draft Subject to QCB Approval of Financial Statements

Responsibilities of Directors and those charged with governance for the consolidated financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with FAS issued by AAOIFI as modified by QCB and with the requirements of the Qatar Commercial Companies Law number 11 of 2015, as amended by Law number 8 of 2021, and the QCB regulations, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Auditor's responsibilities for the audit of the consolidated financial statements (continued)

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

  Draft Subject to QCB Approval of Financial Statements

• Conclude on the appropriateness of the Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.

  We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

  We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

  
  
  

  From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

  Report on other legal and regulatory requirements

  Further, as required by the Qatar Commercial Companies Law number 11 of 2015, as amended by Law number 8 of 2021, we report that:

• We have obtained all the information we considered necessary for the purpose of our audit;

• The Bank has maintained proper books of account and the consolidated financial statements are in agreement therewith;

• The financial information included in the Board of Directors' report is in agreement with the books and records of the Bank; and

• Nothing has come to our attention, which causes us to believe that the Bank has breached any of the provisions of the Qatar Commercial Companies Law number 11 of 2015, as amended by Law number 8 of 2021, or of its Articles of Association, which would materially affect the reported results of its operations or its consolidated financial position as at 31 December 2025.

Draft Subject to QCB Approval of Financial Statements

For and on behalf of PricewaterhouseCoopers - Qatar Branch Qatar Financial Market Authority registration number 120155

Waleed Tahtamouni

Auditor's registration number 370 Doha, State of Qatar

Date:

Draft Subject to QCB Approval of Financial Statements

Draft Subject to QCB Approval of Financial Statements

NET PROFIT FOR THE YEAR 1,411,465 1,342,586

OTHER COMPREHENSIVE INCOME

Items that may not be subsequently classified to consolidated statement of income

Fair value changes of equity-type investments carried at fair

value through other comprehensive income - net 11 74,588 20,592

Items that may be subsequently classified to consolidated income statement

Net movement in cash flow hedge reserve:

Draft Subject to QCB Approval of Financial Statements

Net movement in cash flow hedges - effective portion of

Draft Subject to QCB Approval of Financial Statements

Net profit for the year before net profit attributable to quasi-equity

For the year ended 31 December 2025

2025

Net profit for the year

Other comprehensive income for the year

Total comprehensive income for the year

Draft Subject to QCB Approval of Financial Statements

Sale of treasury shares Transferred to retained earnings on

disposal of equity-type instruments classified as FVOCI

Transfer to legal reserve Transfer to risk reserve Transfer to other reserves

Social and sports fund appropriation (Note 40)

Dividend paid for the year 2024 (Note 22 (f))

Interim dividend paid for the year 2025 (Note 22 (f))

Profit paid on Sukuk eligible as additional capital (Note 24)

Independent auditors' report is set out on pages 1 - 6.

The attached notes 1 to 41 form an integral part of these consolidated financial statements.

Draft Subject to QCB Approval of Financial Statements

For the year ended 31 December 2024

Independent auditors' report is set out on pages 1 - 6.

The attached notes 1 to 41 form an integral part of these consolidated financial statements.

34 2,109,499 5,062,095

Draft Subject to QCB Approval of Financial Statements

Cash and cash equivalents at 31 December

Independent auditors' report is set out on pages 1 - 6.

The attached notes 1 to 41 form an integral part of these consolidated financial statements.

DUKHAN BANK Q.P.S.C.

CONSOLIDATED STATEMENT OF CHANGES IN OFF-BALANCE SHEET ASSETS UNDER MANAGEMENT

For the year ended 31 December 2025

For the year ended 31 December 2025 Movements during the year

Discretionary Portfolio Management 791,722 456,841 5,838 - - - 1,254,401 Other Restricted Wakalas 3,984,841 93,004 33,055 119,437 (119,437) 8,463 4,119,363

4,776,563 549,845 38,893 119,437 (119,437) 8,463 5,373,764

Draft Subject to QCB Approval of Financial Statements

For the year ended 31 December 2024 Movements during the year

4,269,925 384,246 116,310 9,109 (9,109) 6,082 4,776,563

Independent auditors' report is set out on pages 1 - 6.

