CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS

2 CONSOLIDATED INCOME STATEMENT For the year ended Notes (restated)* Interest and similar income 5 1,109, ,478 Interest and similar expense 6 (738,173) (633,787) Independent auditors report to the shareholder of Societe Generale de Banque au Liban SAL We have audited the accompanying consolidated financial statements of Société Générale de Banque au Liban SAL (the Bank ) and its subsidiaries (collectively the Group ), which comprise the consolidated statement of financial position as at and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. MANAGEMENT S RESPONSIBILITY FOR THE Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. NET INTEREST INCOME 371, ,691 Fee and commission income 7 100,499 97,454 Fee and commission expense (26,278) (21,994) NET FEE AND COMMISSION INCOME 74,221 75,460 Net gain from financial assets at fair value through profit or loss 8 30,363 39,765 Revenue from financial assets at fair value through other comprehensive income ,156 Net gain from sale of financial assets at amortized cost 23 56,894 16,046 Other operating income 10 30,559 35,474 TOTAL OPERATING INCOME 564, ,592 Net credit losses 11 (22,906) (18,238) NET OPERATING INCOME 541, ,354 Personnel expenses 12 (121,184) (112,749) Other operating expenses 13 (128,413) (117,085) Depreciation of property and equipment 25 (10,558) (8,731) Amortization of intangible assets 26 (2,684) (2,566) TOTAL OPERATING EXPENSES (262,839) (241,131) OPERATING PROFIT 278, ,223 Net gain from sale and write-off of other assets PROFIT BEFORE TAX 279, ,517 Income tax expense 14 (45,785) (42,763) PROFIT FOR THE YEAR 233, ,754 Attributable to: Equity holders of the parent 226, ,325 Non-controlling interests 6,889 5, , ,754 (*) Certain numbers shown here do not correspond to the consolidated financial statements and reflect adjustments made as detailed in note 54. Ernst & Young Beirut, Lebanon BDO, Semaan, Gholam & Co. Beirut, Lebanon The attached notes 1 to 54 form part of these consolidated financial statements. 31

3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at Notes (restated)* PROFIT FOR THE YEAR 233, ,754 Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations, net of tax (10,313) 3,425 Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Net (loss) gain from financial assets at fair value through other comprehensive income net of tax (199) 1,239 Other comprehensive income for the year, net of tax (10,512) 4,664 TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 223, ,418 Attributable to: Equity holders of the parent 216, ,914 Non-controlling interests 6,840 5, , ,418 (*) Certain numbers shown here do not correspond to the consolidated financial statements and reflect adjustments made as detailed in note 54. (restated)* ASSETS Cash and balances with the Central Banks 15 5,683,973 4,303,454 Due from banks and financial institutions , ,008 Amounts due from affiliated banks and financial institutions 17 1,031,920 1,021,815 Loans to banks and financial institutions 6,361 10,291 Derivative financial instruments Financial assets at amortized cost pledged as collateral , ,412 Financial assets at fair value through profit or loss , ,036 Loans and advances to customers at amortized cost 21 5,321,691 4,550,423 Loans and advances to related parties at amortized cost ,953 84,358 Debtors by acceptances 56,636 47,880 Financial assets at amortized cost 23 8,255,292 7,645,389 Financial assets at fair value through other comprehensive income 24 26,875 30,458 Property and equipment , ,006 Intangible assets 26 34,674 29,747 Investment properties 27 1,445 12,021 Non-current assets held for sale , ,508 Other assets ,835 97,209 Goodwill , ,892 (restated)* Notes LIABILITIES AND EQUITY LIABILITIES Due to the Central Banks , ,086 Loans and repurchase agreements 32 2,118,748 1,519,909 Due to banks and financial institutions , ,625 Amounts due to affiliated banks and financial institutions 34 3,856 4,964 Derivative financial instruments Customers' deposits at amortized cost 35 16,920,464 15,278,781 Related parties deposits at amortized cost , ,570 Engagements by acceptances 56,636 47,880 Other liabilities , ,499 Provision for risks and charges 38 64,496 59,188 liabilities 20,390,170 17,948,797 EQUITY Share capital common shares 39 13,173 13,173 Share capital preferred shares 39 8,738 8,738 Share premium common shares , ,349 Share premium preferred shares , ,013 Cash contribution by shareholders , ,746 Non distributable reserves , ,560 Distributable reserves 41 20,669 20,110 Revaluation reserve of property 42 3,934 3,934 Cumulative change in fair value of financial assets at fair value through other comprehensive income Profit for the year 226, ,325 Foreign currency translation reserve (8,105) 2,159 Retained earnings 242, ,578 Equity attributable to equity holders of parent 1,641,134 1,493,287 Non-controlling interests 48,167 42,905 equity 1,689,301 1,536,192 liabilities and equity 22,079,471 19,484,989 (*) Certain numbers shown here do not correspond to the consolidated financial statements and reflect adjustments made as detailed in note 54. The consolidated financial statements were authorized for issue in accordance with a resolution of the Board of Directors on July 2 nd assets 22,079,471 19,484,989 Antoun Sehnaoui Chairman Georges Saghbini Deputy General Manager The attached notes 1 to 54 form part of these consolidated financial statements. The attached notes 1 to 54 form part of these consolidated financial statements. 33

