Q4 Pillar 3 Disclosures (consolidated pillar 3 disclosures dec 2025 english final)

For the year ended 31 December 2025

The National Bank of Ras Al-Khaimah (P.S.C.)

Table of Contents

1. Introduction 4

2. Overview of risk management, key prudential metrics and RWA 5

   Tab KM1 5

   Tab OVA 5

   Tab OV1 17

3. Linkages between financial statements and regulatory exposures 18

   Tab LI1 18

   Tab LI2 19

   Tab LIA 19

4. Composition of capital 20

   Tab CC1 20

   Tab CC2 23

   Tab CCA 24

   Tab CCYB1 25

5. Leverage ratio 25

   Tab LR1 25

   Tab LR2 26

6. Liquidity Risk 27

   Tab LIQA 27

   Tab ELAR 31

   Tab ASRR 32

7. Credit risk 33

   Tab CRA 33

   Tab CR1 34

   Tab CR2 35

   Tab CRB 35

   Tab CRC 41

   Tab CR3 41

   Tab CRD 41

   Tab CR4 42

   Tab CR5 43

8. Counterparty Credit Risk 44

   Tab CCRA 44

   Tab CCR1 45

   Tab CCR2 46

   Tab CCR3 46

   Tab CCR5 46

   Tab CCR8 47

9. Market risk 47

   Tab MRA 47

   Tab MR1 48

10. Interest rate risk in the banking book 49

    Tab IRRBBA 49

    Tab IRRBB1 51

11. Operational risk 52

    Tab OR1 52

12. Remuneration policy 53

Tab REMA 53

Tab REM1 57

Tab REM2 57

Tab REM3 58

1. ‌Introduction

   The Bank is required to publish Pillar 3 disclosures on a quarterly basis in line with the Central Bank of UAE (CBUAE) Standards and Guidance for Capital Adequacy of Banks in the UAE (hereinafter, Capital Adequacy Standards) and Explanatory Notes on Pillar 3 Disclosure requirements. The purpose of Pillar 3 - Market Disclosures is to enable market participants to access key information relating to a bank's regulatory capital and risk exposures in order to increase transparency and confidence about a bank's exposure to risk and the overall adequacy of its regulatory capital. These disclosures complement the Pillar 1 -Minimum Capital Requirements, Pillar 2 - Internal Capital Adequacy Assessment Process (ICAAP), and supervisory review process.

   The Bank has a formal disclosure policy in place which requires Senior Management to, through appropriate process documentation, ensure review and approval mechanism has been defined for these disclosures.

   The Pillar 3 Disclosures should be read in conjunction with the published Financial Statements of the Bank. The scope of consolidation for Pillar 3 disclosures is different compared to the scope of consolidation for financial reporting. Under the scope of regulatory consolidation, all subsidiaries of the Bank are consolidated with the exception of Ras Al Khaimah National Insurance Company PSC in line with the requirement to exclude insurance entities for the purpose of regulatory reporting as per Capital Adequacy Standards. All sections of the following document have been prepared under the scope of regulatory capital consolidation specifications unless otherwise mentioned.

2. ‌Overview of risk management, key prudential metrics and RWA

   ‌Tab KM1

   	Amounts in AED'000	a	b	c	d	e
   		31 Dec'25	30 Sep'25	30 Jun'25	31 Mar'25	31 Dec'24
   	Available capital (amounts)
   1	Common Equity Tier 1 (CET1)	11,714,344	12,490,128	11,767,754	11,092,115	10,586,339
   1a	Fully loaded ECL accounting model	11,714,344	12,490,128	11,767,754	11,092,115	10,342,078
   2	Tier 1	12,816,244	13,561,249	11,767,754	11,092,115	10,586,339
   2a	Fully loaded ECL accounting model Tier 1	12,816,244	13,561,249	11,767,754	11,092,115	10,342,078
   3	Total capital	14,595,793	15,300,112	13,461,796	12,748,389	12,220,761
   3a	Fully loaded ECL accounting model total capital	14,595,793	15,300,112	13,461,796	12,748,389	11,973,447
   	Risk-weighted assets (amounts)
   4	Total risk-weighted assets (RWA)	80,643,757	78,041,945	71,814,082	68,594,606	67,530,692
   	Risk-based capital ratios as a percentage of RWA
   5	Common Equity Tier 1 ratio (%)	14.5%	16.0%	16.4%	16.2%	15.7%
   5a	Fully loaded ECL accounting model CET1 (%)	14.5%	16.0%	16.4%	16.2%	15.4%
   6	Tier 1 ratio (%)	15.9%	17.4%	16.4%	16.2%	15.7%
   6a	Fully loaded ECL accounting model Tier 1 ratio (%)	15.9%	17.4%	16.4%	16.2%	15.4%
   7	Total capital ratio (%)	18.1%	19.6%	18.7%	18.6%	18.1%
   7a	Fully loaded ECL accounting model total capital ratio (%)	18.1%	19.6%	18.7%	18.6%	17.8%
   	Additional CET1 buffer requirements as a percentage of RWA
   8	Capital conservation buffer requirement (2.5% from 2019) (%)	2.5%	2.5%	2.5%	2.5%	2.5%
   9	Countercyclical buffer requirement (%)	0.0%	0.0%	0.0%	0.0%	0.0%
   10	Bank D-SIB additional requirements (%)	0.0%	0.0%	0.0%	0.0%	0.0%
   11	Total of bank CET1 specific buffer requirements (%)	2.5%	2.5%	2.5%	2.5%	2.5%
   12	CET1 available after meeting the bank's minimum capital	7.4%	8.9%	7.9%	7.7%	7.2%
   	Leverage Ratio
   13	Total leverage ratio measure	115,678,518	109,401,845	105,082,136	99,913,407	96,120,986
   14	Leverage ratio (%)	11.1%	12.4%	11.2%	11.1%	11.0%
   14a	Fully loaded ECL accounting model leverage ratio (%)	11.1%	12.4%	11.2%	11.1%	10.8%
   14b	Leverage ratio (%) (excluding the impact of any
   applicable temporary exemption of central bank reserves)		11.1%	12.4%	11.2%	11.1%	11.0%
   Liquidity Coverage Ratio
   15 Total HQLA
   16 Total net cash outflow
   17 LCR ratio (%)
   Net Stable Funding Ratio
   18 Total available stable funding
   19 Total required stable funding
   20 NSFR ratio (%)
   ELAR
   21 Total HQLA		15,200,066	13,196,956	12,238,575	13,212,005	12,246,531
   22 Total liabilities		88,218,063	83,607,090	80,709,662	77,486,945	74,733,107
   23 Eligible Liquid Assets Ratio (ELAR) (%)		17.2%	15.8%	15.2%	17.1%	16.4%
   ASRR
   24 Total available stable funding		85,823,109	82,431,371	76,698,816	74,852,237	72,271,932
   25 Total Advances		66,042,098	63,329,370	61,873,258	57,159,079	57,976,262
   26 Advances to Stable Resources Ratio (%)		77.0%	76.8%	80.7%	76.4%	80.2%

   The available capital and related ratios have reduced compared to previous quarters primarily due to the deduction of a proposed dividend of 63 fils per share (amounting to a total of AED 1,267M) from the regulatory capital, partially offset by the increase in current year profits.