The attached notes 1 to 41 form an integral part of these consolidated financial statements.

1. REPORTING ENTITY

   Dukhan Bank Q.P.S.C. was incorporated as a Qatari Shareholding Company in the State of Qatar under Commercial Registration No. 38012 dated 28 January 2008 (the "date of incorporation"). Dukhan Bank (the "Bank") commenced its activities on 1 February 2009 under Qatar Central Bank ("QCB") License No. RM/19/2007. The Bank and its subsidiaries (together referred to as the "Group" and individually referred to as "Group entities") are primarily engaged in financing, investing and advisory activities in accordance with Islamic Shari'a rules as determined by the Shari'a Committee of the Bank and provisions of its Memorandum and Articles of Association. Investment activities are carried out for proprietary purpose and on behalf of customers.

   On 21 April 2019, the Bank and International Bank of Qatar ("IBQ") merged, the merger became effective upon receiving QCB confirmation pursuant to Article 161(2) of the Central Bank Law, Article 278 of the Companies Law, and the Merger Agreement.

   The Bank operates through its head office situated in Lusail and its 8 branches in the State of Qatar. The Bank post completion of merger is now 24.52% owned by the General Retirement and Social Insurance Authority 11.71% by the Military Pension Fund (Qatar), and 6.84% by Qatar Holding, strategic and direct investment arm of Qatar Investment Authority being the sovereign wealth fund of the State of Qatar; and remaining shares are owned by several individuals and corporate entities. The Bank rebranded itself from Barwa Bank to Dukhan Bank during October 2020 post obtaining necessary approvals as per the State of Qatar applicable laws and regulations.

   Draft Subject to QCB Approval of Financial Statements

   On 15 January 2023, the extraordinary general assembly resolution resolved to convert the Bank from a Qatari Private Shareholding Company to a Qatari Public Shareholding Company and subsequently list on the Qatar Stock Exchange. On 22 January 2023, pursuant to Resolution No. 2 of 2023 by the Minister of Industry and Commerce, the Bank was converted from a Qatari Private Shareholding Company to a Qatari Public Shareholding Company. The conversion was formally announced in the Constitutional General Assembly meeting held on 25 January 2023. Consequently, there were no changes in the interest held by the shareholders of the Bank. On 1 February 2023, Qatar Financial Markets Authority ("QFMA") approved the listing of the Bank's shares on the Qatar Stock Exchange. Following the QFMA's approval, trading of the Bank's shares on the Qatar Stock Exchange commenced on 21 February 2023.

   The consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors passed on 13 January 2026.

   The subsidiaries of the Group are as follows:

   Name of subsidiary	incorporation	incorporation	2025	2024
   The First Investor P.Q.S.C. ("TFI") (i)	Qatar	1999	100%	100%
   First Finance Company P.Q.S.C.("FFC") (ii)	Qatar	1999	100%	100%
   First Leasing Company P.Q.S.C ("FLC") (iii)	Qatar	2008	100%	100%
   BB Islamic Derivatives (iv)	Cayman Islands	2018	100%	100%

   Country of

   Year of

   Percentage of ownership

   1. TFI provides a full range of investment banking products and services that comply with Shari'a principles and QCB regulations.

   2. FFC is engaged in Shari'a compliant financing activities in accordance with its Articles of Association and QCB regulations.

   3. FLC is primarily engaged in the Islamic leasing business.

      
      
      

   4. BB Islamic Derivatives was incorporated in the Cayman Islands to engage in conducting derivative transactions on behalf of the Bank.

      1. REPORTING ENTITY (CONTINUED)
         1. Shari'ah governance framework

            The Group follows Accounting and Auditing Organization for Islamic Financial Institutions ("AAOIFI") Governance Standards (GSs) in their entirety along with the regulators' requirements related to Shari'ah governance / Shari'ah governance framework. In line with the requirements of the same, the Group has a comprehensive governance mechanism comprising of Shari'ah supervisory board, Shari'ah compliance function, internal Shari'ah audit, external Shari'ah audit, etc. These functions perform their responsibilities in line with AAOIFI GSs as well as the regulators' requirements related to Shari'ah governance.