4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended equity Non-controlling interest Attributable to equity holders of the parent Retained earnings Profit for the year Foreign currency translation reserve Cumulative change in fair value of financial assets at fair value through other comprehensive income Revaluation reserve of property Distributable reserves Non distributable reserves Cash contribution by shareholders Share premium preferred shares Share premium common shares Share capital preferred shares Share capital common shares Notes Balance at 31 December ,008 4, , , , ,193 21,928 3,934 (1,707) (1,191) 169,985 83,109 1,039,672 39,675 1,079,347 Correction of an error (4,015) 66 (3,796) 28 (3,768) Balance as at 31 December 2012 (restated)* 12,008 4, , , , ,202 21,928 3,934 (1,563) (1,191) 165,970 83,175 1,035,876 39,703 1,075,579 Profit for the year (restated)* , ,325 5, ,754 Other comprehensive income ,239 3, , ,664 comprehensive income (restated)* ,239 3, , ,914 5, ,418 Issuance of preferred shares 39-5, , , ,782 Redemption of preferred shares 39 - (1,911) - (136,477) (138,388) - (138,388) Transfer to retained earnings (restated)* (165,970) 165, Transfer to non distributable reserves , (52,361) Transfer to distributable reserves (119) Non distributable reserves written off (3) (3) - (3) Transfer from distributable reserves 39 1, (1,937) Transfer to share premium , (1,267) Dividends paid to equity holders of the parent (23,894) (23,894) - (23,894) Dividends paid to non controlling interests (2,302) (2,302) Balance at 31 December (restated)* 13,173 8, , , , ,560 20,110 3, , , ,578 1,493,287 42,905 1,536,192 Profit for the year , ,977 6, ,866 Other comprehensive income (199) (10,264) - - (10,463) (49) (10,512) comprehensive income (199) (10,264) 226, ,514 6, ,354 Transfer to retained earnings (201,325) 201, Transfer to non distributable reserves , (58,318) Transfer to distributable reserves (559) Non controlling interest resulting from capital increase in Fidus SAL Transfer to share premium , (2,052) Dividends paid to equity holders of the parent (68,667) (68,667) - (68,667) Dividends paid to non controlling interests (1,960) (1,960) Balance at 13,173 8, , , , ,878 20,669 3, (8,105) 226, ,307 1,641,134 48,167 1,689,301 (*) Certain numbers shown here do not correspond to the consolidated financial statements and reflect adjustments made as detailed in note 54. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended OPERATING ACTIVITIES Notes (restated)* Profit before income tax 279, ,517 Adjustments for: Depreciation and amortization 25 & 26 13,242 11,297 Share of profit from non-consolidated subsidiaries 29 (31) (45) Change in fair value of investment properties 10 - (4,461) Amortization of additional deferred costs resulting from the acquisition of Lebanese Canadian Bank SAL 29 6,815 3,229 Amortization of deferred employee termination benefits 29 8,080 8,080 Provision for impaired loans customers 21 39,150 35,607 Provision for impaired loans related parties 22 1,386 1,231 Loans written off ,375 Write-back of provisions for impairment of non-current assets held for sale 10 (91) (262) Write-back of provisions for other impaired debit balances 29 (17) (16) Write-back of provisions for deposits with banks and financial institutions 16 - (994) Recoveries of credit losses customers 21 (17,960) (18,965) Provision for employees end of service benefits 12 3,447 4,138 Gain from sale and write-off of property and equipment (977) (294) Gain from sale of non-current assets held for sale 10 (9,195) (7,967) Loss on liquidation of a subsidiary held for sale 1,235 - Write-off of intangible assets Net provision for risks and charges 9,764 6,041 Unrealized (gain) loss on derivative financial instruments (364) 668 Working capital changes: 334, ,754 Cash and balances with the Central Banks (1,106,008) (980,827) Due from banks and financial institutions 11, ,188 Amounts due from affiliated banks and financial institutions (9,926) 60,393 Due to the Central Banks 134, ,345 Loans and repurchase agreements 598,839 1,333,551 Due to banks and financial institutions (8,343) (15,200) Loans and advances to customers at amortized cost (832,421) (250,812) Loans and advances to related parties at amortized cost (59,736) (12,389) Financial assets at fair value through profit or loss (19,848) (23,740) Financial assets at fair value through other comprehensive income 3,373 22,562 Financial assets at amortized cost (609,903) (1,426,974) Financial assets at amortized cost pledged as collateral 111,486 (260,744) Loans to banks and financial institutions 3,930 - Other assets (13,893) (23,600) Customers deposits at amortized cost 1,637,100 1,665,961 Related parties deposits at amortized cost 29,613 (15,859) Other liabilities (508) (1,195) Cash from operations 204, ,414 Employees end of service benefits paid 38 (3,417) (546) Taxation paid (43,313) (36,981) Provision for risks and charges paid (1,686) (306) Net cash flows from operating activities 155, ,581 The attached notes 1 to 54 form part of these consolidated financial statements. The attached notes 1 to 54 form part of these consolidated financial statements. 35