   ‌Tab OVA

   Overview of Risk Management

   The Bank's business model is centered around its core banking activities, which include Business Banking, Personal Banking, Wholesale Banking, Treasury, and Islamic Banking activities. The Bank's Risk Management strategy is intrinsically interlinked with Bank's business model and strategy, i.e. Bank's risk appetite and its business strategy co-exist to achieve and enhance shareholder value. The Enterprise-

   wide Risk Management structure of the Bank incorporates the effective participation of the Board and Senior Management at different levels to provide oversight and ensures the creation and sustenance of a proper risk management environment and is designed to ensure that the formal process is in place to identify, assess, manage, report and monitor all plausible risks that could have a significant impact on the bank and allocates responsibilities for risk management to provide clear accountability. The Bank's philosophy is to proactively manage risks to ensure that risk-taking activities are commensurate with its size and complexity of operations.

   Emerging risks continue to span a broad set of global and regional factors, including geopolitical tensions, tariff-driven trade frictions, oil-price volatility, regulatory developments, cybersecurity threats, and climate-related risks. Possible interest-rate adjustments may impact the banking sector's net interest income and overall profitability. We continue to closely monitor these evolving risks and proactively implement measures to mitigate their potential impact on the broader economy and our customers.

   RAKBANK ensures substantial due diligence on risk monitoring to ensure on-going compliance with the approved risk appetite. The Bank has an effective structure in place for reporting to relevant management committees and Board delegated risk committee. The Bank's Enterprise Risk Management Policy provides the Risk Governance Framework of the Bank. Below is an overview of the Framework:

   Risk Framework
   Lines of Defense	A three line of defense mechanism for managing risk is followed in the bank
   Board Responsibility	Board is responsible for providing oversight on the effective management of the Bank's overall risk and approving the risk appetite of the bank. While recognizing the risks to which the Bank is exposed, they provide the required human resources, environment, practices, and systems to address such risks.
   Management Committees	Management Committees provide a forum for discussion, assessment, monitoring and approval of various types of risks in the bank and cover a range of risks. For example, ALCO is responsible for Asset and Liability Management, Interest Rate, and Liquidity Risks whereas the Model Management Committee is responsible for Model Risk.
   Policies and Procedures	The Risk Management Department establishes bank-wide risk management policies and procedures in consultation with the Business, which govern the risk-taking activities of different areas of the bank. It also monitors compliance against these policies, escalates any breaches to the Board and amends and enhances policies and procedures on an ongoing basis. Some key policies include Enterprise Risk Management Framework, Group Market Risk, Investments and Trading Policy, and Credit Risk Policies, Information Security Policy, Operational Risk Policy and related procedures.
   Risk Appetite	The Risk Appetite Statement (RAS) establishes key thresholds for conducting business group-wide. The RAS is approved by the Board Risk Committee and specifies category-wise risk limits and thresholds, which serve as an overall guide for all risk-taking activities in the bank.

   1. First Line - Is the business unit responsible for maintaining internal controls for their processes.

   2. Risk Management/Compliance/Finance: The teams function as independent monitoring function for the business units.

   3. Internal Audit: Reviews, first and second line of defense and provides assurance to the management and Board of Directors.

   Risk Mitigation
   Monitoring	Risks are monitored through established Risk limits and monitoring the utilization to ensure compliance and remedial action in case of breach. Limits are set for each type of risk and monitored on a daily, monthly, quarterly basis and annual basis
   Reporting	Reporting of the risk triggers is done at Board, CEO, Management and Department head level. Reporting is ensured through information shared at regular intervals or on need basis with Board and Management committees.
   Mitigation	Risk mitigation is ensured through management triggers, risk appetite triggers, early warning indicators, contingency funding plans, capital plans, forward looking estimates, and other remedial measures.

   Risk Culture

   The Bank's risk culture refers to the shared attitudes, values and standards that shape behaviors related to risk awareness, risk taking and risk management. It is instrumental in aligning the behaviors of individuals with the attitude to assuming and managing risk, which helps to ensure that the bank's risk profile remains aligned with the risk appetite. The fostering of a strong risk culture is a key responsibility of the Board and Senior Management. The culture is also reinforced by the approach to remuneration. Individual awards, including those for senior executives, are based on compliance with our values and the achievement of financial and non-financial objectives, which are aligned to our risk appetite and strategy.

   Risk Governance

   The Board has ultimate responsibility for the effective management of risk and approves Bank's risk appetite. The Bank's risk governance is built upon the premise that each business line is responsible for monitoring the risks inherent in its business activities, which are augmented by the oversight provided by the Board and relevant committees. RAKBANK operates in accordance with the statutory requirements and is committed to adopting and complying with good corporate governance practices.

   The organizational chart is as below.

   
   
   

   The Board of Directors regularly reviews the Bank's financial performance as well as the performance of

   the individual areas:

   • Strategy and risk management, market trends and developments and new business opportunities

   • Implication of developments in international sanctions, compliance and central bank regulations

   • Enhancements in governance structure and practices

   Key Board & Management Risk Committees

   Following are Key Board and Management risk managing committees and their roles and responsibilities

   1. Board Risk Committee (BRC):

      The BRC has been established by the Board of Directors, to assist the Board in fulfilling its responsibility with respect to the oversight of the bank 's risk management framework relating to all risks including, but not limited to, Market Risk, Liquidity Risk, Credit Risk, Operational Risk, Strategic risk and Information and Cyber Security Risks and associated policies and procedures used in managing these risks.

      
      
      

      1. The Management Risk Committee (MRC) with the CEO as its chair, has a vital role in setting the tone for the Bank's risk-taking activities by articulating the Bank's risk philosophy and priorities. The Management Risk Committee (the "Committee") has been established with an explicit mandate to support the effective Risk Management process within the Bank. The purpose of the Committee is to assist the Board Risk Committee in fulfilling its responsibility. In addition, its role encompasses:

         • Ensure that Bank's risk management strategy, risk governance framework and policies are consistent with the nature and volume of the Bank's activities, monitor its implementation, review, and update it, based on the Bank's internal and external changing factors.

         • Responsible for implementation of an effective risk culture and internal controls across the Bank.

         • Oversee and ensure Bank's risks are at acceptable level as per the risk appetite and that the Bank's

           risks do not exceed such level.

         • Supervise the risk management framework of the Bank and evaluate the effectiveness of the framework and mechanisms of identifying and monitoring the risks that threaten the Bank's, in order to identify areas of inadequacy and adequacy.

         • Make recommendations to the Board Risk Committee on matters relating to risk management.

         • Ensure the availability of adequate resources and systems for risk management.

         • Ensure effective integration & implementation of recommendations on ESG matters into the overall business planning & strategy, risk management, sustainable finance, communication, education, reporting, processes, and culture to fulfill the bank's responsibilities, commitments and objectives in matters related to ESG.

         • Present/ propose Policies and Policy exceptions to Board Risk Committee.

         • Regular review and reporting to Board Risk Committee on Shari'ah Compliance risk and risk profile of Bank's subsidiaries.