            The GSs also require the Board of Directors and those charged with governance to discharge their duties in line with Shari'ah governance and fiduciary responsibilities.

         2. Shari'ah principles and rules

            The Group follows the hierarchy of Shari'ah principles and rules as defined in paragraph 165 of FAS 1 "General Presentation and Disclosures in the Financial Statements".

      2. BASIS OF PREPARATION
         1. Statement of compliance

            Draft Subject to QCB Approval of Financial Statements

            The consolidated financial statements have been prepared in accordance with the Financial Accounting Standards ("FAS") as issued by the Accounting and Auditing Organisation for Islamic Financial Institutions ("AAOIFI") as modified by the Qatar Central Bank ("QCB").

            In addition, the consolidated financial statements have been prepared in accordance with the Islamic Shari'a Rules and Principles as determined by the Shari'a Committee of the Group, the applicable provisions of the QCB regulations and the applicable provisions of Qatar Commercial Companies Law No. 11 of 2015, whose certain provisions were subsequently amended by Law No. 8 of 2021. In line with the requirements of AAOIFI, for matters that are not covered by FAS, the Group uses guidance from the relevant International Financial Reporting Standards (IFRS Accounting Standards).

            The Qatar Central Bank modifications to Financial Accounting Standards ("FAS") has been disclosed below:

            Investments classified as fair value through other comprehensive income

            QCB Circular 12/2020 dated 29 April 2020 modified the requirements of FAS 33 "Investments in Sukuk, shares and similar instruments" and FAS 30 "Impairment, credit losses and onerous commitments" and requires Islamic Banks to follow principles of IFRS 9 "Financial Instruments" in respect of impairment on equity-type investments carried at fair value through other comprehensive income. The Bank has adopted the circular from the effective date and the changes to the accounting policies have been adopted prospectively by the Bank, which did not result in any material adjustment.

         2. Basis of measurement

            These consolidated financial statements have been prepared on the historical cost basis except for investments carried at fair value through other comprehensive income, investments carried at fair value through the statement of income, derivatives held for risk management purposes and Shari'a compliant risk management instruments, which are measured at fair value.

         3. Functional and presentation currency
            
            
            

            These consolidated financial statements are presented in Qatari Riyals ("QAR"), which is the Group's functional currency. Except as otherwise indicated, financial information presented in QAR has been rounded to the nearest thousands. The functional currencies for the Group entities have also been assessed as Qatari Riyals.

            1. BASIS OF PREPARATION (CONTINUED)
         4. Use of estimates and judgments

The preparation of these consolidated financial statements in conformity with FAS as modified by QCB requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 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 periods affected.

The Group has adopted QCB guidelines on staging and provisioning of certain exposures, which modifies the requirements of FAS 30 "Impairment, credit losses and onerous commitments".

Information about significant areas of estimation uncertainty and critical judgments applying the accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is described in Note 5.

1. SIGNIFICANT ACCOUNTING POLICIES

   The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

   1. New standards, amendments and interpretations effective from 1 January 2025

      FAS 42 - Presentation and disclosures in the Financial Statements of Takaful Institutions

      Draft Subject to QCB Approval of Financial Statements

      AAOIFI has issued FAS 42 in 2022. This standard supersedes the earlier FAS 12 - General Presentation and Disclosures in the Financial Statements of Islamic Insurance Companies. The objective of this standard is to set out the overall requirements for the presentation of financial statements, the minimum requirement for the contents of and disclosures in the financial statements and recommended structure of financial statements that facilitates fair presentation in line with Shari'a principles and rules for Takaful institutions. This standard shall be effective for the financial periods beginning on or after 1 January 2025 with early adoption permitted if adopted alongside FAS 43 -Accounting for Takaful: Recognition and Measurement, provided that FAS 1 (Revised 2021) has already been adopted or is simultaneously adopted.

