ANNUAL REPORT 09

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3 ANNUAL REPORT 09

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5 Introduction A lot can be achieved in a year. At BLOM BANK, we know this more than anyone. Constantly developing and maintaining the highest levels of customer satisfaction has earned us awards in 5 different categories over the past year: Best Bank in the Middle East, Best Bank in Lebanon, Best Investment Banking, Best Website and Best Trade Finance. A bank that cares knows what matters most is providing its clients complete satisfaction and peace of mind, always.

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8 6 Dr. Naaman AZHARI Chairman of BLOM BANK GROUP Mr. Saad AZHARI Chairman and General Manager of BLOM BANK S.A.L

9 Table of Contents CHAIRMAN S LETTER 9 CUSTOMERS DEPOSITS EVOLUTION 11 EVOLUTION OF MAIN INDICATORS 12 CONSOLIDATED FINANCIAL RATIOS 12 STRONG AND CONTINUOUS GROWTH FOR THE LAST 5 YEARS 13 BLOM BANK S GROUP CHART 14 BLOM BANK S ORGANIZATIONAL CHART 15 CORPORATE GOVERNANCE BLOM BANK S.A.L. CODE OF CORPORATE GOVERNANCE BLOM BANK S.A.L. MAJOR COMMON SHAREHOLDERS BLOM BANK S.A.L. BOARD OF DIRECTORS List of Board Members Information About Board of Directors Number and Date of Board Meetings held in INFORMATION ON KEY MEMBERS OF BLOM BANK S.A.L. MANAGEMENT BLOM BANK S.A.L COMMERCIAL ARRANGEMENTS GENERAL MANAGEMENT OF BLOM BANK S.A.L. 29 MANAGEMENT DISCUSSION & ANALYSIS OPERATING ENVIRONMENT OVERVIEW EVOLUTION OF TOTAL ASSETS SOURCES OF FUNDS Customers Deposits Capitalization (Tier I & Tier II Capital) Banks & Financial Institutions USES OF FUNDS Cash and Balances With the Central Banks Lebanese Treasury Bills and Other Governmental Bills and Bonds Bonds and Financial Instruments with Fixed Income Banks and Financial Institutions Loans and Advances to Customers LIQUIDITY PROFITABILTY Net interest income NonInterest Income Staff and Operating Expenses DIVIDEND DISTRIBUTION AND PREFERRED SHARES REVENUES CAPITAL ADEQUACY RATIOS INTEREST RATE RISK RISK MANAGEMENT AND BASEL II PREPARATIONS UNIVERSAL BANKING SERVICES Private and Investment Banking Commercial and Corporate Banking Retail Banking Islamic banking Insurance Products & Services INFORMATION SYSTEMS AND TECHNOLOGY Customer Relationship Management Advanced Electronic Payment Systems Enterprise Application Integration (EAI) Basel II & Regulatory Compliance Systems Security & High Availability Financial Reporting & Consolidation PEOPLE DEVELOPMENT General Overview Policies and Procedures BANK S OPERATIONAL EFFICIENCY REGIONAL EXPANSION 63 BLOM BANK S.A.L CONSOLIDATED FINANCIAL STATEMENTS Auditors Report Consolidated Income statement Year Ended 31 December Consolidated Statement of comprehensive Income year ended 31 December Consolidated Statement of Financial Position at 31 December Consolidated Cash Flow Statement Year Ended 31 December Consolidated statement of changes in equity for year ended 31 December 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81 BLOM BANK WORLDWIDE CORREPONDENT BANKS 144 BLOM BANK GROUP MANAGEMENT AND DIRECTORY 145 7

10 8 Mr. Saad AZHARI Chairman and General Manager of BLOM BANK S.A.L

11 CHAIRMAN S LETTER The past two years have been very difficult on the global financial system, especially its banking sector. Perhaps unique among its counterparts, the Lebanese banking system managed however to stay largely intact and even prosper in the midst of the financial crisis. And prime among its banks has been the performance of BLOM Bank, which attained the highest level of profits at $293.2 million in, increasing by 16.6% on its level of. This also implied the highest returns on relative profitability among the listed banks, with the rates of return on average equity and assets registering 20.34% and 1.52% respectively. This notable and consistent performance did not go unnoticed, for BLOM Bank was awarded The Best Bank in the Middle East for by the internationally renowned institution The Banker Financial Times Group, the first time an award of its prestigious kind given to a Lebanese bank. This award actually caps several other awards that the Bank had also won, which include: Best Bank in the Middle East for from The Banker Middle East; and Best Bank in Lebanon for from The Banker, Global Finance, World Finance, and Emea Finance. What adds to this significant performance is that it was achieved with BLOM Bank s traditional and successful concern for strong control over risk and expenses. As a result, the Bank s ratio of net nonperforming loans stood at less than 1%, its loanloss reserves ratio at a healthy 101.8%, and its capital adequacy (Basel 2) ratio at a sound 14% not to mention the lowest cost to income ratio of 35.47%. BLOM Bank also continued to efficiently manage its balance sheet, which saw its diversified assets increase by 15.8% to $20.8 billion. These assets were mainly comprised of 31.6% in cash and balances with the central bank, 27.4% in financial securities, 26% in interbank investments, and 19.4% in loans an allocation that yielded an impressive overall liquidity ratio of 72.3%. But BLOM Bank s success goes also beyond Lebanon s border. The Bank s strategy is to maintain a durable, longterm, and organic growth so as to become the leading regional bank, capitalizing on its brand name and diversifying its assets, customer base, and sources of income. To this end, the Bank opened in a corporate bank in Qatar, BLOM Bank Qatar, and in early 2010 an investment bank in Saudi Arabia, BLOMINVEST S.A, to complement its presence in ten more countries: Lebanon, Syria, Egypt, Jordan, UAE, France, Switzerland, England, Cyprus, and Romania. It is the neighboring Arab and Middle Eastern region that represents the natural orbit for the Bank's expansion, besides being an area of strong banking and savings potential of more than 340 million people (more than 50% of which are below 24 years old) and a market that is worth close to $3 trillion in project activities. Also, despite a relatively weak growth performance of 2.4% in, the region is expected to grow by a healthy 4.8% annually up to In this respect, the Bank is expanding vigorously its network of branches in the Arab market, having for instance a total of 26 branches in Egypt, 24 in Syria, and 7 in Jordan, out of an aggregate presence of about 150 banking and financial units to serve its client base. In consequence, the Bank has proven its caliber in the Arab banking market, as it was selected by The Asian Banker as "The Strongest Bank in Lebanon for ". It is also among the largest 20 Arab banks in terms of assets and profits, and measures up very well in comparison to the major Arab banks in terms of return on equity, nonperforming loans, and capital adequacy; and ranks even better in measures such as liquidity and deposits to assets ratios at 72.3% and 86.7% respectively, compared to corresponding ratios of 28% and 65 % for the Arab banks. BLOM Bank also generates 20% of its profits, 28% of its deposits, and 43% of its lending from its foreign operations, and aims towards increasing these contributions to 50% in the medium term by adopting a measured and selective approach to new foreign expansions depending on market conditions and growth opportunities. The other component of the Bank's strategy is to expand and consolidate its universal banking services ranging from commercial, investment, private, and Islamic banking services to services in asset management, brokerage, and insurance. Accordingly, in addition to the corporate bank in Qatar and the investment bank in Saudi Arabia alluded to earlier, the Bank established in a financial company in Syria, Bank of Syria and Overseas for Financial Services, and two insurance companies in Egypt, Arope Egypt Insurance and Arope Egypt Life Insurance. Also, the sources of the Bank s operating income mirror the diversified spectrum of its services, where 48.6% is attributed to liquidity, 23.5% to corporate and commercial banking, 12.5% to retail banking, 12.3% to investment and private banking, and 3.1% to insurance. 9