         • Ensure effective implementation of Conduct Risk Management framework across the bank to safeguard interest of its customers and uphold the Bank's integrity and reputation.

         • Any other matter delegated by the Board Risk Committee.

      2. The Assets and Liabilities Committee (ALCO) is responsible for the following:

         • Ensure the efficient utilization of the Bank's funding sources to achieve an optimal funding mix

           in a cost-effective manner.

         • Review the Bank's asset and liabilities management strategies and positions for liquidity risk, interest rate risk and ensure adherence to applicable limits, policies, and regulatory requirements.

         • Identify balance sheet management issues that are leading to under-performance and design strategies to improve performance.

         • Ensure business activity is consistent with the structural integrity of the balance sheet.

         • Manage the balance sheet efficiently taking a forward-looking view of changes to economic, regulatory and competitive actions.

         • Ensure suitable asset and deposit pricing strategies for the Bank.

      3. The Model Management Committee (MMC) has been established & institutionalized by the Model Management Sub Committee of BRC to assist the Board of Directors ("Board") in complying with the Risk Management Regulation (Circular No. 153/2018) issued by the Central Bank of the UAE ("CBUAE"). In addition, its role encompasses:

         • Design the institution's appetite for Model Risk to be approved by the Board,

         • Ensure that Model Risk is managed appropriately across the institution,

         • Escalate modelling decisions, when necessary,

         • Oversee the objective and strategy of each model,

         • Throughout the model life cycle, review the development and validation results and conclude accordingly (including the usage of a temporary adjustment while establishing a remediation plan, and the withdrawal of the model without further redevelopment etc.).

         • The Committee may decide to suspend the usage of a model or accelerate the model review upon the results of the monitoring process.

      4. The Management Compliance Risk Committee is responsible for the following:

         • Ensure that Bank's compliance risk management strategy, compliance risk governance framework and related policies are consistent with the nature and volume of the Bank's activities, monitor its implementation, review, and update it, based on the Bank's internal and external factors.

         • Oversee and ensure Bank's compliance risks are at acceptable level as per the risk appetite and

           track remediation of breaches if any.

         • Responsible for implementation of an effective Compliance culture across the Bank.

         • Supervise the Compliance risk framework of the Bank and evaluate the effectiveness of the framework and mechanisms of identifying and monitoring the compliance risk to identify areas of inadequacy and adequacy.

         • Report regularly to the Board Risk Committee on the Bank compliance risk profile and promptly inform the Board Risk Committee of any significant breach.

         • Make recommendations to the Board Risk Committee on matters relating to Compliance risk management.

         • Obtain assurance from the Executive Management and Internal Audit that the risk processes and systems operate effectively with appropriate controls, in addition to compliance with approved policies.

         • Assessing and the availability of adequate resources and systems for compliance risk management.

         • Present/propose Policies and Policy exceptions to Board Risk Committee.

      5. The primary duties and responsibilities of the Product Approval Committee are to evaluate the following:

         • The inherent risks and the total risk exposure arising from the introduction of the new financial product and/or service or a material change / update of an existing product / service.

         • Required controls to mitigate the risks as well as the plan for implementation of controls has been documented appropriately.

         • Requirements for compliance with applicable laws and regulations to ensure adequacy.

         • Appropriateness of the new product and/or services in relation to the Bank's strategy.

         • Inter departmental and Information technology related dependencies.

         • Appropriateness of the assessed Risk grading of the product.

         • Performance of the product from a consumer satisfaction perspective

      6. The primary duties and responsibilities of the Management Credit Provision Committee to establish a comprehensive framework of Credit Risk Management (CRM) ensuring provisions are adequately maintained to ensure soundness & stability of the bank, along with always being compliant with all regulations:

         • Approve quarterly bank wide expected credit loss (ECL), both P&L and Balance Sheet position, overlays considered over & above the ECL computed based on models.

         • Review and approve rebuttals on Stage slippages based on business & credit recommendations & relevant facts substantiating the case.

         • Oversight usage of Probability of Default (PD) & Loss Given Default (LGD) models as approved by model management committee

         • Review & approve SICR (Significant increase in Credit Risk) criteria being applied in ECL computations.

         • Review & approve specific definitions viz, high risk countries, negative outlook countries etc.

         • Ensure the provisioning process is documented, organized, and approved by Senior Management and the Board, incorporating the required components outlined in the CBUAE standards (history of classifications, methodologies, data management, and KPI reporting).

         • Ensure the regular estimation and reporting of key performance indicators (KPIs) relating to provisions and ECL.

         • Regularly review and approve the policies governing the classification process and criteria for migration between stages.

         • Review the Minimum provision for Stage 3 for Wholesale obligors, ensuring the review encompasses the calculation process, methodology, and results in alignment with regulatory standards and internal policies. This should then be submitted to BRC for approval with support from CRO.

   2. Board Credit Committee (BCC):

      The Board of Directors has established the Board Credit Committee (BCC) to govern and manage credit risks of the Bank (Retail Banking, Wholesale Banking including Trade Finance and Treasury related investments/ asset portfolio).

      The purpose of the BCC is to assist the Board in the following:

      • Review and approve, the Product Program Guidelines (PPGs) for Asset products relating to all segments of the bank and any other areas of Business.

      • Review and approve Credit grading methodology for the Bank.

      • Noting the Credit policies of the Bank that will spell out among others, the target markets, products, risk acceptance criteria and general guidelines for lending.

      • Approve the terms of engagement, nature and scope of consultants / professionals appointed to assist in managing Credit portfolios of the Bank.

      • Review and approve credit facilities in respect of individual and Group Credits.

      • Review any breach in the Investment Policy of the Bank and wherever required escalate the same to the Board of Directors.

      • Approve the terms of engagement, nature and scope of consultants / professionals appointed to assist in managing Credit portfolios of the Bank.

        Risk Management Functional Structure
        
        Risk Appetite

        Risk Appetite Statement is a written articulation of the aggregate level and types of risks that the Group/ Subsidiary will accept or avoid achieving its business objectives. Risk Appetite is the aggregate level and types of risks that the Group is willing to assume, decided in advance and within its risk capacity to achieve its strategic objectives and business plan. It is set on a time horizon consistent with the strategic planning period and is reviewed, refreshed, and approved by Group Board Risk Committee (BRC), at least on an annual basis. The Group Risk Appetite Framework (GRAF) is part of the enterprise risk management framework (ERM) of RAKBANK. The purpose of the GRAF is to set out a group-wide consistent approach to defining, measuring, and reporting Risk Appetite across the Group.

        Risk Appetite forms a pivotal link between the Board and the Management's vision of the Group's risk and the individual action of the Business Units, ensuring that the overall risk profile of the Group stays within the approved parameters.

        A clearly defined Risk Appetite Framework helps the Group to understand its risk capacity, risk limits and risk triggers in doing its business. A sound Risk Appetite helps build around a strong risk culture which forewarns the business before taking excessive risk.

        The Group's risk appetite and tolerance limits and policies relating to risk identification, measurement, monitoring, and control are clearly communicated to all functional/ business groups in the Bank to ensure that risks undertaken are consistent with shareholder's expectation, Bank's strategic plan and regulatory requirement. The purpose of effective communication is to ensure that risk culture is understood across the group.