      The adoption of this standard did not have any impact on the Group's financial statements.

      FAS 43 - Accounting for Takaful: Recognition and Measurement

      AAOIFI has issued FAS 43 in 2022. The objective of this standard is to set out the principles for the recognition and measurement of Takaful arrangements and ancillary transactions with the objective of faithfully representing the information related to these arrangements to the relevant stakeholders. The standard should be read in conjunction with FAS 42 - Presentation and disclosures in the Financial Statements of Takaful Institutions. This standard shall be effective for the financial periods beginning on or after 1 January 2025 with early adoption permitted if adopted alongside FAS 42 - Presentation and disclosures in the Financial Statements of Takaful Institutions.

      The adoption of this standard did not have any impact on the Group's financial statements.

      
      
      3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
   2. New standards, amendments and interpretations issued but not yet effective

The Group has not yet applied the following new and revised FASs that have been issued but are not yet effective. These standards are currently in process of being assessed by the management of the Group to consider any implication in the current or future reporting periods and on foreseeable future transactions.

FAS 45 - Quasi-Equity (Including Investment Accounts)

AAOIFI has issued FAS 45 in 2023. This standard prescribes the principles of financial reporting related to the participatory investment instruments (including investment accounts) in which an Islamic financial institution controls the underlying assets (mostly, as a working partner), on behalf of the stakeholders other than the owners' equity. Such instruments (including, in particular, the participatory investment accounts) normally qualify for on-balance-sheet accounting and are reported as quasi-equity. This standard also provides the overall criteria for on-balance-sheet accounting for participatory investment instruments and quasi-equity, as well as pooling, recognition, derecognition, measurement, presentation and disclosure for quasi-equity. It further addresses financial reporting related to other quasi-equity instruments and certain specific issues. This standard shall be effective for the financial reporting periods beginning on or after 1 January 2026.

Draft Subject to QCB Approval of Financial Statements

The concept of quasi-equity has been introduced in FAS 1 - General Presentation and Disclosures in the Financial Statements (Revised 2021) which was adopted by the Group during the year 2024. The Group shall address the requirements of FAS 45 - Quasi-Equity (Including Investment Accounts) on the effectivity date of the standard.

1. New standards, amendments and interpretations issued but not yet effective (continued)

   FAS 46 - Off-Balance-Sheet Assets Under Management

   AAOIFI has issued FAS 46 in 2023. This standard prescribes the criteria for characterization of off-balance-sheet assets under management, and the related principles of financial reporting in line with the "AAOIFI Conceptual Framework for Financial Reporting". The standard encompasses the aspects of recognition, derecognition, measurement, selection and adoption of accounting policies, related to off-balance-sheet assets under management, as well as certain specific aspects of financial reporting such as impairment and onerous commitments by the institution. The standard also includes the presentation and disclosure requirements, particularly aligning the same with the requirements of the revised FAS 1 - General Presentation and Disclosures in the Financial Statements in respect of the statement of changes in off-balance-sheet assets under management. This standard, along with FAS

   45 "Quasi-Equity (Including Investment Accounts)", supersedes the earlier FAS 27 "Investment Accounts". This standard shall be effective for the financial periods beginning on or after 1 January 2026 and shall be adopted at the same time of adoption of FAS 45 - Quasi-Equity (Including Investment Accounts).

   FAS 47 - Transfer of Assets Between Investment Pools

   AAOIFI has issued FAS 47 in 2023. This standard prescribes the financial reporting principles and disclosure requirements applicable to all transfers between investment pools related to (and where material, between significant categories of) owners' equity, quasi-equity and off-balance-sheet assets under management of an institution. It requires adoption and consistent application of accounting policies for such transfers in line with Shari'a principles and rules and describes general disclosure requirements in this respect. This standard shall be effective for the financial periods beginning on or after 1 January 2026 and supersedes the earlier FAS 21 - Disclosure on Transfer of Assets.