12 The Bank has also been keen to strengthen its fee income so as to underpin its strategy of services and income diversification. Fee income has grown by CAGR of 21% since 2002 to constitute 25.2% of operating income by the end of. This was backed by a strong growth in assets under management which increased by a CAGR of 35.1% to reach $4.2 billion. Additionally, the Bank has become a renowned leader in Lebanon in asset management, having been the first to develop a series of mutual funds consisting of financial instruments from Lebanon and other Arab countries, the latest of which is the balanced growth fund, BLOM Pyramid Fund. As to lending activity, the Bank continues to be very active in meticulously expanding its lending portfolio along all business lines to the extent that total loans increased by 15.8% in to $4.1 billion capturing, as a result, the highest market share for car and housing loans in Lebanon at 28.2% and 13.6% respectively, in addition to becoming a leader in car loans in Jordan and among the top three leaders in car loans in each of Syria and Egypt. The Bank s commitment to better shareholders value remains as strong as ever. Its earnings yield at 14.4% (based on December 31st, stock values) is the highest among Lebanese listed banks; whereas its earnings per share, at $12.93, has grown at a high rate of 21% in and at a decent average increase of 17% since And the Bank s General Assembly of Shareholders held on April 9th, 2010, agreed to distribute dividends equal to $4 per share to holders of common and GDR shares, and $8.5 to holders of preferred shares Series 2004 and $9.5 to holders of preferred shares Series 2005 amounting in all to a dividend payout ratio of 31%. In addition, BLOM Bank s commitment to Peace of Mind has gone beyond the confined realm of customers to encompass that of the whole community by pursuing an active and fruitful social corporate responsibility agenda. Since 2005, it has sponsored the widely successful BLOMBeirut Marathon, a live event that showcases the country and its image at its unified best. And over the last ten years, the Bank has supported the activities of many NGOs in fields such as health, environment, culture, education, and various humanitarian causes for the underprivileged and the needy. In 2010, we launched the BLOMMaterCard Giving credit card, the first of its kind in the Middle East, that will donate to the Lebanese Mining Action Center, a unit of the Lebanese army in charge of demining mines in the country, so as to support it in this crucial task. The Bank also started the Guide program, designed to empower the youth and help them make the right decisions when it comes to their education and choice of a career path. Lastly, the Bank s leading success reflects the success of the Lebanese banking system and economy. Buoyed by its safe haven status made possible by the muchadmiredand emulated Banque du Liban s (central bank) regulatory directives and the strong supervision by its Banking Control Commission and rewarding returns, the banking system witnessed a 22.3% increase in its assets to $115.3 billion; and, just as important, a hefty 44% rise in nonresident private sector deposits to $16.6 billion and a decline in the rate of deposit dollarisation from 70% to 64%. This favorable state of the banking system, in an environment of increasing monetary and political stability, was mutually supportive of a vibrant economy that grew at a repeat rate of 9% as in. It also managed to cut the public debt to GDP ratio the economy s Achilles heel since early by 16% to settle at 152% by the end of, because GDP grew at more than 1.5 times the growth of debt; in addition to an increase during the same period of its foreign reserves by $16 billion to $ 25.7 billion, covering more than 20 months of goods imports and 75% of the money stock in Lebanese pounds In closing, I am confident that BLOM Bank s business model, strategy, and human capital to whose staff I express my heartfelt thanks will continue to yield the best returns to our valued shareholders and loyal customers, helping in the process to develop BLOM Bank into the leading Arab regional bank. Saad AZHARI Chairman and Genaral Manager 10

13 BLOM BANK'S CONSOLIDATED CUSTOMERS DEPOSITS EVOLUTION (in USD Millions) 17, , , , ,161 8, , ,333 3,861 4,330 5,525 5,056 6,215 2, ,259 1, Years 11

14 EVOLUTION OF MAIN INDICATORS (in USD MIllions or LBP Billions) TOTAL ASSETS LBP USD 31, , , , Change 09/ % 15.67% CUSTOMERS DEPOSITS LBP USD 27, , , , % 18.94% TOTAL NET LIQUIDITY LBP USD 18, , , , % 14.92% SHAREHOLDERS EQUITY LBP USD 2, , , , % 12.56% CAPITAL FUNDS LBP USD 2, , , , % 17.11% TOTAL LOANS AND ADVANCES LBP USD 6, , , , % 15.67% NET INCOME AFTER TAX LBP USD % 16.47% CONSOLIDATED FINANCIAL RATIOS (in % or USD) LIQUIDITY RATIOS Net liquidity in LBP Net immediate liquidity in Foreign Currency Liquid assets over total assets % 56.34% 62.58% % 55.83% 60.92% LOANS TO DEPOSITS RATIOS LBP F/C Total 7.63% 28.39% 22.36% 7.76% 27.96% 22.99% ASSETS QUALITY NOT INCLUDING GENERAL PROVISION Net doubtful loans over total loans Provision over doubtful loans Provision over total loans Gross doubtful loans/ Gross total loans 0.83% 76.24% 3.58% 3.44% 0.87% 78.69% 4.16% 3.92% CAPITAL ADEQUACY RATIOS Before dividend distribution After dividend distribution 26.33% 13.96% 29.84% 27.85% PROFITABILITY RATIOS Return on average equity Return on average assets Earnings per share USD Dividend per common share USD Dividend payout ratio Retention Ratio Net asset value per common share USD % 1.52% USD USD % 69.07% USD % 1.46% USD 3.65 USD 34.13% 65.87% USD

15 STRONG AND CONTINUOUS GROWTH FOR THE LAST 5 YEARS Total Assets (in USD Millions) 20,000 18,000 16,639 17,898 20,702 16,000 14,212 14,000 12,000 10,000 10,835 11,918 8,000 6,000 4,000 2, Net Profits (in USD Millions) Tier I & Tier II Capital (in USD Millions) , , , ,

16 14 BLOM BANK GROUP CHART

17 BLOM BANK S.A.L ORGANIZATIONAL CHART SHAREHOLDERS BOARD OF DIRECTORS BOARD COMMITTEES Board Audit Committee Board Risk Management Committee Consulting, Strategy & Corporate Governance Committee Nomination & Renumeration Committee DEPARTMENTS/ UNITS* Accounting Administration Compliance Unit Back Office Operations Communication & Investor Relations Corporate Unit Credit Engineering Human Resources Information Systems Information System Security Unit Internal Audit/Group Inspection International Affairs & Treasury Legal Marketing Recovery & General Management Secretariat Unit Retail Banking Risk Management Strategic Planning & Organization Trade Finance * By alphabetical order EXTERNAL AUDITORS Ernst & YoungSemaan, Gholam & Co. MANAGEMENT COMMITTEES Executive Committee Credit Committee 1 Credit Committee 2 Exceptional Credit Committee Followup Credit Risk Committee Provisions Committee Retail Credit Committee Assets & Liabilities Committee Investment & Treasury Committee Marketing Committee Information Technology Committee Human Resources Committee Legal Committee Internal Audit Committee Compliance Committee Operations & Internal Procedures Committee Foreign Branches & Subsidaries Committee Purchasing & Maintenance Committee Information System Securitiy Committee Succession Planning Committee SOLICITORS Branch Managers Me. Georges ABOU ZAMEL Me. Antoine MERHEB 58 in Lebanon 1 in Cyprus 1 in Damascus Free Zone 7 in Jordan 1 Representative office in Abu Dhabi 15

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21 CORPORATE GOVERNANCE

22 1. BLOM BANK S.A.L CODE OF CORPORATE GOVERNANCE The Code of Corporate Governance was approved at the end of 2007 by the Board of Directors at BLOM BANK. It sets out the structure that identifies the rights and responsibilities of each of the Board members, general management, employees and external stakeholders. It complies with all local laws and regulations to which the Bank is subject, as well as the Basel Committee s principles on Corporate Governance and outlines the expected conduct of all parties in order to achieve the objectives set for the Bank. The Bank recognizes the paramount importance of Corporate Governance for its proper functioning and for the creation of an optimal operational environment. To that end, the board and management deployed all means for the proper implementation of the Code in. The Board itself partly exercises its duties and authorities through four Board Committees (the Audit Committee, the Risk Management Committee, the Consulting Strategy and Corporate Governance Committee in addition to the Nomination and Remuneration Committee) and is the body ultimately responsible for ensuring the best possible practice of Corporate Governance at BLOM BANK. Awareness sessions for all BLOM employees on Corporate Governance were organized and are planned for new employees in order to introduce the Code and related principles, while enhancements will be communicated to all personnel. The Code was also published on the Bank s Website. Relevant information on the Board charter and shareholders rights were made available to the public in compliance with the disclosure requirements of the Code. In light of the current global financial situation, the Bank s Board of Directors view the ongoing development of Corporate Governance as a matter of even greater importance and necessity in enhancing its competitive position by continuing to further raise its standards visàvis internal organization and services to clients. 2. BLOM BANK S.A.L MAJOR COMMON SHAREHOLDERS NAME Bank of New York Melon** Banorabe S.A., SPF*** AZA Holding (Azhari Family over 50%) Azhari Family Actionnaires Unis (Azhari Family over 50%) Shaker Holdings S.A.L. (Shaker Family) Mrs. Nada Aoueini Jaroudy Family Saade Family Khoury Family Others *Total common shares: 21,500,000 Address 1 Wall Street, NY 10286, USA 67 Blvd De La Petrusse L2320 Luxembourg BLOM BANK s bldg Rashid Karami st., Beirut C/O BLOM BANK, Rashid Karame Street, Beirut Lebanon Grosvenor Sq., London W1K6LB UK Tallet ElKhayat Aoueini Bldg Beirut, Lebanon Ain Ek Tineh, Al Sakhra Bldg P.O. Box 4370 Dubai United Arab Emirates Naccache Villa Khoury COMMON SHARES IN CAPITAL * % % 9.33 % 2.86 % 1.83% 5.39 % 5 % 4.91 % 1.91 % 1.97 % % 20 **Starting 1998, and after the issuance of Global Depositary Receipts (GDR) by BLOM Bank Shareholders, the Bank of New York as Depositary, became shareholder on the Bank s register. ***The major shareholders of Banorabe S.A, SPF (formerly Banorabe Holding S.A) are the same as in BLOM BANK S.A.L. (except Bank of New York and AZA Holding).