        The Bank's risk management approach includes development and dissemination of information through various channels such as; Policies and procedures, frameworks, product programs, staff awareness through training and reinforcement of expectations in committees.

        Purpose

        Key objectives of the Risk Appetite Statement include:

        • Provide means for the Group BRC and the Senior management in planning, formulating, and executing strategic business decisions.

        • Align decision making with risk through improved understanding of current and emerging key risks faced by the Group.

        • Promote sound understanding of the Group's material risk exposures and improve risk awareness

          across the Group.

        • Establish effective risk communication among internal and external stakeholders; and

        • Articulate clear accountability for monitoring of risk appetite metrics and the management of identified breaches across the various governance levels of the Group, to evaluate risks in a consistent manner.

        While the Group Risk Appetite Framework (GRAF) is applicable at the Group Level, certain Subsidiaries of the Group may establish its own specific Risk Appetite Statements, depending on the nature of their business, geographic and regulatory considerations.

        The Board of Directors of the bank acknowledge the importance of identification, measurement and monitoring of risks in the bank. The Board outlines various risk thresholds and parameters within which the bank needs to operate. For setting risk thresholds, factors like the bank's strategy, size, complexity of products, historic behavior and financial targets are considered.

        Articulation of Risk Appetite

        Risk Appetite is embedded throughout the Group to inform decision making and is therefore a key driver of the Group's Risk Culture. The Group takes a holistic approach to articulating Risk Appetite, where strategic considerations (including regulatory developments and requirements, competition, stakeholder's expectations, and the Group's approved strategy) play a crucial role in the definition of Risk Appetite. The overall approach the Group has adopted for shaping its Risk Appetite is illustrated in figure 3 below.

        
        
        Internal Capital Adequacy Assessment Process

        The Internal Capital Adequacy Assessment Process (ICAAP) at RAKBANK is regarded as a crucial instrument for addressing current and potential material risks. These risks are assessed through the formal risk identification process, capital planning and risk management frameworks, and strategic planning process. The Group ensures compliance with the minimum regulatory capital requirements set by the Central Bank of the UAE (CBUAE) and maintains appropriate internal capital levels to meet current and anticipated capital needs, as well as to withstand stress scenarios. Key highlights of the Internal Capital Adequacy Assessment Process (ICAAP) are as follows:

      • Business background & Group structure

      • Business Model Analysis

      • Governance and Risk management framework

      • Risk appetite and alignment with Strategy

      • Risk assessment and disclosures

      • Business strategy & financial projections

      • Stress testing and scenario analysis

        Stress Testing

        Stress testing is an important risk management tool that is used by banks as part of their internal risk management. Stress testing alerts bank management to adverse unexpected outcomes related to a variety of risks and provides an indication of how much capital might be needed to absorb losses should large shocks occur. Moreover, stress testing is a tool that supplements other risk management approaches and measures. It plays a particularly important role in:

      • Providing forward-looking assessments of risk

      • Overcoming limitations of models and historical data

      • Supporting internal and external communication

      • Feeding into capital and liquidity planning procedures

      • Informing the setting of a banks' risk tolerance

      • Facilitating the development of risk mitigation or contingency plans across a range of stressful conditions.

      • Portfolio level stress tests

      • Driving timely and effective management actions based on stress test results

      Stress testing is the process of assessment of the risks, controls, and capital requirement of the Bank, which gives an insight to the management about the level and direction of various risks faced by the Bank. The management actions are driven by the results of the exercise. The stress testing process for a particular year will result in following management actions taken based on the results of exercise.

      The objective of conducting a stress test is to gauge the resiliency of RAK as group against adverse but plausible risk scenarios and highlight areas of deficiency and develop a workable risk mitigation plan to counter these eventualities.

      As part of its internal stress testing process, Bank identifies potential functions vulnerable to plausible stress conditions resulting in erosion of its capital position. Stress test scenarios are designed to capture the risks and potential losses appropriately, in coherence with the characteristics of bank's risk profile and portfolio. Bank developed stress test methodologies to understand the impact of plausible scenarios on its income/losses and hence on its capital base. These methodologies are developed at multiple levels including enterprise wide, portfolio level, sub-portfolio level and large clients which are explained in subsequent sections.

      The Bank undertakes stress tests for its material risk areas including Credit Risk, Market Risk, Liquidity Risk, Interest rate Risk (earnings perspective) etc. commensurate to Bank's portfolio and business operating environment. Two types of stress test are performed:

      Regulatory Stress test - For CBUAE stress testing exercise, scenarios as prescribed by CBUAE are used. Internal Stress Test - Stress scenarios are selected considering the suitability and applicability of stress scenarios in the current environment. Below is the overarching structure of stress testing framework:
      
      

      Board and senior management involvement is critical in ensuring the appropriate use of stress testing in banks' risk governance and capital planning. This includes setting stress testing objectives, defining scenarios, discussing the results of stress tests, assessing potential actions and decision making.

      Stress Testing Elements

      Following are the details of various elements used to stress test various risks based on the risk profile of the bank:

      1. Credit Risk

         Based on various Macro Economic scenarios. Scenarios are selected in consultation with Management and Board Risk Committee. The credit risk stress testing follows the existing IFRS9 framework of the bank along with the transition rate models (developed for stress testing purposes)

      2. Market Risk and Currency Risk - a combination of various stress scenarios which includes

         regulatory prescribed and bank's internal scenarios.

      3. Interest Rate Risk in Banking Book

         Stress Testing of earning based measure NII and equity-based measures EVE with various bps shocks considering the interest rate environment

      4. Country Risk

         Rating Downgrade impact on country exposure based on existing rating and Outlook.

      5. Reputational Risk

         Stress factors arising from reputational risk events impacting Bank's liquidity and capital.

      6. Concentration Risk

         Exposures are stressed in-line with projections and budget growth.

      7. Liquidity Risk

         Multiple scenarios with increasing severity of risk factors based on historical information which include Bank level stress, Market-wide stress, and severe stress.

      8. Macro-economic Stress Testing

         Bank performs Stress Testing on various risks using the CBUAE prescribed macro-economic data under baseline and adverse scenarios and measure the impact on Capital adequacy.

      9. Residual Risk

      Bank performs Stress Testing on residual risk i.e., residual credit & operational risks under adverse scenarios to measure the impact on the Capital adequacy.

      The Bank adopts Integrated Stress Testing Approach, in which different types of stressed events are interlinked and are jointly considered for their impact on the financial and key regulatory ratios. The results of the Stress Testing exercise are presented to Senior Management and to the Board Risk Committee (BRC).