   Draft Subject to QCB Approval of Financial Statements

   FAS 48 - Promotional Gifts and Prizes

   AAOIFI has issued FAS 48 on 9 December 2024. This standard prescribes the accounting and financial reporting requirements applicable to promotional gifts and prizes awarded by the Islamic financial institutions to their customers, including quasi-equity and other investment accountholders. This standard shall be effective for the financial periods beginning on or after 1 January 2026.

   FAS 50 - Financial Reporting for Islamic Investment Institutions (Including Investment Funds)

   AAOIFI has issued FAS 50 on 24 December 2024. This standard supersedes the earlier FAS 14 "Investment Funds." This standard sets out the principles of financial reporting for Islamic Investment Institutions ("IIIs") particularly prescribing overall requirements for the presentation, minimum contents and recommended structure of their financial statements in a manner that facilitates truthful and fair presentation in line with Shari'a principles and rules. This standard shall be effective on the annual financial statements of an IIIs beginning on or after 1 January 2027.

2. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at 31 December 2025. The Group consolidates a subsidiary when it controls it. Control is achieved when the Bank 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.

Generally, there is a presumption that a majority of voting rights results in control. However, in individual circumstances, the Group may still exercise control with a less than 50% shareholding or may not be able to exercise control even with ownership over 50% of an entity's shares. When assessing whether it has power over an investee and therefore controls the variability of its returns, the Bank considers all relevant facts and circumstances, including:

• The purpose and design of the investee.

• The relevant activities and how decisions about those activities are made and whether the Bank can direct those activities.

• Contractual arrangements such as call rights, put rights and liquidation rights.

• Whether the Bank is exposed, or has rights, to variable returns from its involvement with the investee, and has the power to affect the variability of such returns.

1. Basis of consolidation (continued)

   Profit or loss are attributed to the equity holders of the parent of the Group and to the non-controlling interests (NCIs), even if this results in the NCIs having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets, 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 loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, NCI and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value at the date of loss of control.

   1. Subsidiaries

      Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

      Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities and is generally assumed when the Group holds, directly or indirectly, majority of the voting rights of the entity. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

      Draft Subject to QCB Approval of Financial Statements

      The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

   2. Non-controlling interests

      Interests in the equity of subsidiaries not attributable to the parent are reported in consolidated statement of financial position in shareholders' equity. Profits or losses attributable to non-controlling interests are reported in the consolidated income statement as income attributable to non-controlling interests. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

      The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

      When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in consolidated income statement. In addition, any amounts previously recognised in equity in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other equity are reclassified to consolidated income statement.

   3. Transactions eliminated on consolidation

      Intra-group balances, income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

   4. Associates

Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of the investee, but not to control or joint control over those polices, generally significant influence presumed to exist when the Group has 20% or more of the voting rights. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

1. Associates (continued)

   Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost (including transaction costs directly related to acquisition of investment in associate).

   The Group's share of its associates' post-acquisition profits or losses is recognised in the consolidated income statement; its share of post-acquisition movements in reserve is recognised in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equal or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

   If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in equity is reclassified to consolidated income statement where appropriate.

   Intergroup gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Intergroup losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Dilution gains and losses in associates are recognised in the consolidated income statement. The accounting policies of associates have been changed where necessary to ensure consistency with policies adopted by the Group.

   Draft Subject to QCB Approval of Financial Statements

2. Business combination and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in other expenses.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in consolidated statement of income.

After initial recognition, goodwill is measured at cost, less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

1. Basis of consolidation (continued) (v) Business combination and goodwill (continued)

   Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

2. Foreign currency transactions and balances

   Foreign currency transactions are denominated, or that require settlement in a foreign currency are translated into the respective functional currencies of the operations at the spot exchange rates at the transaction dates.

   Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

   Draft Subject to QCB Approval of Financial Statements

   Foreign currency differences resulting from the settlement of foreign currency transactions and arising on translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in consolidated statement of income.

   Foreign currency differences are generally recognised in consolidated statement of income. However, foreign currency differences arising from the translation of the fair value through other comprehensive income investments (except on impairment, in which case foreign currency differences that have been recognized in consolidated statement of changes in equity are reclassified to consolidated income statement).