23 3. BLOM BANK S.A.L BOARD OF DIRECTORS Dr. Naaman W. AZHARI Chairman of BLOM BANK GROUP 3.1 List of Board Members Name Position Background/Competencies Number of directorship years with the Bank Mr. Saad N. AZHARI Chairman & General Manager Master in Engineering & MBA Director since 1996 Chairman and General Manager since 2007 Mr. Samer N. AZHARI Director & Secretary General of BLOM BANK Group Master in Civil Engineering & MBA Director since 1997 H.E. Me Youssef S. TAKLA Director Diploma in Law Director since 2006 H.E. Cheikh Ghassan I. SHAKER Director B.A in Finance Director since 1964 Cheikh Salim B. ELKHOURY Director Diploma in Law Director since 1987 Mr. Habib L. RAHAL Director & General Manager B.A. in Accounting Economics Director since General Manager since 1992 Mr. Nicolas N. SAADE Director MBA in Finance & B.A. in Economics Director since 1990 Dr. Fadi T. OSSEIRAN Director Ph.D. in Economics Director since Mr. Joseph E. KHARRAT Director B.A. in Ecomomics Director since 1984 Mr. Marwan T. JAROUDI Director MBA in Ecomomics Director since 21

24 3.2 Information About Board of Directors CHAIRMAN OF BLOM BANK GROUP Born in 1928 Head of the Nomination and Remuneration Committee at BLOM BANK. Dr.Naaman AZHARI started his banking experience in He worked in a French bank in Paris (which became Société Générale). At the end of the 1950s, he established one of the largest banks in Syria, Banque de l Orient Arabe and was appointed Chairman of the Bank. From 1961 to 1962, he occupied the position of Minister of Finance, Economy and Planning in Syria. Dr. Naaman W. AZHARI In 1962, he was appointed General Manager of BLOM BANK S.A.L. From 1971 until 2007, he occupied the position of Chairman and General Manager of BLOM BANK S.A.L. 22 Mr. Saad N. AZHARI Chairman of the Board and General Manager of BLOM BANK S.A.L. Born in 1961 Chairman of the Board and General Manager of BLOM BANK S.A.L. Chairman and General Manager of BLOMINVEST BANK Chairman of BLOM BANK (SWITZERLAND) Chairman of BLOM BANK EGYPT Chairman of BLOM BANK QATAR Board Member of BLOMINVEST Saudi Arabia Board Member of BANK OF SYRIA AND OVERSEAS. Board Member of Société Fonçière du Liban et D OutreMer S.A.L. In 2007 he was appointed Chairman of BLOM BANK GROUP. Dr. Naaman AZHARI holds a State Degree PHD in Economics from the University of Paris I (Sorbonne) and a Diploma in Law and a Diploma in Political Sciences from the Institut des Sciences Politiques in Paris. Mr. Saad AZHARI started his banking career in 1986 in PBZ Privatbank, an affiliate of the UBS Group, in which he worked until During that time he was promoted to run, from Zurich, the Bank s operations in the Middle East and Hong Kong. He joined BLOM BANK (Switzerland) in 1991 and was appointed its General Manager in In 1998, he was elected Chairman and General Manager of BLOMINVEST BANK. This was followed by his election to the position of Chairman of BLOM BANK (SWITZERLAND) in At the same time, he was appointed Vice Chairman and General Manager of BLOM BANK S.A.L. In 2005 Mr. AZHARI became Chairman of BLOM BANK EGYPT and in 2007 he was elected Chairman & General Manager of BLOM BANK S.A.L. Since, Mr. AZHARI has been Chairman of BLOM BANK Qatar and a Member of the Board and Vice Chairman of BLOMINVEST SAUDI ARABIA. He is also a Member of the Board of Directors of Bank Of Syria & Overseas as well as being a Member of the Board of BLOM DEVELOPMENT Bank S.A.L. and was its Chairman from 2006 until beginning of. Mr. Saad AZHARI is also a Member of the Board of Directors of Société Fonçière du Liban et D Outre Mer S.A.L. Since 2001, he has held the position of Vice President of the Association of Banks in Lebanon. Mr. Saad AZHARI holds a Masters Degree in Computer Engineering and an MBA from the University of MichiganAnn Arbor in the United States.

25 Mr. Samer N. AZHARI Director of BLOM Bank S.A.L. Born in 1958 Secretary General of BLOM BANK GROUP Chairman and General Manager of BLOM BANK FRANCE Board Member of BLOMINVEST BANK Board Member of BANK OF SYRIA AND OVERSEAS Mr. Samer AZHARI joined Banque Banorabe, affiliated bank of BLOM BANK, in Paris in 1985 and became its General Manager in In 1997 he was appointed as General Manager of BLOM BANK SAL and occupied this position until Since 2001, Mr. Samer AZHARI has been Chairman & General Manager of BLOM BANK FRANCE (formerly BANQUE BANORABE.) He was Chairman and General Manager of AROPE INSURANCE, an affiliated insurance company of BLOM BANK, from 1998 until. From 1999 until 2001, he occupied the position of Vice President of the Association of Banks in Lebanon. Mr. Samer AZHARI has been BLOM BANK Group s Secretary General since Mr. Samer AZHARI holds a Master of Science degree in Civil Engineering from the University of Illinois, USA and an MBA from INSEAD, France H.E. Me. Youssef S. TAKLA H.E. Sheikh Ghassan I. SHAKER (Grand Officier de la Légion d Honneur) NonExecutive Director of BLOM BANK SAL Born in 1937 Member of the Nomination and Remuneration Committee at BLOM Bank S.A.L. NonExecutive Director of BLOM BANK S.A.L. Born in 1937 Director of BLOM BANK FRANCE H.E. Me Youssef TAKLA has been a Board member of BLOM BANK SAL since He was a member of the Beirut Bar Association since 1961 and Member of the Paris Bar Association since Between 1993 and 1999, Me. TAKLA was also member of the International Court of Arbitration of the International Chamber of Commerce. He has been additionally since 1992 a Member of the Legislative Commission in the Lebanese Ministry of Justice and a Member of the Committee of Modernization and Coordination of Banking Laws at the Central Bank of Lebanon since H.E. Me. TAKLA was nominated Minister of State in Lebanon in. He holds a diploma in law from the University of SaintJoseph in Beirut. Businessman, banker, industrialist and diplomat, His Excellency Ghassan Ibrahim SHAKER, is among the most highly decorated personalities from the Arab world, including being a Grand Officier de la Légion D HonneurFrance. H.E. Sheikh Ghassan SHAKER has been a Member of BLOM BANK s Board since 1964 and is also a Board Member of BLOM BANK FRANCE. He is a Personal Advisor to His Majesty The Sultan of Oman and Omani Ambassador at United Nations Geneva, Switzerland. Omani Minister Plenipotentiary at The Court of St James United Kingdom, Omani Economic Counsellor in United Arab Republic and Dean of Goodwill Ambassador at Unesco Paris, France. H.E. Sheikh Ghassan SHAKER is also Chairman and Member of Board of Directors of various companies in Asia and Europe: Chairman of Arab Eastern Insurance Co. LtdBahrain, Chairman of Hussein Aoueini & Co. Ltd Saudi Arabia. Chairman of Gulf Conversion Co. Ltd United Arab Emirates Member of Group of 50 Investcorp Bank Bahrain. He was educated at Victoria College Alexandria, Egypt ( ) and at St. John s College, Cambridge University England ( ). He is member of the Board of Trustees, Georgetown University, Washington DC. 23

26 Non Executive Director of BLOM BANK SAL Born in 1931 Non Executive Director of BLOM BANK SAL Sheikh Salim EL KHOURY has been a Member of the Board of Directors of BLOM BANK SAL since He holds a degree in French law from the University of Lyon in France and a degree in Lebanese Law from Saint Joseph University s Ecole de Droit de Beyrouth and has completed an Advanced Management Program at Harvard Business School. Sheikh Salim B. ELKHOURY Mr. Habib L. RAHAL Director & General Manager of BLOM BANK S.A.L. Born in 1944 Member of the Consulting, Strategy and Corporate Governance Committee at BLOM BANK S.A.L. Chairman & General Manager of AROPE INSURANCE S.A.L. Board Member of BLOMINVEST BANK S.A.L. Board Member of AROPE EGYPT Life Insurance Board Member of AROPE EGYPT Properties Insurance Chairman of Société des Services d Assurances et de Marketing Mr. Habib RAHAL started his banking experience at Société Centrale de Banques and occupied several managerial positions at Moscow Narodny Bank and Royal Bank of Canada before joining Banque du Credit Populaire where he was appointed General Manager from 1974 to In 1990, he joined BLOM BANK as Chairman s Advisor and was appointed in 1992 as the Bank s General Manager. Mr. Habib RAHAL has been a Member of the Board of Directors of AROPE INSURANCE since 2004 and was elected its Chairman and General Manager in Mr. RAHAL has been a Board Member of BLOM BANK SAL. since and a Board Member of BLOMINVEST BANK since He is also the Chairman of Société des Services d Assurances et de Marketing since In he became Board Member of AROPE EGYPT LIFE INSURANCE and a Board Member of AROPE EGYPT PROPERTIES INSURANCE. Mr. RAHAL represents BLOM BANK S.A.L. and sits as Director on the following Boards of Directors: Banque de L Habitat, Société Financière du Liban and IPN. 24 Habib RAHAL is holder of a Bachelor Degree in Accounting & Economics from ESEC.