5 CONSOLIDATED STATEMENT OF CASH FLOWS (continued) For the year ended INVESTING ACTIVITIES Amounts received from reassessment of the assets and liabilities acquired from Lebanese Canadian Bank SAL 3-48,868 Subsidiaries held for sale - 5,908 Purchase of property and equipment 25 (24,384) (26,307) Purchase of intangible assets 26 (7,979) (2,315) Proceeds from sale of property and equipment 9, Proceeds from sale of non-current assets held for sale 16,559 16,692 Proceeds from sale of investment properties 10,553 - Net cash flows from investing activities 4,444 43,624 FINANCING ACTIVITIES Issuance of preferred shares 39-5,841 Share premium preferred shares ,941 Redemption of preferred shares 39 - (138,388) Dividends paid to equity holders of the parent 44 (68,667) (23,894) Dividends paid to non-controlling interests (1,960) (2,302) Non-controlling interest resulting from capital increase in Fidus SAL Net cash flows (used in) from financing activities (70,245) 249,198 Effect of exchange rate changes and other adjustments (7,621) 3,431 INCREASE IN CASH AND CASH EQUIVALENTS 82, ,834 Cash and cash equivalents at 1 January 1,887, ,588 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 45 1,969,839 1,887,422 Operational cash flows from interest and dividend Interest paid 727, ,100 Interest received 1,101, ,558 Dividend received 2,612 1,699 (*) Certain numbers shown here do not correspond to the consolidated financial statements and reflect adjustments made as detailed in note CORPORATE INFORMATION Société Générale de Banque au Liban SAL (the Bank) is a shareholding company registered in Beirut, Lebanon. It was registered in 1953 under No at the Commercial Registry of Beirut and No. 19 on the list of banks published by the Central Bank of Lebanon. The headquarters of the Bank are located at Saloumeh Square, Dekwaneh, Lebanon. The Bank, together with its subsidiaries (collectively the Group ), are mainly involved in banking, insurance and financial services activities (commercial, investment and private). The Bank is 16.8% owned by Societe Generale SA (France). 2 ACCOUNTING POLICIES 2.1 Basis of preparation The consolidated financial statements are prepared under the historical cost basis except for the restatement of certain tangible real estate properties in Lebanon according to the provisions of law No. 282 dated 30 December 1993, and for the measurement at fair value of investment properties, derivative financial instruments, financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. The consolidated financial statements are presented in Lebanese Lira (LL), and all values are rounded to the nearest million Lebanese Lira, except when otherwise indicated. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and the regulations of the Central Bank of Lebanon and the Banking Control Commission. Presentation of financial statements The Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the consolidated statement of financial position date (current) and more than 12 months after the consolidated statement of financial position date (non-current) is presented in note 51. Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. This is not generally the case with master netting agreements. Therefore the related assets and liabilities are presented gross in the consolidated statement of financial position. Income and expense is not offset in the consolidated income statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group. The attached notes 1 to 54 form part of these consolidated financial statements. 37

6 Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) - Exposure, or rights, to variable returns from its involvement with the investee - The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: - The contractual arrangement with the other vote holders of the investee - Rights arising from other contractual arrangements - The Group s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interests and other components of equity while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value. The consolidated financial statements represent the financial statements of the Bank and the following subsidiaries: Name Percentage of ownership Country of incorporation Activities Société Générale Bank - Cyprus Ltd Cyprus Banking % % Société Générale de Banque - Jordanie Jordan Banking 87.67% 87.67% Fidus SAL* Lebanon Financial services 49.00% 49.00% Sogelease Liban SAL Lebanon Leasing 99.75% 99.75% Sogecap Liban SAL Lebanon Insurance 75.00% 75.00% Société Générale Jordanie Brokerage Ltd Jordan Brokerage % % Société Générale Libanaise Foncière SARL Lebanon Real estate 98.66% 98.66% Société Générale de Services d Investissements SARL Lebanon Services and studies 98.50% 98.50% LCB Finance SAL Lebanon Financial services % % LCB Investments Holding SAL Lebanon Investments and management % % LCB Insurance Brokerage House SAL (owned by LCB Investments Holding SAL) Lebanon Brokerage 99.14% 99.14% LCB Estates SAL (owned by LCB Investments Holding SAL) Lebanon Real estate 99.14% 99.14% SGBL Courtage Assurance SARL Lebanon Brokerage % % 799 Bassatine Tripoli SAL Lebanon Investments and management 60.00% 60.00% Société d Investissements et de Services «SIS» SAL Lebanon Investments and management 99.00% 99.00% * The Group controls Fidus SAL despite having an interest of only 49% in this entity. Consequently, the financial statements of Fidus SAL have been consolidated with those of the Bank. 2.2 Significant accounting judgments, estimates and assumptions The preparation of the Group s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Judgments In the process of applying the Group s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect in the amounts recognized in the consolidated financial statements: Going concern The Group s management has made an assessment of the Group s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going concern basis. Business model In making an assessment whether a business model s objective is to hold assets in order to collect contractual cash flows, the Group considers at which level of its business activities such assessment should be made. Generally, a business model is a matter of fact which can be evidenced by the way 39