   Fair value through other comprehensive income investments (except on impairment, in which case foreign currency differences that have been recognized in consolidated statement of changes in equity are reclassified to consolidated income statement);

3. Investment securities

   Investment securities comprise investments in debt-type and equity-type financial instruments.

   1. Classification

      Under FAS 33 "Investment in Sukuks, shares and similar instruments", each investment is to be categorized as investment in:

      1. equity-type instruments;

      2. debt-type instruments, including (monetary and non-monetary);

      3. other investment instruments.

         Unless irrevocable initial recognition choices provided in para 10 of the standard are exercised, an institution shall classify investments as subsequently measured at either of (i) amortised cost, (ii) fair value through other comprehensive income or (iii) fair value through income statement, on the basis of both:

         1. the Bank's business model for managing the investments; and

         2. the expected cash flow characteristics of the investment in line with the nature of the underlying Islamic finance contracts.

         3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         1. Investment securities (continued)
            1. Classification (continued)

               Amortised cost

               An investment shall be measured at amortised cost if both of the following conditions are met:

               1. the investment is held within a business model whose objective is to hold such investment in order to collect expected cash flows till maturity of the instrument; and

               2. the investment represents either a debt-type instrument or other investment instrument having reasonable determinable effective yield.

                  Fair value through other comprehensive income ("FVOCI")

                  An investment shall be measured at fair value through other comprehensive income if both of the following conditions are met:

                  1. the investment is held within a business model whose objective is achieved by both collecting expected cash flows and selling the investment; and

                  2. the investment represents a non-monetary debt-type instrument or other investment instrument having reasonable determinable effective yield.

                  Fair through income statement ("FVIS")

                  Draft Subject to QCB Approval of Financial Statements

                  An investment shall be measured at fair value through income statement unless it is measured at amortised cost or fair value through other comprehensive income or if irrevocable classification at initial recognition is applied.

                  Irrevocable classification at initial recognition

                  The Group may make an irrevocable election to designate a particular investment, at initial recognition, being:

                  1. an equity-type instrument that would otherwise be measured at fair value through income statement, to present subsequent changes in fair value through other comprehensive income; and

                  2. a non-monetary debt-type instrument or other investment instrument, as measured at fair value through income statement if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or correlated liabilities or recognizing the gains and losses on them on different bases.

            2. Recognition and derecognition

               Investment securities are recognised at the trade date i.e. the date that the Group contracts to purchase or sell the asset, at which date the Group becomes party to the contractual provisions of the instrument. Investment securities are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risk and rewards of ownership.

            3. Measurement

         Initial recognition

         Investment securities are initially recognised at fair value plus transaction costs, except for transaction costs incurred to acquire investments at fair value through income statement which are charged to consolidated statement of income.

         3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Investment securities (continued)
         1. Measurement (continued)

            Subsequent measurement

            Investments at fair value through income statement are remeasured at fair value at the end of each reporting period and the resultant remeasurement gains or losses is recognised in the consolidated statement of income in the period in which they arise. Subsequent to initial recognition, investments classified at amortised cost are measured at amortised cost using the effective profit method less any impairment allowance. All gains or losses arising from the amortisation process and those arising on de-recognition or impairment of the investments, are recognised in the consolidated statement of income.

            Fair value through other comprehensive income

            Policy applicable after the issuance of QCB circular 12/2020

            The Group adapted Qatar Central Bank's Circular number 12/2020 dated 29 April 2020 (the adoption date) which amended the requirements of FAS 33 "Investment in Sukuk, Shares and similar instruments" and FAS 30 "Impairment, credit losses and onerous commitments" and required banks to follow the requirements of International Financial Reporting Standard No. ("IFRS") 9 "Financial Instruments" relating to equity Investments at fair value through other comprehensive income . As QCB circular 12/2020, equity type instruments classified as fair value through other comprehensive income are not tested for impairment.