27 Mr. Nicolas N. SAADE Non Executive Director of BLOM BANK SAL Born in 1950 Head of the Board Audit Committee at BLOM BANK S.A.L. Head of the Board Risk Management Committee at BLOM BANK S.A.L. Member of the Consulting, Strategy and Corporate Governance Committee at BLOM BANK S.A.L. Board Member of BLOM DEVELOPMENT BANK Board Member of BLOM BANK Qatar Mr. Nicolas SAADE has been a Board Director of BLOM BANK since From April 1985 to July 1987, he was Regional Manager of BLOM in Dubai, UAE. Between 1980 and 1985 he was Deputy General Manager of Union de Banques en Cote d Ivoire (BANAFRIQUE). In 1975, he joined the Toronto Dominion Bank in which he stayed until July 1980, occupying various managerial positions. Mr. Nicolas SAADE is proprietor and Managing Director of the Nicolas SAADE Est. in Dubai, which is a banking, investment and financial consulting firm. He is also the Managing Director of Elite Consultants International, Inc in Delaware, USA, an SEC registered investment advisory firm, and proprietor of Pioneer Auditing in Dubai. Previously, he was fund manager at Friends Provident International Elite Fund in the Isle of Man. Mr. Nicolas SAADE is holder of an Honors BA in Economics from McMaster University in Canada and has an MBA from Wharton School, University of Pennsylvania, USA. Dr. Fadi T. OSSEIRAN Director of BLOM BANK SAL Born in 1956 General Manager of BLOMINVEST BANK SAL Board Member of BLOM BANK Egypt Board Member of BLOMINVEST SAUDI ARABIA. Dr. Fadi OSSEIRAN started his banking career at BLOM BANK as Assistant Dealer from 1981 to 1982.From 1990 until 1933, he was Manager of Corporate Planning and Human Resources Development at Méditerranée Group Services. From 1985 to 1987, he moved to teach in the Economics Department at the American University of Beirut and became Assistant Professor at the Institute of Money and Banking of AUB from 1988 to Since 1994, he has been General Manager of BLOM INVEST BANK S.A.L. and Advisor to the Chairman General Manager of BLOM Bank S.A.L. Dr. Osseiran became a Member of the Board of Directors of BLOM BANK S.A.L. in, and a Member of the Board of BLOM BANK Egypt in He has been a Director of BLOMINVEST BANK Saudi Arabia since. Dr. OSSEIRAN has held the position of President of the Association of Stock Brokers in Beirut since 2004 and has been a Member of the Lebanese Economic Association since He was also Member of the Research Committee ( ) and Member of the Training Committee ( ) of the Association of Banks in Lebanon. He was Board Member of the Lebanese Management Association from 1992 to 1996 and has many publications in the Banking and Economics Fields. Dr. OSSEIRAN is holder of a PHD in Economics from New York University (NYU) in the United States. 25

28 Mr. Joseph T. KHARRAT Non Executive Director of BLOM BANK S.A.L Born in 1941 Board Member of Audit Committee at BLOM BANK S.A.L Member of the Nomination and Remuneration Committee at BLOM BANK S.A.L. Board Risk Management Committee Member at BLOM BANK S.A.L. Member of the Consulting, Strategy and Corporate Governance Committee at BLOM BANK S.A.L. Board Member of BLOMINVEST BANK Mr. Joseph KHARRAT is a nonexecutive Director of BLOM BANK since 1984 until to date. He is a Board Member of BLOMINVEST BANK S.A.L since 1994 until to date. He is Chairman and General Manager of several textile and real estate companies of which: Kamaco S.A.L., Satexi (Abidjian) and Kharrat Immobilière (Abidjian). Mr. Joseph KHARRAT is holder of a Bachelor degree in Economics from Reading University in the U.K Mr. Marwan T. JAROUDI NonExecutive Director of BLOM BANK SAL Born in 1959 Head of the Consulting, Strategy and Corporate Governance Committee at BLOM BANK S.A.L. Nomination and Remuneration Committee Member at BLOM BANK S.A.L. Board Audit Committee Member at BLOM BANK S.A.L. Board Audit Committee Member at BLOM BANK FRANCE Board Risk Management Committee Member at BLOM BANK S.A.L. Board Member of BLOM BANK FRANCE Board Member of BLOMINVEST BANK Board Member of BLOMINVEST SAUDI ARABIA He is Board Member of BLOM BANK QATAR Board Member of AROPE INSURANCE Board Member of AROPE SYRIA Board Member of Banorabe S.A., SPF Board member of BLOM DEVELOPMENT BANK (in 2010) Mr. Marwan JAROUDI currently sits on the Board of Directors of the following Companies: Industry Intelligence Inc., Los Angeles USA Forestweb, Inc., Los Angeles BLOMINVEST Saudi Arabia BLOMINVEST Bank s.a.l. Arope Insurance s.a.l. Arope Syria, Syria United Shareholders, BLOM BANK FRANCE, BLOM BANK SAL He has been a Board Member and Vice Chairman of BLOM BANK QATAR since. He is CoFounder, Director in Industry Intelligence Inc., Los Angeles California, since Since 1999, he occupies the position of Co Founder, Director in Forestweb, Inc., Los Angeles From 1996 until 1999 he was CoFounder, Managing Director in Pulptrade, Choueifat, Lebanon. From 1985 until 1995, Mr. JAROUDI occupied a number of managerial positions at Saudi Hollandi Bank in Jeddah. From 1989 until 1991 he was cofounder and Finance Director at Gulf Medical Co ltd. Mr. JAROUDI is holder of a Master of Arts degree in Economics from Syracuse University in New York and has a BA in Economics from the American University of Beirut. 26

29 3.3 Number and Date of Board Meetings Held in The following BLOM BANK S.A.L board meetings were held during : On 6/2/ On 16/3/ On 8/4/ On 28/5/ On 29/7/ On 16/9/ On 9/12/ Total: 7 Board meetings 4. INFORMATION ON KEY MEMBERS OF BLOM BANK S.A.L MANAGEMENT Mr. Amr N. AZHARI Mr. Elias E. ARACTINGI General Manager of BLOM BANK S.A.L. Born in:1970 Vice Chairman of Bank of Syria and Overseas Chairman and General Manager of BLOM DEVELOPMENT BANK Chairman of AROPE SYRIA International Insurance. Chairman of Société Fonçière du Liban et D OutreMer S.A.L. Deputy General Manager of BLOM BANK S.A.L., in charge of Strategy, Organization and Retail Banking Born in 1959 Member of the Board of BLOM BANK EGYPT Member of the Board Audit Committee of BLOM BANK EGYPT Mr. Amr AZHARI started his banking experience in 1991 at Banque Banorabe Paris. From 1991 to 1992, he worked at Gestion Pictet & Cie Montreal Canada, and from1995 to 1997 he occupied the position of Assistant Manager Banque Banorient, Geneva Switzerland. From 1997 to 1999, he was General Management Executive at Banque Banorabe Paris. He moved on to become from 1999 to 2001 the Finance Manager of Banque Banorabe Dubai UAE, followed by Manager of Banque Banorabe Pairs France from In 2004, he became ViceChairman of Bank of Syria and Overseas and Assistant General Manager of BLOM BANK. In 2006, in addition to the above, Mr. AZHARI became Chairman of AROPE Syria International Insurance. In, Mr. AZHARI became General Manager of BLOM BANK, Chairman & General Manager of BLOM DEVELOPMENT BANK, Chairman of Société Fonçière du Liban et d OutreMer S.A.L., and served as a Board Member of the Damascus Stock Exchange from 2006 to. Mr. Amr AZHARI holds the following degrees from McGill University Montreal, Canada: Master of Business Administration, Bachelor of Civil Law and Bachelor of Arts, major in Economics. Mr. Elias ARACTINGI started his banking career in 1983 at Bank Audi USA in New York where he was promoted several times until he reached the title of Vice President and Head of Operations. He joined BSI (Banca della Svizzera Italiana) s New York branch in 1988 as Vice President in the International Private Banking Group. In 1990, Mr. ARACTINGI joined Booz.Allen and Hamilton, based in Singapore as an Associate and was promoted to Senior Associate in 1993, then to manager of the Bangkok office in 1994 and finally to Principal in At the end of 1995, he joined BLOM Bank in Beirut as Advisor to the Chairman, focusing on branch and head office reengineering. In 1997, he initiated BLOM s Retail Banking activities. In 2005, he was appointed Managing Director and CEO of BLOM BANK EGYPT, a position he held until September He was promoted in to Deputy General Manager of BLOM Bank SAL. In, he was reappointed as Managing Director and CEO of BLOM BANK EGYPT and was elected Chairman of BLOM Egypt Securities, until March Mr. Elias ARACTINGI holds a Bachelor Degree in Business Administration with distinction from the American University of Beirut and an MBA in Finance from Columbia University s Graduate School of Business. 27