      ‌Tab OV1

      AED'000

      a

      b

      RWA

      31 Dec 2025 30 Sep 2025

      c

      Minimum capital requirements 31 Dec 2025

      1 Credit risk (excluding counterparty credit risk) 67,602,762 64,423,969 7,098,290

      2 Of which: standardised approach (SA) 67,602,762 64,423,969 7,098,290

      Of which: foundation internal ratings-based (F-IRB) approach Of which: supervisory slotting approach

      Of which: advanced internal ratings-based (A-IRB) approach

3

4

5

6 Counterparty credit risk (CCR) 875,271 809,275 91,903

7 Of which: standardised approach for counterparty credit risk 875,271 809,275 91,903

8

9

10 Credit valuation adjustment (CVA) 425,885 415,778 44,718

11

12 Equity investments in funds - look-through approach - - -

13 Equity investments in funds - mandate-based approach - - -

14 Equity investments in funds - fall-back approach - - -

15 Settlement risk - - -

16 Securitisation exposures in the banking book - - -

17

1. Of which: securitisation external ratings-based approach (SEC-ERBA) - - -

2. Of which: securitisation standardised approach (SEC-SA) - - -

3. Market risk 3,362,589 4,204,334 353,072

4. Of which: standardised approach (SA) 3,362,589 4,204,334 353,072

22

23 Operational risk 8,377,250 8,188,590 879,611

24

25

26 Total 80,643,757 78,041,945 8,467,594

1. ‌Linkages between financial statements and regulatory exposures

   ‌Tab LI1

   AED'000	a Carrying values as reported in published financial statements	b Carrying values under scope of regulatory consolidation	c Subject to credit risk framework	d Subject to counterparty credit risk framework	e f Carrying values of items: Subject to the Subject to market securitisation risk framework framework	g Not subject to capital requirements or subject to deduction from capital
   Assets
   Cash and balances with UAE Central Bank	11,625,579	11,625,563	11,625,563	-	- -	-
   Due from other banks, net	16,411,627	16,327,446	16,327,446	-	- -	-
   Investment securities measured at fair value	10,341,339	10,008,618	10,008,618	-	- 437,903	-
   Investment securities measured at amortised cost	9,133,446	9,450,689	9,450,689	-	- -	-
   Loans and advances, net	53,246,026	53,246,026	53,246,026	-	- -	-
   Insurance contract assets and receivables, net	319,094	-	-	-	- -	-
   Customer acceptances	315,553	315,553	315,553	-	- -	-
   Other Assets	2,440,647	2,427,201	2,427,201	571,531	- 460,013	-
   Property and equipment	628,370	627,334	627,334	-	- -	-
   Right-of-use assets	125,597	125,597	125,597	-	- -	-
   Goodwill and intangible assets	431,060	264,674	-	-	- -	431,061
   Total Assets	105,018,338	104,418,700	104,154,026	571,531	- 897,916	431,061

   Liabilities

   Due to other banks	8,246,015	8,246,015	- -	- -	8,246,015
   Deposits from customers	70,459,532	70,555,605	- 214,502	- -	70,341,103
   Customer acceptances	315,553	315,553	- -	- -	315,553
   Debt securities issued and other long term borrowings	6,558,307	6,558,307	- -	- -	6,558,307
   Subordinated notes	916,912	916,912	- -	- -	916,912
   Insurance contract liabilities and payables	611,619	-	- -	- -	-
   Other liabilities	3,015,177	2,994,261	- 523,411	- 352,775	2,470,850
   Lease liabilities	115,585	115,585	- -	- -	115,585
   Deferred tax liability/(asset)	24,123	9,696	- -	- -	9,696
   Total Liabilities	90,262,823	89,711,933	- 737,913	- 352,775	88,974,019

   The National Bank of Ras Al-Khaimah (P.S.C.) | 18

   ‌Tab LI2

   AED'000	a Total	b Credit risk framework	c d Items subject to: Securitisation Counterparty credit framework risk framework		e Market risk framework
   Differences due to different netting rules, other than those already	103,987,640	104,154,026	-	460,013	897,916
   	626,395	-	-	626,395	352,775
   	103,361,244	104,154,026	-	(166,383)	545,142
   	23,671,726	23,671,726	-	1,899,757	-
   	-	-	-	-	-
   	-	-	-	-	-
   	2,267,477	2,267,477	-	-	-
   	-	-	-	-	-
   	(333,973)	(69,299)	-	-	-
   	128,966,475	130,023,931	-	1,733,374	545,142

   1. Asset carrying value amount under scope of regulatory consolidation (as per template LI1)

   2. Liabilities carrying value amount under regulatory scope of consolidation (as per template LI1)

   3. Total net amount under regulatory scope of consolidation

   4. Off-balance sheet amounts

   5. Differences in valuations

   6. included in row 2

   7. Differences due to consideration of provisions

   8. Differences due to prudential filters

   9. Other differences

   10. Exposure amounts considered for regulatory purposes

   Amounts appearing in more than one category - Investment securities measured at fair value through profit & loss and derivative assets are reported under Credit Risk as part of 0% risk weight category and are also subject to Market Risk. Derivative assets and derivative liabilities are subject to Market Risk and Counterparty Credit Risk.

   ‌Tab LIA

   The difference between the net amount under regulatory scope of consolidation and the exposure amounts considered for regulatory purposes is due to the inclusion of off-balance sheet amounts (row 4) and the exclusion of non-specific provisions (row 7) to arrive at the net regulatory exposure. Other differences (row 9) primarily include exposure amounts that are not subject to capital requirements or subject to deduction from capital.

   Carrying value of assets under the scope of regulatory consolidation is limited to On-Balance Sheet products and are also net of all provisions and interest/fees suspended. To arrive at the net exposure amount considered for regulatory purposes, Off-Balance Sheet amounts, non-Specific Provisions and Prudential Filter have been added.

   The Bank does not hold any fair valued positions that require Prudent Valuation Adjustments (PVAs). Accordingly, Template PV1 is reported as NIL for the reporting period.

   While financial reporting is at a consolidated level including all subsidiaries of the Bank, the scope of regulatory consolidation requires deconsolidation of the insurance subsidiary, Ras Al Khaimah National Insurance Company. This is the reason for the discrepancy between carrying values as reported in the Bank's published Financial Statements and carrying values reported under the scope of regulatory consolidation.

   The Bank uses below valuation methodologies for valuations of all the Trading and Banking book positions such as:

   Mark-to-Market (MTM)

   Mark-to-market is the daily valuation of positions/exposures at readily available market closing prices that are sourced independently. Such prices includes exchange prices, prices obtained from trading systems, quotes from independent, reputable brokers and quotes from independent and reputable market information providing systems.

   The Bank uses data providers like Refinitiv and Bloomberg for independent price feeds of various asset classes, including FX Currency Spot and Forward rates, Interest Rates, Commodity prices, Bond prices, Equity prices.

   Counterparty Quotes

   The Bank obtains Counterparty Valuations for some structured products like Equity linked Structured Investments, Credit Linked Notes (CLN), Total Return Swaps (TRS), and Hedge Funds which are otherwise not quoted in the market.

   Mark-to-Model

   Mark-to-model is applied where mark-to-market and counterparty quotes are not available or are not reflective of current market conditions.

   The Bank uses a Treasury system for valuation of most of the products and Bloomberg valuation models for some Derivative products.

   The Bank applies valuation adjustments for Credit Valuation Adjustment (CVA) to factor the credit risk arising from Derivative exposures as a provision to P&L. The Bank also adjusts for bid-ask spreads for the banking book as applicable as a part of market risk stress testing. The Bank does not apply any other fair value adjustments, except for the above mentioned.