            Draft Subject to QCB Approval of Financial Statements

            Investments at fair value through other comprehensive income are measured at their fair values at the end of each reporting period and the resultant gain or loss, arising from a change in the fair value of investments are recognised in the consolidated statement of changes in equity and presented in a separate fair value reserve within equity. The Group may elect to present in statement of changes in equity, changes in the fair value of certain investments in equity-type instruments that are not held for trading. The election is made on an instrument-by-instrument basis on initial recognition and is irrevocable. Gains and losses on such equity-type instruments are never subsequently reclassified to consolidated income statement, including on disposal. However, cumulative gains and losses recognised in fair value reserve are transferred to retained earnings on disposal of an investment. Impairment losses (and reversal of impairment losses) are not reported separately from other changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in consolidated income statement, unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in statement of changes in equity.

            Whereas for debt type investments classified as fair value through other comprehensive income, the cumulative gain or loss previously recognized in the consolidated statement of changes in equity is transferred to the consolidated statement of income.

         2. Measurement principles

         Amortised cost measurement

         The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus capital repayments, plus or minus the cumulative amortisation using the effective profit method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. The calculation of the effective profit rate includes all fees and points paid or received that are an integral part of the effective profit rate.

         
         
         3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         1. Investment securities (continued) (iv) Measurement principles (continued)

            Fair value measurement

            Fair value is the amount for which an asset could be exchanged, or an obligation settled between well-informed and willing parties (seller and buyer) in an arm's length transaction. The Group measures the fair value of quoted investments using the market bid price for that instrument at the close of business on the consolidated statement of financial position date. For investment where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market value of another instrument, which is substantially the same or is based on the assessment of future cash flows. The cash equivalent values are determined by the Group by discounting future cash flows at current profit rates for contracts with similar term and risk characteristics.

         2. Financing assets

         Financing assets comprise Shari'a compliant financing provided by the Group with fixed or determinable payments. These include financing provided through Murabaha, Mudaraba, Musawama, Ijarah, Istisna'a, Wakala and other modes of Islamic financing. Financing assets are stated at their amortised cost, less impairment allowances (if any).

         Murabaha and Musawama

         Draft Subject to QCB Approval of Financial Statements

         Murabaha and Musawama receivables are sales on deferred terms. The Group arranges a Murabaha and Musawama transaction by buying a commodity (which represents the object of the Murabaha) and selling it to the Murabeh (a beneficiary) at a margin of profit over cost. The sales price (cost plus the profit margin) is repaid in installments by the Murabeh over the agreed period. Murabaha and Musawama receivables are stated net of deferred profits and impairment allowance (if any). Based on QCB instructions, the Group applies the rule of binding the purchase orderer to its promise in the Murabaha sale and not enters into any Murabaha transaction in which the purchase orderer does not undertake to accept the goods if they meet the specifications.

         Musawama receivables are stated net of deferred profits and impairment allowance (if any). On initial recognition Murabaha receivables are classified and measured at:

         - Amortised cost when the contractual terms of the Murabaha receivables give rise on specified dates to cash flows that are solely payments of principal and profit on the principal amount outstanding.

         Mudaraba

         Mudaraba financing is partnerships in which the Group contributes the capital. These contracts are stated at fair value of consideration given less impairment allowance (if any).

         Ijarah

         Ijarah receivables arise from financing structures when the purchase and immediate lease of an asset are at cost plus an agreed profit (in total forming fair value). The amount is settled on a deferred payment basis. Ijarah receivables are carried at the aggregate of the minimum lease payments, less deferred income (in total forming amortised cost) and impairment allowance (if any).

         Istisna'a

         Istisna'a is a sales contract in which the Group acts as 'al-sani' (a seller) with an 'al-mustasni' (a purchaser) and undertakes to manufacture or otherwise acquire a product based on the specification received from the purchaser, for an agreed upon price. Istisna'a revenue is the total price agreed between the seller and purchaser including the Group's profit margin. The Group recognises Istisna'a revenue and profit margin based on percentage of completion method by taking in account the difference between total revenue (cash price to purchaser) and Group's estimated cost. The Group's recognises anticipated losses on Istisna'a contract as soon as they are anticipated.