30 Dr. Pierre G. ABOUEZZE* Assistant General Manager and Head of Human Resources at BLOM BANK S.A.L. Born in:1955 Assistant General Manager Head of Accounting Department at BLOM BANK S.A.L. Born in 1967 Dr. Pierre AbouEzze has 15 years of handson experience in Human Resources. He has been the Head of HR at BLOM BANK S.A.L since 1998, and he served as Advisor to the Chairman on training issues from 1995 to Prior to joining BLOM BANK, Dr. AbouEzze was in academia. He served as the Director of the Graduate School of Business and Management at the American University of Beirut from 1993 to 1997, and he was Assistant Professor at the same school since Before moving back to Lebanon, Dr. AbouEzze started his career as an Assistant Professor of Economics at the University of Ottawa, Canada, and at the University of Kuwait. Dr. AbouEzze continues to lecture at various Universities in Lebanon, and to lead seminars and workshops in the field of Human Resources. He served as the Chairman of the Human Resources & Social Affairs Committee at the Association of Banks in Lebanon for 2 consecutive terms from 2005 to. Dr. AbouEzze holds a Ph.D in Economics from McMaster University, Hamilton, Canada. Mr. Talal BABA joined BLOM BANK in In 2002 he was appointed Accounting Manager. In 2006 he was promoted to Senior Accounting Manager. In July he was appointed Assistant General Manager Head of the Accounting Department at BLOM BANK S.A.L. Mr. BABA is holder of a Master in Business Administration from the Lebanese American University Beirut. Mr. Talal A. BABA* Mr. Antoine N. LAWANDOS* * By alphabetical order 28 Assistant General Manager and Chief Information Officer of BLOM Bank SAL Born in 1963 Mr. Antoine LAWANDOS started his career in 1986 with Istisharat, a leading software vendor, where he became the head of one of the Istisharat's banking systems development units (ICBS), and where he acquired extensive experience in managing the development, implementation and integration of complex and mission critical universal banking systems, subject to different local and international banking requirements and environments. Before joining BLOM BANK in 1993, he also held the position of Systems Engineering Department Manager at BML (Business Machines of Lebanon), IBM representatives in Lebanon. After BML, he joined MDSL as project manager for the implementation of an international universal banking package. In 1993, he joined BLOM BANK as Project Director for the core banking application change, and then in 1995, he was appointed Senior Manager for the IT and Systems Development Department until 2006 when he became Chief Information Officer (CIO) of BLOM BANK. In, he was appointed Assistant General Manager of BLOM BANK in addition to being CIO. Mr. LAWANDOS holds an MSc. Degree in Electronics and Information Systems Engineering from Ecole Superieure des Ingenieurs de Beyrouth (ESIB), with over 24 years of experience in the ICT field applied to the financial services industry.

31 5. BLOM BANK S.A.L COMMERCIAL ARRANGEMENTS Any commercial arrangement between the Bank and any of its affiliates is preapproved by the General Assembly of Shareholders of the Bank and of the concerned affiliate according to art. 158 of the Lebanese commerce law, when applicable. No change of control has occurred during. 6. GENERAL MANAGEMENT OF BLOM BANK S.A.L Dr. Naaman AZHARI Chairman of BLOM BANK GROUP Chairman & General Manager Mr. Saad AZHARI General Managers Mr. Habib RAHAL Mr. Amr AZHARI Deputy General Manager (*) Mr. Elias ARACTINGI Retail Banking Department & Strategic Planning & Organization Department Assistant General Managers (*) Dr. Pierre ABOU EZZE Mr. Talal BABA Mr. Antoine LAWANDOS Human Resources Department Accounting Department Information Systems Department Advisors (*) Mr. Mustapha GHALAYINI Sheikh Fahim MO DAD Formerly Vice Governor of the Central Bank of Lebanon Mr. Georges SAYEGH (*) By Alphabetical Order 29

32 Management (*) Departments & Units Principal Managers Mr. Grégoire AZAR Mrs. Jocelyne CHAHWAN Mr. Georges CHEDID Mr. Samir KASSIS Mr. Mekhael KAZZI Mr. Naoum RAPHAEL Mr. Jacques SABOUNGI Mr. Fouad SAID Me. Aimee SAYEGH Mr. Riad TABBARA Mr. Ramzi TARABISHI Mr. Samih ZEIN EL DINE Regional Manager Mr. Elias MOKHACHEN Managers (A) Mr. Jean HOMSI Mr. Gerard RIZK Dr. Gladys YOUNES Managers (B) Mr. Michel GHANEM Mr. Rabih HALABI Mr. Imad KADI Mr. Mounir TOUKAN Deputy Managers (A) Mr. Marcel ABOU JAOUDE Mr. Malek COSTA Mr. Imad JUNDI Assistant Managers (A) Mr. Charles HADDAD International Affairs & Treasury Department Retail Banking Department Marketing Department / Syrian Desk Corporate Unit Back Office Operations Department Group Inspection Unit Trade Finance Department Marketing Department / Overseas Legal Affairs Department Chairman / General Manager s office Internal Audit Department Administration Department Marketing Department / Syrian Desk Marketing Department / Syrian Desk Risk Management Department Communication & Investor Relations Department Marketing Department Strategic Planning & Organization Department & Purchasing Department Retail Credit Division Credit Department Marketing Department / Overseas Compliance Department Back Office Operations Recovery & General Management Secretariat Unit (*) By Alphabetical Order 30

33

34

35

36

37 MANAGEMENT DISCUSSION & ANALYSIS

38 MANAGEMENT DISCUSSION & ANALYSIS 1. OPERATING ENVIRONMENT Despite the global recession, the Lebanese economy managed to weather the effects that afflicted the world in. When the global economy shrank by 0.8 %, Lebanon boasted an 8 % growth of its gross domestic product that was accompanied by a moderate inflation and a flourishing economic activity. The housing market, a main propeller of the economy, continued a strong upward trend, stimulated by an expanding demand that emanated from both resident and nonresident endusers. In parallel, tourism activity prospered and the year ended with a record number of tourists. In other areas of the economy, consumer spending increased considerably in as household real income made strong gains and remittances remained stable. Business investment rose at a solid rate for the year as a whole as businesses in Lebanon continued to add jobs at a steady pace, and the unemployment rate decreased further. The combination of two complementary factors was primarily behind the strong performance delivered by almost all the sectors in : the return to political stability and solid financial inflows. As a matter of fact, Lebanon had a peaceful year in, as the legislative elections were organized and a new unity government was formed without any security setbacks. This restored the confidence of both resident and nonresident segments of the population, encouraging consumers to revert to spending and investors to resume projects that were put on hold for years. With the increased return of tourists, demand expanded significantly and exports of services grew at unprecedented levels, boosting economic activity throughout the year. Moreover, solid growth, political stability, high interest rate differentials with the rest of the world, the peg policy and the endogenous strength of Lebanon s banking sector enabled the country to benefit from the global financial crisis. As Lebanese banks were spared from complex financial products proscribed by local monetary authorities, Lebanese expatriates and Arab investors that were looking for a safe financial haven transferred their holdings to the local banking system. Huge capital inflows, strong conversions to higher yielding Lebanese pound deposits and stable remittances that reached $ 7 billion provided the economy with a generous reserve of liquidity. In turn, this liquidity stimulated growth by enhancing money supply, triggering an ease in interest rates and encouraging lending to the real sector. Despite the rapidly growing consumption, the considerable capital inflows, the high growth rate and the mild overheat of some sectors, especially tourism, inflation remained moderate. The endofperiod Consumer Price Index (CPI) climbed by 3.4 % yearon year from a higher rate of 5.5 % in as imported inflation retreated due to the drop in oil and commodities prices during. Since inflation was slowing down, Banque du Liban (BDL) adopted an accommodative monetary policy which allowed an ease in interest rates. This policy was meant to lower the cost of financing for the real sector, foster sustainable economic expansion and reduce pressures on banks profitability margins. As a matter of fact, large capital inflows put a downward pressure on interest rate differentials between the use of funds and deposits. In parallel, the Central Bank tried to absorb the excess of liquidity and to help the banks find ways to invest their deposits by issuing certificates of deposits (CD) and Tbills and by encouraging lending in all currencies by decreasing the reserve requirement of banks. 36

