Sharjah Islamic Bank : Financial Statement 2021

SHARJAH ISLAMIC BANK PJSC

DIRECTORS' REPORT AND CONSOLIDATED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

Independent auditor's report to the shareholders of Sharjah Islamic Bank PJSC

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 Sharjah Islamic Bank PJSC (the "Bank") and its subsidiaries (together "the Group") as at 31 December 2021, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

What we have audited

The Group's consolidated financial statements comprise:

• the consolidated statement of financial position as at 31 December 2021;
• the consolidated statement of profit or loss for the year then ended;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of cash flows for the year then ended;
• the consolidated statement of changes in equity for the year then ended; and
• 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) and the ethical requirements that are relevant to our audit of the consolidated financial statements in the United Arab Emirates. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA code.

Our audit approach

Overview

Key Audit Matters	•	Measurement of Expected Credit Losses ("ECL")
	•	Fair valuation of the Group's investment properties

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.

PricewaterhouseCoopers (Dubai Branch), License no. 102451

Emaar Square, Building 5, P O Box 11987, Dubai - United Arab Emirates

T: [phone], F: [phone], www.pwc.com/me

Mohamed ElBorno, Jacques Fakhoury, Douglas O'Mahony, Murad Alnsour and Rami Sarhan are registered as practising
auditors with the UAE Ministry of Economy	2

Independent auditor's report to the shareholders of Sharjah Islamic Bank PJSC (continued)

Our audit approach (continued)

Overview (continued)

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.

Key audit matters

Key audit matters are those matters that, in our professional judgment, 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 matter		How our audit addressed the key audit matter

Measurement of Expected Credit Losses ("ECL")

The Group applies ECL on all the financial assets measured at amortised cost, debt instruments measured at fair value through other comprehensive income, and financial guarantee contracts including financing commitments.

The Group exercises significant judgements and makes a number of assumptions in developing its ECL models, which includes probability of default computation separately for retail and corporate portfolios, determining loss given default and exposure at default for both funded and unfunded exposures, forward looking adjustments and staging criteria.

For defaulted exposures, the Group exercises judgements to estimate the expected future cash flows related to individual exposures, including the value of such collateral.

The Group's impairment policy under IFRS 9 is presented in Note 3(b)X to the consolidated financial statements.

Measurement of ECL is considered as a key audit matter as the Group applies significant judgments and makes a number of assumptions, which have significantly increased as a result of COVID-19, affecting the staging criteria applied to the financial assets as well as in developing ECL models for calculating its impairment provisions.

We performed the following audit procedures to assess the

adequacy of the ECL included in the Group's consolidated

financial statements for the year ended 31 December 2021:

• We tested the completeness and accuracy of the data used in the calculation of ECL.
• For a sample of exposures, we checked the appropriateness of the Group's application of the staging criteria.
• We involved our internal specialists to assess the following areas:
• • Conceptual framework used for developing the Group's impairment policy in the context of its compliance with the requirements of IFRS 9.
  • ECL modelling methodology and calculations used to
    compute the probability of default (PD), loss given default (LGD), and exposure at default (EAD) for the
    Group's classes of financial assets. The appropriateness of the model methodology was assessed giving specific consideration to COVID -19.
  • Reasonableness of the assumptions made in developing the modelling framework including assumptions used for estimating forward looking scenarios and significant increase in credit risk.
  • For a sample of exposures, we checked the appropriateness of determining EAD, including the consideration of repayments and collaterals.
• For the Stage 3 portfolio, the appropriateness of provisioning assumptions were independently assessed for a sample of exposures selected on the basis of risk and the significance of individual exposures. An independent view was formed on the levels of provisions recognised, based on the detailed loan and counterparty information available in the credit files.
• We assessed the consolidated financial statement disclosures to ensure compliance with IFRS 7 and IFRS 9 and the disclosure made relating to the impact of COVID -19 on ECL.

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Independent auditor's report to the shareholders of Sharjah Islamic Bank PJSC (continued)

Our audit approach (continued)

Key audit matters (continued)

Key audit matterHow our audit addressed the key audit matter

Fair valuation of the Group's investment properties

The Group's investment properties are

held at a fair value of AED 2.8 billion as at 31 December 2021 (Note 10).

The valuation of the Group's investment

properties is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental income or selling value for that particular property. Investment properties are initially recognized at cost and subsequently measured at fair value.

The valuations were carried out by professional third-party valuation companies. The valuers were engaged by the Group and performed their work in accordance with relevant appraisal and valuation standards.

In determining a property's valuation, the valuers take into account current market

prices for similar properties in a similar location and condition. If prices for comparable properties are not available, the valuers make use of appropriate valuation techniques to arrive at the fair valuation.

This valuation of investment properties is considered to be a key audit matter due to the significant judgements and assumptions made in determining the fair values of investment properties.

We evaluated the competence, capabilities and objectivity of professional third party valuation firms (the "experts") engaged for valuing the investment properties.

We evaluated the appropriateness of the experts' work by considering the nature and content of the instructions provided to the experts by the Group. Where the experts' work involved valuation techniques which needed significant use of source data provided by the Group's management, the relevance, completeness and accuracy of that source data was evaluated.

The relevance and reasonableness of the expert's findings or

conclusions for investment properties were considered by engaging our own valuation experts to assess and evaluate the work performed and assumptions used by the third party valuation firm.

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