   Ras Al Khaimah National Insurance Company, which is the insurance subsidiary of the Bank, is deconsolidated for regulatory reporting purposes. The book value of investment in the insurance subsidiary net of goodwill is risk-weighted at 250% in line with Capital Adequacy Standards.

2. ‌Composition of capital

   ‌Tab CC1

   Common Equity Tier 1 capital: instruments and reserves

b

Source based on reference numbers/letters of the balance sheet under the regulatory scope of consolidation

a

31-Dec-25

Amounts in AED'000

Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus

1. related stock surplus

   2,011,495 CC2 (c)

   5,753,223 CC2 (e) + Prudential Filter

2. Retained earnings

Accumulated other comprehensive income (and other reserves) 4,370,484

3

1. Directly issued capital subject to phase-out from CET1 (only applicable to non-joint stock companies) -

2. Common share capital issued by third parties (amount allowed in group CET1) -

3. Common Equity Tier 1 capital before regulatory deductions 12,135,201

   (transitional arrangement)

   CC2 (d) + CC2 (f) + CCR (g) + CCR (h) +

   CCR (i) + CCR (j) - Regulatory haircut on unrealized gains of Available For Sale securities

   Common Equity Tier 1 capital regulatory adjustments

4. Prudent valuation adjustments 0

   Goodwill (net of related tax liability) (166,386) CC2 (a) as per published financial

5. statements

6. Other intangibles including mortgage servicing rights (net of related tax liability) (264,675) CC2 (b)

   Deferred tax assets that rely on future profitability, excluding those arising from temporary -

7. differences (net of related tax liability)

8. Cash flow hedge reserve 10,204 CC2 (j)

9. Securitisation gain on sale -

10. Gains and losses due to changes in own credit risk on fair valued liabilities -

11. Defined benefit pension fund net assets -

12. Investments in own shares (if not already subtracted from paid-in capital on reported balance sheet) -

13. Reciprocal cross-holdings in CET1, AT1, Tier 2 -

    Investments in the capital of banking, financial and insurance entities that are outside the scope of

    regulatory consolidation, where the bank does not own more than 10% of the issued share capital -

14. (amount above 10% threshold)

    Significant investments in the common stock of banking, financial and insurance entities that are

15. outside the scope of regulatory consolidation (amount above 10% threshold) -

    Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related -

16. tax liability)

17. Amount exceeding 15% threshold -

18. Of which: significant investments in the common stock of financials -

19. Of which: deferred tax assets arising from temporary differences -

20. CBUAE specific regulatory adjustments -

21. Total regulatory adjustments to Common Equity Tier 1 (420,857)

22. Common Equity Tier 1 capital (CET1) 11,714,344

    Additional Tier 1 capital: instruments

b

Source based on reference numbers/letters of the balance sheet under the regulatory scope of consolidation

a

31-Dec-25

Amounts in AED'000

1. Directly issued qualifying Additional Tier 1 instruments plus related stock surplus 1,101,900

2. Of which: classified as equity under applicable accounting standards 1,101,900

3. Of which: classified as liabilities under applicable accounting standards -

4. Directly issued capital instruments subject to phase-out from additional Tier 1 -

   -

5. Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in AT1)

6. Of which: instruments issued by subsidiaries subject to phase-out -

7. Additional Tier 1 capital before regulatory adjustments 1,101,900

   Additional Tier 1 capital: regulatory adjustments

8. Investments in own additional Tier 1 instruments -

   Investments in capital of banking, financial and insurance entities that are outside the scope of -

9. regulatory consolidation

   Significant investments in the common stock of banking, financial and insurance entities that are -

10. outside the scope of regulatory consolidation

11. CBUAE specific regulatory adjustments -

12. Total regulatory adjustments to additional Tier 1 capital -

13. Additional Tier 1 capital (AT1) 1,101,900

14. Tier 1 capital (T1= CET1 + AT1) 12,816,244

    Tier 2 capital: instruments and provisions

15. Directly issued qualifying Tier 2 instruments plus related stock surplus 918,250

16. Directly issued capital instruments subject to phase-out from Tier 2 -

    Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 30) issued by subsidiaries -

17. and held by third parties (amount allowed in group Tier 2)

18. Of which: instruments issued by subsidiaries subject to phase-out -

19. Provisions 861,299 Capped at 1.25% of Credit RWA

20. Tier 2 capital before regulatory adjustments 1,779,549

    Tier 2 capital: regulatory adjustments

21. Investments in own Tier 2 instruments -

    Investments in capital, financial and insurance entities that are outside the scope of regulatory

22. consolidation, where the bank does not own more than 10% of the issued common share capital of -the entity (amount above 10% threshold)

    Significant investments in the capital, financial and insurance entities that are outside the scope of -

23. regulatory consolidation (net of eligible short positions)

24. CBUAE specific regulatory adjustments -

25. Total regulatory adjustments to Tier 2 capital -

26. Tier 2 capital (T2) 1,779,549

27. Total regulatory capital (TC = T1 + T2) 14,595,793

28. Total risk-weighted assets 80,643,757

    Amounts in AED'000 a b

    Source based on reference

    Capital ratios and buffers

    31-Dec-25

    numbers/letters of the balance sheet under the regulatory scope of consolidation

29. Common Equity Tier 1 (as a percentage of risk-weighted assets) 14.5%

Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach

1. (prior to application of cap)

   1,033,559

2. Cap on inclusion of provisions in Tier 2 under standardised approach 861,299

72 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach

approach (prior to application of cap)

71 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based

1. Current cap on CET1 instruments subject to phase-out arrangements

2. Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

3. Current cap on AT1 instruments subject to phase-out arrangements

4. Amount excluded from AT1 due to cap (excess after redemptions and maturities)

5. Current cap on T2 instruments subject to phase-out arrangements

6. Amount excluded from T2 due to cap (excess after redemptions and maturities)

Capital ratios have reduced compared to previous periods primarily due to the deduction of proposed dividend of 63 fils per share (amounting to a total of AED 1,267M) from the regulatory capital, partially offset by the increase in current year profits.

In July 2025, the Bank issued Additional Tier 1 (AT1) capital notes amounting to USD 300 million. The notes are perpetual, subordinated and unsecured and are issued at a fixed coupon rate of 6.625% p.a. Subject to interest cancellation clauses, interest is payable semi-annually at a fixed rate of 6.625% p.a. until July 9, 2031; and thereafter, the interest will reset every sixth year. The Bank can elect not to pay a coupon at its own discretion and has the option to call back the securities in 2031 subject to obtaining regulatory approvals. Note holders will not have a right to claim the coupon and such event will not be considered an event of default. The notes carry no maturity date and have been classified as equity. Accordingly, the interest paid is accounted for as a deduction from retained earnings.

The transaction costs associated with this issuance are incremental costs directly attributable to the AT1 transaction that otherwise would have been avoided therefore are also deducted from retained earnings.

Regulatory deduction primarily includes the deduction of goodwill arising from the purchase of Ras Al Khaimah National Insurance Company (unconsolidated entity for regulatory purposes) and software not integral to hardware. These deductions, along with the impact of proposed dividends have led to the reduction in regulatory capital amounts as well as ratios.