39 Management Discussion & Analysis On the other hand, abundant funding fueled the upswing in housing prices that mirrored the expansion of demand as well as the rise in the cost of land. Delinquency rates on consumer loans and on most types of mortgages remained low. As for businesses, balance sheets were quite liquid, credit quality was good, and most firms enjoyed ready access to funds due to the high liquidity at commercial banks. With respect to public finances, in absolute terms, fiscal deficit remained relatively stable while increasing by only 1.31 % to $ 2.96 billion. However, in relative terms, the deficittogdp ratio decreased to 8.85 % from 9.76 % in, as revenues progressed at a higher pace than both outlays and gross domestic product. Correspondingly, the primary surplus hiked by % to $ billion, or 3.22 % of GDP compared to 1.99 % in. Government receipts rose 20.4 % to $ 8.42 billion or 25.2 % of nominal GDP, as a result of an upsurge in both tax and nontax revenues. The former outpaced GDP growth, reaching $ 5.95 billion, up by almost 25 % from the previous year, driven by the receipts of taxes on international trade that surged by 68 % to $ 1.76 billion. As for outlays, they rose both in absolute and relative terms, driven by public sector wages, debt service and transfers to governmental institutions. Total expenditures soared by % to $ billion or % of nominal GDP, compared to % in. In particular, interest payments surged by % to $ 3.83 billion as the state was over financing its deficit for sterilization purposes and Banque du Liban (BdL) allowed only a limited decline in interest rates. Transfers to Electricité du Liban (EdL) retreated by 7 % to $ 1.5 billion, due to the drop in oil prices in Q4 and H1. With a relatively high primary surplus, the government could have limited the increase of its public debt to the debt service level. However it opted to accumulate deposits at the Central Bank in preparation for the parliamentary elections that took place in June. Consequently, total gross debt rose 8.6 % to $ billion. Nonetheless, the ratio of public debt to GDP declined to % in compared to % the previous year, as nominal GDP outpaced the debt increase. On the external front, Lebanon s current account deficit is estimated to have remained stable in, hovering around $ 3 billion. In fact, the surplus in services probably expanded substantially in H2 in spite of a drop in H1, following the boom in tourism. This compensated the minor deterioration in current transfers as well as the slump of net income from abroad that decreased by 178 % during H1. In parallel, the structural trade deficit slightly increased by 0.78 % to $ billion. The relative stability of the trade deficit resulted mainly from the drop in oil and commodities prices. The volume of imports jumped 17 % to million tons while their value only increased by 0.65 % to $ 16, 24 million. As the Nominal Real Effective Exchange Rate (NEER) appreciated and the purchasing power of consumers dropped around the world, the value of exports augmented by a shy 0.17 % to $ 3.48 billion, hiding a 19 % fall in their volume. 37

40 Nonetheless, the balance of payment registered a record surplus of $ 7.89 billion owing to large capital inflows. The conservative management at commercial banks as well as the regulatory practices of the Central Bank few years ago that banned financial institutions from investing in the subprime market, constituted crucial factors that enhanced confidence in the Lebanese financial system during the global financial crisis. Lebanon s banking system appeared as a safe haven despite its lower rating compared to other regional and international markets. Consequently, capital continued to flow in the market and foreign direct investment (FDI) is estimated to have exceeded its level of $ 3.6 billion. Correspondingly, local financial markets showed strong resilience in against the global and regional woes. BDL lowered its overnight interbank rate to 3 % in December ; from 4 % a year before as Central Banks around the world cut their benchmark rates to historic lows. Money continued to be oversupplied as the broad monetary aggregate M3 shot up by % to $ billion, compared to a growth rate of % in. Dollarization of deposits shrank by 4 percentage points between January and December to 64.5 %, as demand for the higher yielding Lebanese Pound deposits went up significantly. Interest rates on both the Lebanese Pound and the USD declined in. The former fell to an average 7.04 % from 7.25 % in, while the latter recorded a bigger fall to 3.22 % from 3.70 %. On the fixed income side, Lebanese sovereign Eurodollar bonds ended the year at premium, while they were traded at discount by the end of. As a matter of fact, the increased demand for local debt on falling yields of global sovereigns pushed the BLOM Bond Index (BBI) up by 16 % to points. Consequently, the weighted bond yield slipped 394 basis points to 5.51 %, closing the gap by 507 bps against US benchmarks. Concerning the stock market and following the stable political climate, Lebanese listed stocks pitched in, lifting the BLOM Stock Index (BSI) up by 33 % to close at 1,566. Thus, the Lebanese gauge ended as the third best performer among its Arab peers. Though Solidere shares remained the main player in the market, capturing the bulk of trades and climbing by an average of 43 %, banking stocks hiked 45 %, outperforming Arab banking shares. That said, the turnover at the Beirut stock exchange totaled $1.04 billion in, sliding 40 % from last year s $1.7 billion, as million shares exchanged hands compared to million in. In the banking sector, capital inflows generated primarily from Lebanese expatriates and Gulf investors fueled a substantial upsurge in bank deposits. Consequently, nonresident private sector deposits rose by 44 % in to $16.5 billion while total private sector deposits surged by 23.1 % to hit a record of $ billion, mirroring the increasing confidence in Lebanon s financial system. Loans grew at a slower pace than deposits, recording a year on year increase of 13.5% to $28.37 billion. The considerable increase in loans and deposits resulted in a 22.3 % upsurge in total assets to $115.3 billion or more than three times Lebanon s GDP. Nonetheless, the strong influx of liquidity put a pressure on profit margins of banks. Consequently, the growth of the banking sector s profits dropped in, increasing by 20.2 % to $ 1,465 million. 38

41 Management Discussion & Analysis In conclusion, the Lebanese economy has once again proven its resilience and ability to weather yet another global scale financial crisis even though no serious reforms were implemented as set forth during the Paris III donors conference. The latter highlights the potential of the country in easing its public debt situation and setting forth a sustainable trend of growth for the coming year. 2. OVERVIEW In, BLOM Bank witnessed another successful year marked by a solid financial position, a diversification of products and services, and an increasing regional expansion. BLOM Bank s strong position as the leading banking group in Lebanon was reflected by the number of awards the bank received in : Best Mutual Fund in the Middle East for from Banker Middle East Best Investment Advisory Service in the Middle East for from Banker Middle East Best Private & Investment Banking website in Lebanon for from Pan Arab Web Awards Best Bank in Middle East for from The Banker Best Bank in Lebanon for from The Banker Best Bank in the Middle East for from Banker Middle East Best Commercial & Corporate Bank Website in Lebanon for from Pan Arab Web Awards The Strongest Bank in Lebanon for from The Asian Banker Best Bank in Lebanon for from Global Finance Best Banking Group in Lebanon for from World Finance Best Bank Representative in the Levant for Investor Relations BLOM Bank also continued to maintain the highest financial ratings in Lebanon. As such, the Bank has been repeatedly rated by Capital Intelligence, a Middle Eastspecialized rating agency, BBB, which is the highest financial strength rating in Lebanon. Moreover, Moody s maintained its highest National Scale rating of Aa1.lb. In, BLOM Bank continued to top the list and maintained its position as the most profitable bank in Lebanon. As one of the largest banks in the country, net profits increased by an annual 16.5 % to USD million while total assets reached USD 20, million and total customers deposits attained USD 17, million by the end of. 39

42 In terms of strategy, BLOM Bank continued to build on its geographic expansion and business services diversification. Foreign expansion not only spreads the risk of operating in Lebanon, but also takes advantage of the economic and business opportunities present in regional economies. In, BLOM BANK Group was operational in 11 countries: Lebanon, Syria, Egypt, Jordan, Qatar, UAE, France, Switzerland, England, Cyprus and Romania. In addition, the Bank has developed further its retail network by opening new branches in Egypt, Jordan, Saudi Arabia, Syria, and Romania. In Lebanon during 2010, the Bank inaugurated five new branches in the areas of Bab Idriss, Kfar Hbab, Jib Jannine, Amyoun and Broumana. The other component of the strategy is to diversify business activities towards a universal banking model. As a result, the bank has expanded the operations of its investment arm, BLOMINVEST BANK, by enhancing its private and investment banking and capital market activities, in addition to introducing asset and wealth management services. The latter aims at establishing funds and investment vehicles for retail and high networth investors diversified in their asset composition and geography. Following the success of the BLOM Cedars and Petra Balanced funds that received numerous awards from leading international agencies, BLOMINVEST launched the BLOM Bank Egypt Fund, BLOM Bank Money Market Fund, and the BLOM Bond Fund. The aim of the new products is the diversification in the sources of income that gives increasing share for noninterest income. To conclude, BLOM Bank will continue to pursue its organic growth strategy in the coming years by capitalizing on its existing resources and capabilities. 3. EVOLUTION OF TOTAL ASSETS BLOM Bank witnessed a double digit growth in assets by the end of. This resulted from the bank s expansionary policy and the perceived confidence of expatriates in BLOM BANK Group as a trustworthy source of placing their deposits. In fact, with the global recession and the drop in interest rates, there was a shift to higher yielding Lebanese Pound accounts. Total assets of the bank grew by 15.67% to reach USD20.7 billion, as compared to USD17.9 billion recorded in. Consequently, assets denominated in foreign currencies dropped to 70.85% from 75.66% a year earlier. Evolution of Total Assets (in USD Millions) 25,000 20,000 16,000 12,000 8,786 10,835 11,918 14,212 16,639 17,898 20,702 8,000 4, SOURCES OF FUNDS BLOM BANK s main sources of funding include customers deposits, capital funds (Tier I & Tier II), banks and financial institutions and other liabilities. Customers deposits constituted the biggest share of sources of funds with 86.8% of total funding in. Tier I and Tier II capital constituted 8.25% of total funds for, while the share of banks and financial institutions amounted to 2.26% in and other liabilities comprised 2.69%. 40