7 business is managed and the information provided to management. However, in some circumstances it may not be clear whether a particular activity involves one business model with some infrequent asset sales or whether the anticipated sales indicate that there are two different business models. In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows, the Group considers: - management s stated policies and objectives for the portfolio and the operation of those policies in practice; - how management evaluates the performance of the portfolio; - whether management s strategy focuses on earning contractual interest revenues; - the degree of frequency of any expected asset sales; - the reason for any asset sales; and - whether assets that are sold are held for an extended period of time relative to their contractual maturity. Contractual cash flows of financial assets The Group exercises judgment in determining whether the contractual terms of financial assets it originates or acquires give rise on specific dates to cash flows that are solely payments of principal and interest on the principal outstanding and so may qualify for amortized cost measurement. In making the assessment, the Group considers all contractual terms, including any prepayment terms or provisions to extend the maturity of the assets, terms that change the amount and timing of cash flows and whether the contractual terms contain leverage. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities. The valuation of financial instruments is described in more detail in note 50. Impairment losses on loans and advances The Group reviews its individually significant loans and advances at each consolidated statement of financial position date to assess whether an impairment loss should be recorded in the consolidated income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgments about the borrower s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilization, loan to collateral ratios etc.), and judgments to the effect of concentrations of risks and economic data (including levels of unemployment, real estate price indices, country risk and the performance of different individual groups). Deferred tax assets Deferred tax assets are recognized in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies. Revaluation of investment properties The Group carries its investment properties at fair value, with changes in fair value being recognized in the consolidated income statement. The Group engaged an independent valuation specialist to assess fair value as at 31 December. Investment properties were valued by reference to market-based evidence, using comparable prices adjusted for specific market factors such as nature, location and condition of the property. 2.3 Changes in accounting policy and disclosures New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year, except for the following amended and new IFRS effective as at 1 January : Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group, since none of the entities in the Group qualifies to be an investment entity under IFRS 10. Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of currently has a legally enforceable right to set-off and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and are applied retrospectively. These amendments have no impact on the Group. Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Group as the Group has not novated its derivatives during the current or prior periods. IFRIC 21 Levies IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no impact on the Group as it has applied the recognition principles under IAS 37 Provisions, Contingent Liabilities and Contingent Assets consistent with the requirements of IFRIC 21 in prior years. 41

8 Annual Improvements Cycle In the annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning on 1 January ; it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 has no impact on the Group. Annual Improvements Cycle In the annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment to IFRS 1 is effective immediately and, thus, for periods beginning on 1 January ; it clarifies in the Basis for Conclusions that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but permits early application, provided either standard is applied consistently throughout the periods presented in the entity s first IFRS financial statements. This amendment to IFRS 1 has no impact on the Group, since the Group is an existing IFRS preparer. 2.4 Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective up to the date of issuance of the Group s consolidated financial statements, are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows an entity whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity s rate-regulation and the effects of that rate-regulation on its financial statements. IFRS 14 is effective for annual periods beginning on or after 1 January Since the Group is an existing IFRS preparer, this standard would not apply. Amendments to IAS 19 Defined Benefit Plans: Employee Contributions IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July. It is not expected that this amendment would be relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group. Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenuebased method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets. IFRS 9 () Financial Instruments In July, the IASB issued the final version of IFRS 9 Financial Instruments (IFRS 9 ()) which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. In prior years the Group has early adopted IFRS 9 (2011) which includes the requirements for the classification and measurement. IFRS 9 () is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The adoption of IFRS 9 () will have an effect on measuring impairment allowances and on the classification and measurement of the Group s financial assets, but no impact on the classification and measurement of the Group s financial liabilities. The Group is currently assessing the impact of IFRS 9 () and plans to adopt the new standard on the required effective date. Annual improvements Cycle These improvements are effective from 1 July and are not expected to have a material impact on the Group. They include: IFRS 2 Share-Based Payment: This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including: A performance condition must contain a service condition A performance target must be met while the counterparty is rendering service A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group A performance condition may be a market or non-market condition If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied 43

9 IFRS 3 Business Combinations: The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9. IFRS 8 Operating Segments: The amendments are applied retrospectively and clarifies that 1) an entity must disclose the judgments made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics used to assess whether the segments are similar, and 2) the reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. IAS 24 Related Party Disclosures: The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. Annual improvements Cycle These improvements are effective from 1 July and are not expected to have a material impact on the Group. They include: IFRS 3 Business Combinations: The amendment is applied prospectively and clarifies the scope exceptions within IFRS 3 such that 1) joint arrangements, not just joint ventures, are outside the scope of IFRS 3, and 2) this scope exception applies only to the accounting in the financial statements of the joint arrangement itself IFRS 13 Fair Value Measurement: The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9. IAS 40 Investment Property: The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied property. The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or business combination. 2.5 Summary of significant accounting policies (1) Foreign currency translation The consolidated financial statements are presented in Lebanese Lira. For each entity in the Group, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and has elected to recycle the gain or loss that arises from using this method. (i) Transactions and balances Transactions in foreign currencies are initially recorded at the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot exchange rate at the reporting date. All differences arising on non trading activities are taken to other operating income in the income statement, with the exception of differences on foreign currency borrowings that provide an effective hedge against a net investment in a foreign entity. These differences are taken directly to equity until the disposal of the net investment, at which time, they are recognized in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition. Non-monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined. (ii) Group companies On consolidation, the assets and liabilities of foreign operations are translated into Lebanese Lira at the exchange rate prevailing at the reporting date and their income statements are translated at the average exchange rates for the year. The exchange differences arising on translation for consolidation are recognized in other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the income statement in other operating expenses or other operating income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate. (2) Financial instruments classification and measurement (i) Date of recognition All financial assets and liabilities are initially recognized on the trade date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. (ii) Classification and measurement of financial investments a. Financial assets The classification of financial assets depends on the basis of the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs. Assets are subsequently measured at amortized cost or at fair value. An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an accounting mismatch ) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. An entity is required to disclose such financial assets separately from those mandatorily measured at fair value. Financial assets at amortized cost Debt instruments are subsequently measured at amortized cost less any impairment loss (except for debt instruments that are designated at fair value through profit or loss upon initial recognition) if they meet the following two conditions: The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and The contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 45