Loans and advances have increased compared to the previous periods due to an increase in Wholesale Banking lending and Retail Mortgage lending.

‌Tab CCA

a

Quantitative / qualitative information

b

Quantitative / qualitative information

c

Quantitative / qualitative information

Issuer The National Bank of Ras Al Khaimah

1 (P.J.S.C)

Unique identifier (eg CUSIP, ISIN or

The National Bank of Ras Al Khaimah (P.J.S.C) The National Bank of Ras Al Khaimah (P.J.S.C)

Bloomberg identifier for private

1. placement)

   AEN000601015 XS2630917107 XS3088653988

2. Governing law(s) of the instrument

   CBUAE, SCA and all applicable laws & regulations

   English Law English Law

   Regulatory treatment Common Equity Tier 1 Tier 2 Additional Tier 1

   Transitional arrangement rules (i.e.

3. grandfathering)

   Post-transitional arrangement rules (i.e.

4. grandfathering)

   N/A N/A N/A Common Equity Tier 1 Tier 2 Additional Tier 1

   Instrument type (types to be specified by each jurisdiction)	Ordinary Shares	Subordinated Debt	Perpetual Additional Tier 1 Capital Notes
   Amount recognised in regulatory capital (currency in millions, as of most recent	AED 2,011	AED 918	AED 1,102
   reporting date)
   Nominal amount of instrument (currency in millions)	AED 2,011	USD 250	USD 300

5. Eligible at solo/group/group and solo Solo & Group Solo & Group Solo & Group

7

8

9

9a Issue price N/A 100% 100%

Redemption price N/A At par for Optional Redemption, Tax and Capital Event At par for Optional Redemption, Tax and

9b Capital Event

10 Accounting classification Shareholders' Equity Long Term Liability Subordinated perpetual debt (equity)

11 Original date of issuance Various 10-Sep-24 9-Jul-25

12 Perpetual or dated Perpetual Dated 10.25 NC 5 Perpetual NC 6

13 Original maturity date No Maturity 10-Dec-34 N/A

Issuer call subject to prior supervisory

14 approval

Optional call date, contingent call dates and redemption amount

No Yes Yes

N/A 10-Sep-29, Tax Event or Capital Event; At par 9 January 2031; Redemption amount: Prevaling Principle Amount

15

16 Subsequent call dates, if applicable

N/A Every day from 10-Sep-29 to (and including) 10-Dec-29 and each interest payment date thereafter

The First Call Date and any date thereafter up to and including the First Reset Date and any Interest Payment Date following the First Reset Date

Coupons / dividends Dividends Coupons Coupons

Floating - 6.625% fixed per annum, payable semi-annually in arrears from (and including) the Issue Date to (but excluding) the First Reset

Fixed or floating dividend/coupon Floating Fixed

17

Date, and thereafter reset to the interpolated 6-year U.S. Treasury rate of 3.961% (based on the 5-year at 3.858% and 7-year at 4.060%

18 Coupon rate and any related index N/A 5.8732% 6.6250%

Restriction of distributions on, redemption, purchase, cancellation, reduction or otherwise acquisition of Ordinary Shares, Other Common

Existence of a dividend stopper No No

19

Equity Tier 1 Instruments and paripassu/junior ranking securities, until the following Interest Payment Amount has been paid in full (or set aside)

Fully discrectionary, partially discrectionary

20a or mandatory (in terms of timing)

Fully discrectionary, partially discrectionary

Fully Discretionary Mandatory Partially discrectionary

or mandatory (in terms of amount) Fully Discretionary Mandatory Partially discrectionary

20b

Existence of step-up or other incentive to

21 redeem

No No No

22 Non-cumulative or cumulative Non-cumulative N/A Non-cumulative

23 Convertible or non-convertible Non-convertible Non-convertible Non-convertible

24 Writedown feature No Yes Yes

When the Bank is deemed by Regulator

If writedown, writedown trigger(s) N/A

25

If the UAE Central Bank (as the Regulator) notifies the Issuer that it is, or will become, non-viable (as defined in the T&C) without: (i) a Write-down; or (ii) a public sector injection of capital or equivalent support

insolvent, bankrupt, unable to pay a material part of its obligations as they fall due or unable to carry on its business, or any other event or circumstance occurs which is specified as non viable by the Regulator, or in the Capital Regulations

26 If writedown, full or partial N/A Full or Partial (Both options available) Full or Partial (Both options available)

27 If writedown, permanent or temporary N/A Permanent Permanent

If temporary write-own, description of

28 writeup mechanism

N/A N/A N/A

28a Type of subordination N/A Contractual Subordinated (Additional Tier 1 Capital)

Position in subordination hierarchy in

liquidation (specify instrument type immediately senior to instrument in the insolvency creditor hierarchy of the legal

29 entity concerned).

N/A

Prior to liquidation, Tier 2 Capital Securities would rank senior to the Common Equity Shares and junior to all unsubordinated payment obligations

AT1 ranks below Tier 2 instruments and all senior creditors, and above common equity. The instrument immediately senior to AT1 is Tier 2 subordinated debt.

30 Non-compliant transitioned features No No No

31 If yes, specify non-compliant features N/A N/A N/A

‌Tab CCYB1

1. ‌Leverage ratio

   ‌Tab LR1

   a

   31 Dec 2025 AED'000

1. Total consolidated assets as per published financial statements 105,018,338

2. Adjustments for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation

3. Adjustment for securitised exposures that meet the operational requirements for the recognition of risk transference

   317,244

   -

4. Adjustments for temporary exemption of central bank reserves (if applicable) -

5. Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure

   (460,013)

6. Adjustments for regular-way purchases and sales of financial assets subject to trade date accounting -

7. Adjustments for eligible cash pooling transactions -

8. Adjustments for derivative financial instruments 1,547,051

9. Adjustment for securities financing transactions (ie repos and similar secured lending) 398,190

10. Adjustments for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures)

11. Adjustments for prudent valuation adjustments and specific and general provisions which have reduced Tier 1 capital

    7,053,032

    -

12. Other adjustments 1,804,676

13. Leverage ratio exposure measure 115,678,518

    The difference between the total assets as per consolidated financial statements and the leverage ratio exposure measure is primarily on account of off balance sheet items including derivatives. Other adjustments mainly include adjustments for provisions and suspended interest, amongst others.

    ‌Tab LR2

    On-balance sheet exposures

31 Dec 2025 30 Sep 2025

Amounts in AED'000

b

a

and/or with bilateral netting)

Off-balance sheet exposures have increased due to an increase in revocable Wholesale Banking commitments. Tier 1 Capital and consequently, the Leverage Ratio have dropped due to deduction of proposed dividend of 63 fils per share (amounting to a total of AED 1,267M).

1. ‌Liquidity Risk

‌Tab LIQA

Liquidity is a group's capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses. Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank's financial condition. Effective liquidity risk management helps ensure a bank's ability to meet its obligations as they fall due and lessens the probability of an adverse situation developing.

The Liquidity risk strategy of the group is to ensure that the group remains adequately liquid by always ensuring a viable balance of liquid assets to meet expected and contingent outflows and adhering to all regulatory guidelines. In addition, liquidity risk is managed through a range of internal measures like cash flow mismatches, concentrations, funding sources and uses etc.