43 Management Discussion & Analysis Sources of Funds g Customers Deposits 2.26% 2.69% 4.43% 3.00% g Tier I & Tier II Capital 8.25% 8.15% g Banks & Financial Institutions g Other Liabilities 86.80% 84.42% 4.1 Customers Deposits In the latter part of, deposits at BLOM Bank continued to rise at an increasing rate compared to.customers deposits increased by 18.94%, up from USD 15,109 million in to reach USD 17,970 million in as BLOM BANK continued to attract depositors who opted for a safe haven for their funds. In fact, the share of customers deposits from total funding went up by 238 basis points to 86.80% compared to 84.42% in. In terms of deposits by country, Lebanon maintained the lead share with 72%. The rest were distributed between regional and European countries. With regards to foreign currencies share of total deposits, they kept declining by the end of to 70.98% of total deposits, down from 75.44% recorded in. This decrease in the share of foreign currency is attributed to the rise in demand for the local currency due to the higher yields on Lebanese Pound deposits compared to the low interest rates abroad. Another factor augmenting this trend is the resilience of the Lebanese financial system that was relatively unaffected by the global financial crisis largely due to the prudent regulatory measures imposed by the Lebanese Central Bank ( Banque du Liban) which enhanced the confidence in the Lebanese Pound. This partly explains the rise in fiduciary deposits that reached USD 4,155 million in, increasing 18.01% yearonyear. Evolution of Customers Deposits (in USD Millions) 18,000 17,970 16,000 12,000 7,686 8,000 8,992 10,161 11,735 13,737 15,109 4, On the other hand, BLOM BANK s market share in terms of customers deposits in the Lebanese banking sector accounted for 16.01% in. 4.2 Capitalization (Tier I & Tier II Capital) Tier I and Tier II capital increased 17.10% yearly to USD 1, million at the end of, bringing its contribution of total funds to 8.25% from 8.15% in. Tier I Capital alone increased by 12.56% to USD 1, million at the end of compared to an increase of 5.67% by the end of. Tier I increase can be mainly attributed to retained profits of the year amounting to USD million after dividend distribution. This measure falls in line with the bank s strategy of growing organically and at a steady pace. Moreover, Tier II capital s decreasing trend was reversed in, rising to USD million as a result of a surge in the cumulative change in fair values due to the increase in financial assets prices. 41

44 Tier I & Tier II Capital (in USD Millions) , , , , Tier I Capital 80.2 Tier II Capital 4.3 Banks and Financial Institutions As the world plunged deeper into recession in as a result of the global financial crisis, banking institutions were the most hardly hit entities. Consequently, this was reflected in the drop of Banks and Financial Institutions contribution to BLOM BANK s funds. This share fell from 4.43% in to 2.26% by the end of to USD millions. That said, the decline was more than offset by the increase in depositor base. 5. USES OF FUNDS BLOM Bank s strategy stresses on the maintenance of high asset quality and a strong portfolio of investments. The risk component, which has always been the Bank s primary consideration while assessing the uses of funds, is reflected in the return on assets ratio that has always been at the forefront of listed Lebanese banks. The return on assets ratio stood at a formidable 1.52%. Within the overall use of funds, the share of Lebanese Pound Treasury Bills as well as other governmental debt securities to total assets fell to 21.93% in, down from 26.42% in. Nevertheless, the share of cash and deposits at the Central Bank to total assets rose to 31.57% in from 24.05% in, and the share of bonds and financial instruments with fixed income rose to 5.46% in, up from 4.78% in. On the other hand, loans granted to customers constituted 19.41% of total assets in, a ratio similar to that of. The Bank placements with other banks and financial institutions amounted to 18.87% of total assets in compared to 22.2% in. Uses of Funds g Lebanese Treasury Bills and other government bonds g Cash and Central banks 19.41% 2.76% 21.93% 19.41% 3.14% 26.42% g Banks & Financial Institutions 5.46% 4.78% g Bonds and Financial Instruments with fixed Income 31.57% 24.05% g Loans to Customers g Others 18.87% 22.20% Cash and Balances With the Central Banks Overall cash and central banks reserves stood at USD 6,536 million in, up 51.87% from last year. The share of subscription in certificates of deposit amounted to 52.36% of total cash and balances with central banks, up from 44.81% in as the bank sought to diversify its portfolio holding of government debt between Treasury Bills and Bonds.

45 Management Discussion & Analysis Central Banks reserves in dropped to 45.93% of total cash and balances with central banks as compared to 52.77% in. This is attributable to the Lebanese Central Bank s easing of requirements reserve of banks in an attempt to stimulate lending and economic growth. Finally, cash represented the remaining USD 112 million, slightly up from its contribution of USD 104 million in. The cash and central banks category includes noninterest bearing balances held by the Bank at the Lebanese Central Bank (Banque Du Liban) in compliance with the obligatory reserve requirements for all banks operating in Lebanon on commitments in Lebanese Pounds (calculated on the basis of 25% of sight and 15% of term commitments). The requirement also applies to interest bearing placements at the rate of 15% of total deposits in foreign currencies, as well as the certificates of deposit issued by the Lebanese Central Bank (Banque Du Liban). Distribution of Cash and balances with Central Banks (in USD Millions) Cash Central Banks Certificates of Deposit Total End of year End of year Amount 112 3,002 3,422 6,536 % 1.71% 45.93% 52.36% 100% Amount 104 2,271 1,928 4,303 % 2.42% 52.77% 44.81% 100% 5.2 Lebanese Treasury Bills and Other Governmental Bills and Bonds The Bank s portfolio of Lebanese Treasury Bills and other governmental debt securities decreased by 3.97% to reach USD 4, million in from USD 4, million in. This came as the bank replaced its holding of Treasury Bills with relatively better yielding instruments. Moreover, the currency composition of the portfolio mirrored last year s status as the share of Lebanese pounds denominated treasury bills edged to 57.18% of the total portfolio as compared to 57.34% in. Also, the foreign currencydenominated governmental bills constituted 42.82% of the total in as compared to 42.66% in. The treasury portfolio according to the new IFRS (International Financial Reporting Standards) classification adopted since January 2005 shows the following: Distribution of the Treasury Portfolio (in USD Millions) Investments Held for Trading: Treasury Bills and Bonds Accrued interest Available for sale investments: Treasury Bills and Bonds Accrued interest Unrealized premiums Unrealized discounts Held to maturity: Treasury Bills and Bonds Accrued interest Unrealized premiums Unrealized discounts Loans & Receivables : Treasury Bills and Bonds Accrued interest Unrealized premiums Unrealized discounts Total , , (12.05) (0.51) 1, , (16.06) 4, , , (11.56) (1.36) 1, , (26.01) 4,

46 Distribution of the Treasury Bills and other Governmental Bills g Lebanese Treasury Bills 42.82% 46.66% g Other Governmental Bonds in Foreign Currencies 57.18% 57.34% 5.3 Bonds and Financial Instruments with Fixed Income Bonds and financial instruments with fixed income increased by 32.13% in to USD 1, million from USD million a year earlier as the Bank opted for a diversification of its investments into higher yielding instruments as global interest rates hit a rock bottom and the inflow of capital into Lebanon depressed the yields of short term instruments. This caption includes bonds and certificates of deposit that are classified as follows: Held for Trading Available for Sale Loans and Receivables Held to Maturity Fair Value through Profit & Loss 44 Distribution of Bonds and Financial Instruments with Fixed Income (in USD Millions) Investment Held For Trading: Bonds Accrued Interest Available for Sale investments: Bonds Unrealized Premiums Unrealized Discounts Less: provision for impairment Accrued interest CD's Unrealized Premiums Unrealized Discounts Accrued interest Held to Maturity: Bonds Unrealized Premiums Unrealized Discounts Less: provision for impairment Accrued interest CD's Accrued interest Loans & Receivables: CD's Accrued interest Unrealized Premiums Unrealized Discounts Bonds Unrealized Premiums Unrealized Discounts Less: provision for impairment Accrued interest Fair Value through Profit & Loss : Convertible Bonds Accrued Interest Investments related to unit linked contracts Total (4.88) (0.03) (11.41) (0.11) (8.35) , (0.43) (0.13) (9.29) (10.00)