         3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         1. Financing assets (continued)

            Wakala

            Wakala contracts represent agency agreements between two parties. One party, the provider of funds (Muwakkil) appoints the other party as an agent (Wakeel) with respect to the investment of the Muwakkil funds in a Shari'a compliant transaction. The Wakeel uses the funds based on the nature of the contract and offers an anticipated return to the Muwakkil. Wakala contracts are stated at amortised cost.

         2. Other financial assets and liabilities
            1. Recognition and initial measurement

               The Group initially recognises due from banks, financing assets, investments, customer current accounts, due to banks, and financing liabilities including sukuk and fixed income financing on the date at which they are originated. All other financial assets and liabilities are initially recognised on the settlement date at which the Group becomes a party to the contractual provisions of the instrument.

               A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through income statement, transaction costs that are directly attributable to its acquisition or issue.

               After initial measurement, other financial assets and liabilities are subsequently measured at amortised cost using the effective profit rate method net of any amounts written off and provision for impairment.

            2. De-recognition of financial assets and financial liabilities

               Draft Subject to QCB Approval of Financial Statements

               The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognised as a separate asset or liability in the consolidated statement of financial position. On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) is recognised in consolidated income statement.

               The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognized.

               In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

               In certain transactions the Group retains the obligation to service the transferred financial assets for a fee. The transferred asset is de-recognised if it meets the de-recognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

               The Group de-recognises financial liability when its contractual obligations are discharged, cancelled or expired.

            3. Offsetting

               Financial assets and liabilities are offset only when there is a legal or religious enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

               3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
               1. Other financial assets and liabilities (continued)
            4. Modification of financial assets and liabilities Financial assets

               If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value and recalculates a new effective profit rate for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purpose, including for the purpose of determining whether a significant increase in credit risk has occurred.

               If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset based on the revised cash flows of the financial assets and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in the consolidated income statement. If such modification is carried out because of financial difficulties of the financed counterparty, then the gain or loss is presented together with impairment losses. In other cases, it is presented as net income from financing activities.

               Financial liabilities

               Draft Subject to QCB Approval of Financial Statements

               The Group derecognises financial liability when its terms are modified, and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in the consolidated income statement.

               1. Impairment of financial assets
               2. Measurement of ECL

               ECLs are recognised in two stages. For credit exposures, for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

               The Group recognises loss allowances for expected credit loss (ECL) on the following financial instruments that are not measured at fair value through income statement:

               • Financial assets that are debt instruments;

               • Financial guarantee contracts issued; and

               • Financing commitments issued.

                 With effect from the issuance of QCB circular 12/2020, equity type instruments classified as fair value through other comprehensive income are not tested for impairment.

                 Impairment and ECL are used interchangeably throughout these consolidated financial statements.

                 The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:

               • Debt investment securities that are determined to have low credit risk at the reporting date; and

               • Other financial instruments on which credit risk has not increased significantly since their initial recognition.

               1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         3. Impairment of financial assets (continued)
         4. Measurement of ECL (continued)

         The determination of the FAS 30 provision results from a two-step approach:

         Step 1: The facilities will have to be allocated to one of the three impairment stages by determining whether a significant increase in credit risk has occurred since initial recognition or whether the facility has been credit impaired.

         Step 2: The expected credit loss is calculated i.e., 12-month expected loss for all facilities in stage 1 and lifetime expected credit loss for all facilities in stage 2. The facilities in stage 3 are covered by specific provisions as per QCB regulations.

         12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

         ECL are a probability-weighted estimate of credit losses. They are measured as follows:

         • Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

         • Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

           Draft Subject to QCB Approval of Financial Statements

         • Undrawn financing commitments and letter of credit: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and

         • Financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.

   2. Restructured financial assets

      If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognized and ECL are measured as follows:

      • If the expected restructuring will not result in derecognition of existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from existing asset;

      • If the expected restructuring will result in derecognition of existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. The amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date.

   3. Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at fair value through other comprehensive income are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.