10 These financial assets are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost of investment. After initial measurement, these financial assets are measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount of premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in Interest and similar income in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in Net credit losses. Although the objective of an entity s business model may be to hold financial assets in order to collect contractual cash flows, the entity need not hold all of those instruments until maturity. Thus an entity s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur. However, if more than an infrequent number of sales are made out of a portfolio, the entity needs to assess whether and how such sales are consistent with an objective of collecting contractual cash flows. If the objective of the entity s business model for managing those financial assets changes, the entity is required to reclassify financial assets. Gains and losses arising from the derecognition of financial assets measured at amortized cost are reflected under net (loss) gain from sale of debt instruments at amortized cost in the consolidated income statement. Financial assets at fair value through profit or loss Included in this category are those debt instruments that do not meet the conditions in at amortized cost above, debt instruments designated at fair value through profit or loss upon initial recognition and equity instruments at fair value through profit or loss. i. Debt instruments at fair value through profit or loss These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and interest income are recorded under Net gain (loss) from financial assets at fair value through profit or loss in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value. Gains and losses arising from the derecognition of debt instruments at fair value through profit or loss are also reflected under Net gain (loss) from financial assets at fair value through profit or loss in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value. ii. Equity instruments at fair value through profit or loss Investments in equity instruments are classified at fair value through profit or loss, unless the Group designates at initial recognition an investment that is not held for trading as at fair value through other comprehensive income. These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and dividend income are recorded under Net gain (loss) from financial assets at fair value through profit or loss in the consolidated income statement. Gains and losses arising from the derecognition of equity instruments at fair value through profit or loss are also reflected under Net gain (loss) from financial assets at fair value through profit or loss in the consolidated income statement. Financial assets at fair value through other comprehensive income Investments in equity instruments designated at initial recognition as not held for trading are classified at fair value through other comprehensive income. These financial assets are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated under equity. The cumulative gain or loss will not be reclassified to the consolidated income statement on disposal of the investments. Dividends on these investments are recognized under Revenue from financial assets at fair value through other comprehensive income in the consolidated income statement when the entity s right to receive payment of dividend is established in accordance with IAS 18: Revenue, unless the dividends clearly represent a recovery of part of the cost of the investment. Balances with the Central Banks, due from banks and financial institutions, loans to banks and financial institutions, amounts due from affiliated banks and financial institutions and loans and advances to customers and related parties at amortized cost After initial measurement, Balances with the Central Banks, Due from banks and financial institutions, Loans to banks and financial institutions, Amounts due from affiliated banks and financial institutions and Loans and advances to customers and to related parties are subsequently measured at amortized cost using the effective interest rate method (EIR), less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in Interest and similar income in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in Net credit losses. b. Financial liabilities Liabilities are initially measured at fair value, plus particular transaction costs in the case of a financial liability not classified at fair value through profit or loss. Liabilities are subsequently measured at amortized cost or fair value. The Group classifies all financial liabilities as subsequently measured at amortized cost using the effective interest rate method, except for: financial liabilities at fair value through profit or loss (including derivatives); financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies; financial guarantee contracts and commitments to provide a loan at a below-market interest rate which after initial recognition are subsequently measured at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18 Revenue. Fair value option An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when: doing so results in more relevant information, because it either eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an accounting mismatch ) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity s key management personnel. The amount of changes in fair value of a financial liability designated at fair value through profit or loss at initial recognition that is attributable to changes in credit risk of that liability is recognized in other comprehensive income, unless such recognition would create an accounting mismatch in the consolidated income statement. Changes in fair value attributable to changes in credit risk are not reclassified to consolidated income statement. 47