Liquidity Risk Management is governed by Liquidity Risk Management Framework under Enterprise Risk Management Framework approved by the Group's Board Risk Committee (BRC). Liquidity Risk is managed using Top-Down approach in which the boundary of Risk thresholds is defined by the BRC in line with the Group Risk Appetite.

Treasury Asset and Liability Management (ALM) and Business groups being the first line of defense, are primarily responsible for liquidity management. Accordingly, it is important to consolidate all funding activities in Treasury enabling it to monitor, plan and execute effectively. Risk Management and Finance units are responsible for the measurement and monitoring of liquidity risk metrics stipulated in the framework and to update MRC/BRC & ALCO on issues pertaining to liquidity risk. Risk Management acts as a focal link between first and third line of defense. Internal audit forms the third line of defense.

The subsidiaries of the Group operate independently at entity level and are required to always maintain adequate liquidity in-line with the prevailing regulatory guidelines and internal risk management policies where applicable. The Group Risk Appetite Framework includes Liquidity Risk Appetite metrics for the Bank and its subsidiaries.

The Group has adopted a proactive approach in identifying and assessing, measuring and monitoring liquidity risks. Risk Management conducts regular and ad-hoc risk analyses (such as stress tests) and reports findings and recommendations to Bank's ALCO and Board. The liquidity risk is managed through a combination of multiple risk indicators and triggers. The Bank monitors liquidity risk in line with the internal policies and regulatory norms. The CBUAE regulations specify qualitative and quantitative requirements for liquidity risk.

Following are some of the key controls and risk management strategies for Liquidity Risk:

• Comprehensive Group Risk Appetite Framework (GRAF) outlines the Liquidity Risk Appetite of the Group

• Comprehensive Funding Strategy, Contingency Funding Plan and Recovery Plan

• Maintaining a diverse, yet stable pool of potential funding sources

• Maintaining sufficient liquidity buffers, pool of readily saleable and repo-eligible liquid assets, regular monitoring of liquidity risk exposures including regulatory metrics, internal liquidity ratios as well as early warning indicators.

• Performing Liquidity stress testing exercise on monthly basis.

The Bank measures and monitors liquidity risk as per the Liquidity Risk framework approved by the Board Risk Committee and ensures compliance by the Central Bank of UAE regulations related to Liquidity Risk. Apart from regulatory liquidity metrics, the Bank uses several Customised internal liquidity risk quantitative metrics segregated into Risk Appetite, Management Alert Liquidity Risk Triggers, Early Warning Indicators and Contingency Funding Plan (CFP) Triggers that assess the structure of the balance sheet and its liquidity position, taking into account off-balance sheet risks. These metrics are designed considering the bank's funding structure, business model, strategy, and regulatory norms. Some of the metrics are liquidity gaps measured using maturity mismatches reports, cash liquidity buffers, dependency of funds on various segments, liquidity coverage of unutilized commitments, structural liquidity, and stock of unencumbered securities.

The Group has set concentration risk thresholds on its different funding sources and commitments considering the liquidity risk such as encumbrance of securities, single depositor concentrations, top Depositors Concentration, time Deposits Concentration, wholesale Deposits/ funding concentration, secured & unsecured money market (Interbank & repo borrowing) funding, coverage of technical reserves for insurance subsidiary etc.

The Bank lends to and borrows from various sources and segments of the market vis-à-vis Retail, SME, Commercial, Corporate and Financial Institutions etc. at differentiated pricing, tenors, currencies and through a varied suite of products, in turn, giving rise to various risk exposures that need to be effectively managed, be it liquidity risk, interest rate risk, currency risk, credit risk, market risk etc. The Bank currently achieves this through a well-diversified customer deposits base (both time deposits and demand deposits). To achieve the objective of diversifying its source of funds, the bank also maintains access to a variety of sources of wholesale funds in multiple currencies, including those available from money markets, repo markets, bilateral or syndicated loans and from international bond markets, across a variety of distribution channels.

The Bank utilizes sources of funds based on timing, pricing, regulatory requirements, and market/business expectations maintaining a healthy and a well-diversified mix thereof at all points in time & has the ability to effectively manage its liquidity by raising deposits or liquidating/selling off/distributing assets in a timely manner by tapping into the various diversified avenues at its disposal. Funding sources are diverse and include both short to medium term funding sources such as customer's deposits & interbank borrowings, and long-term funding sources such as capital market borrowings & EMTN.

Funding Strategy is reviewed and approved by ALCO. The Group through ALCO ensures that its funding needs are from diverse sources ranging from retail, corporate and institutional customers' deposits to medium-term & long-term funding such as EMTN programme.

Liquidity Risk Stress Testing is an integral part of liquidity risk management framework and is used to assess potential vulnerability to survive liquidity stress events. Bank uses Scenario analysis for performing stress testing, considering the wide application, ease of usage and comprehensive coverage.

Scenarios involve defining a set of risk factors and amounts by which these factors could move under a specified stressed scenario. Each source behaves differently with increasing severity of risk factors under three different scenarios i.e., Bank-wide, Market Wide and combination of both scenarios. For instance, market wide stress could impact interbank funding and a deposit run simultaneously.

Post the impact analysis of the scenario results, Liquidity Gap under all three scenarios are compared to the available sources of funding.

A detailed iterative process is carried out for stress testing exercise.

• Stress testing scenarios are developed and selected in alignment with evolving market conditions as part of the annual ICAAP process.

• Stressed Liquidity Gap report is prepared using the stress factors derived from historical behavioral patterns under multiple stress scenarios.

• The availability of resources is assessed versus the stressed gaps to ensure that the Bank can withstand the stress.

• Results are thoroughly reviewed and discussed with Business and Treasury teams, incorporating their feedback to refine outcomes.

• Findings are reported monthly to Senior Management and the Board Risk Committee and are also submitted to the Central Bank of the UAE as part of the annual ICAAP submission.

Liquidity CFP is part of the Bank's liquidity risk management framework which sets out the Bank's strategies to respond to a severe disruption of the bank's liquidity or funding position due to internal or external events. The plan designates the Crisis Management Team which will be activated in the event of a liquidity crisis and establishes allocation of roles & responsibilities within the Team.

The plan includes a comprehensive description of the sources of funds, roles, and responsibilities of the implementation team with clearly defined Early Warning Indicators/ CFP triggers which are monitored by Risk Management independently.

RAKBANK's subsidiaries operate independently & manage Liquidity Risk at entity level while ensuring compliance with prevailing regulatory requirements. In case of activation of CFP in any subsidiary where applicable, action plan is required be followed with an intimation to Crisis Management Team at group level. ALCO assesses & decides further actions based on the severity of the crisis.

The Bank has a large proportion of its liabilities as demand deposits which do not have a fixed maturity. Although behaviorally these deposits are stable for internal liquidity measurement purposes, these have been grouped under up to 3 months category in accordance with the UAE Central Bank guideline.

The National Bank of Ras Al-Khaimah (P.S.C.) | 30

The National Bank of Ras Al-Khaimah (P.S.C.) |