47 Management Discussion & Analysis 5.4 Banks and Financial Institutions BLOM BANK s deposits at banks and financial institutions decreased by 1,66% in to USD 3,907 million as compared to USD 3,973 million in. This came as the bank sought better yields in other investment vehicles amid historic low global interest rates. Time deposits constituted 90.58% of total deposits with banks and financial institutions in, down from 91.10% in. As in previous years, 97.72% of the current and time deposits are denominated in foreign currencies. 5.5 Loans and Advances to Customers Following BLOM Bank s adoption of a conservative loan strategy in order to maintain a high asset quality, the ratio of net loans and advances to total deposits, which has been successfully maintained at relatively low levels, slightly decreased from 22.99% in to 22.36% in. Nevertheless, outstanding loans reached USD 4,019 million at the end of, increasing 15.68% from last year driven by the easing of local reserve requirements. BLOM Bank s market share in terms of total loans and advances reached 14.17% in, up from 13.87% in. Evolution of Total Loans and Advances (in USD Millions) 4,500 4,000 4,019 3,500 3,474 3,000 2,500 2,772 2,000 1,500 1,000 1,164 1,352 1,670 1, The Credit risk classification of the Bank s Loans portfolio is as follows : Credit Risk Classification of Total Net Loan Portfolio (in USD Millions) Regular Accounts Special Attention Accounts Net Substandard Net Doubtful Accounts Net Provisions for Commercial & Consumer Loans not Classified Bad Debt Accounts Total 3, (26.04) 4, , (24.85) 3, The above loan classification is in accordance with the Lebanese Central Bank s (Banque Du Liban) classification under decree N dated November, 10th, 1998 relating to bad debt classification dated December Below is a briefing about the basis of loan classification defining each category s characteristics. Regular Accounts: A Unconditional: Covers accounts which display regular movements sufficient to repay the loan in accordance with the repayment schedule. The latest financial statements should be available and adequate collateral should be taken to cover the loan. 45

48 B Incomplete file: As in point (A), adequate collateral and repayment on schedule are foreseen. However, the file is considered incomplete because the client is late in submitting his financial statements. Special Attention Accounts: Display signs of irregular movements or exceed the credit limit on a continuous basis. Recent financial statements are unavailable and adverse economic conditions may affect the borrower s ability to repay the debt. Collateral has not been evaluated for the last three years. Such an account may be considered recoverable. However, it should be closely monitored for a year, at the end of which the account is reclassified if the previously mentioned conditions are not regularized. Nonperforming Accounts (substandard): Covers loans which display most or all of the following: A significant drop in the client s profitability A drop in the flow of cash into the account for a period exceeding 2 years, and thus resulting in repetitive delays in repayment exceeding a period of 3 months. A noticeable depreciation in the value of the collateral provided and repetitive delays in repayment for a period not exceeding three months. Credit facilities are not used partially or in whole for the purpose specified in the loan agreement. The credit risk committee will review the repayment schedule with the client and will keep the account under close observation. However, interest and commissions will be classified as unrealized until the account is regularized. Doubtful Accounts: Represent loans which display all of the conditions of a nonperforming account in addition to having a complete lack of credit movement into the account for a period of six months and a delay in payments of the rescheduled loan which exceeds three months from the date of maturity. The Bank will make a partial provision for the loan and consider interest and commission as unrealized. Bad Debt Accounts: Includes all Doubtful Accounts which are considered unrecoverable due to the lack of a collateral or to the loss of contact with the client. In this case, interest ceases to be accrued and a provision of 100% of the principal amount of the loan is made. The account is under litigation until a ruling by the court is made, after which it is writtenoff. The improving quality of the loan portfolio due to the enhanced risk and control measures was further highlighted by a decrease in the Bank s ratio of gross doubtful debts to gross total loans to 3.44% in from 3.92% in. The coverage of doubtful accounts decreased to 94.41% in from 96.19% in, still below the 98.04% of Provisions and unrealized interest for doubtful debts and nonperforming accounts decreased to reach USD million at the end of, compared to USD million in. The amount includes provisions for commercial loans not classified at the end of amounting to USD million. The ratio of foreign currency loans with respect to total loans in decreased from 91.71% to 90.09% while the ratio of foreign currency loans to foreign currency deposits increased to 28.39% in, up from 27.96% in. The breakdown of the loan portfolio by maturities shows that medium and long term loans with maturities exceeding one year constituted 32.36% of the bank s outstanding net loans in as compared to 32.07% in, whereas short term loans, with maturities of less than one year, constituted 67.64% of the total net loans, compared to 67.93% in. 46

49 Management Discussion & Analysis As for the breakdown of the loan portfolio by economic sectors, the highest share of loans was granted to consumer activities at USD 1,071 million or 26.67% of total loans up from 24.67% in. This is followed by the services and trade sectors respectively. Loans to the agriculture sector witnessed a decrease to 0.39% of the total loan portfolio in from 0.72% in. Loans granted to the manufacturing sector increased to 10.78% in up from 10.20% in. On the other hand, the global economic recession in had an adverse effect on commerce as trade loans decreased from 22.12% in to 18.23% in with 2.43% of the portfolio granted to retail trade and 15.8% to wholesale trade. Moreover, loan portfolio to the services sector improved to 26.24% in up from 22.82% a year earlier as the number of incoming tourists recorded new highs. Unlike, the construction sector witnessed an increase in real estate activity and accounted for 12.89% of the loan portfolio for the year, up from 10.78% in. Loans given to freelance professions have decreased from 8.69% in to 4.8% in. Distribution of Loans by Economic Sector g Agriculture and Forestry g Manufacturing 0.39% 10.78% 18.23% 0.72% 10.20% 22.12% g Trade g Services 26.67% 24.67% g Construction g Freelance Professions 26.24% 22.82% g Consumer Loans 4.80% 12.89% 8.69% 10.78% Additionally, the analysis of the loan portfolio by type of collateral reveals that the commercial loans secured by mortgages accounted for the largest share of the portfolio, falling from 31.66% in to 28.92% in. Moreover, advances against personal guarantees fell, representing 12.86% of the total loans portfolio in, down from 13.41% in. Advances against cash collateral went down also to 16.18% in from 17.67% in. The share of LC financing declined to 1.21% in, down from 1.46% in, whereas syndicated loans were 4.91% in compared to 0% in. Retail loans recorded an increase in, with its share in the total loan portfolio going up to 26.16% in from 24.49% in. Loans to members of staff slightly increased to 0.21% while loans to directors and related parties accounted for 0.18%, down from 0.86% in. Overdraft fell in, representing 9.37% of the total loans portfolio from 10.25% in. Distribution of Loans by Type of Collateral g Commercial Loans Secured by Mortgages g Advances Against Personal Guarantees g LC Financing g Advances Against Cash Collateral g Syndicated Loans 9.37% 28.92% 0.18% 0.21% 10.25% 31.66% 0.86% 0.20% g Retail Loans g Loans to Member of Saff g Loans to Directors and Related Parties g Overdraft 26.16% 4.91% 16.18% 1.21% 12.86% 24.49% 0.00% 17.67% 1.46% 13.41% 47

50 6. LIQUIDITY BLOM Bank s ability to maintain high liquidity levels, minimize risks and ensure high quality of assets has been at the center of liquidity management and core objectives of the Group. The Bank has successfully maintained ample liquidity in when overall liquidity stood at 70.59%. As such, the Lebanese Pound liquidity ratio (including Lebanese government Treasury Bills) was % in, reflecting high liquidity levels. Moreover, the immediate liquidity (cash & banks) in foreign currencies accounted for 56.76% of foreign currency deposits in, slightly increasing from 55.83% in. Maturity mismatch between assets and liabilities, which characterizes the Lebanese banking sector, was also noticeable in BLOM Bank accounts. In, the gap was negative in the maturities from zero to one month and from as a whole one to three months, amounting to USD 7,086 million and USD 2,668 million respectively. After three months, the maturity gaps turn positive, reaching a maximum of USD 5,430 million for maturities of two to five years. AssetLiabilities Maturity Gap () (in USD Millions) Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 2 years From 2 to 5 years Over 5 years Total Total Assets Total Liabilities & Shareholder s Equity Liquidity Gap Cumulative Maturity Gap 6,499 13,585 (7,086) (7,086) 979 3,647 (2,668) (9,754) 1, (9,395) 1, ,005 (8,390) 2, ,428 (5,962) 5, ,430 (532) 2,328 1, ,702 20, PROFITABILITY BLOM Bank preserved its position as the most profitable bank in Lebanon for the year. In fact, the bank recorded net profits of USD million, increasing by a considerable 16.46% compared to the year where net profits stood at USD million. BLOM BANK s Lebanese operations still constitute the lion s share with 80.26% of total net income. BLOM Bank s profits contributed to the biggest portion of the total banking sector profits as it accounted for a share of 20.00% of the total. BLOM BANK s performance was also reflected in attaining the highest profitability ratios. Returnonaverage common equity stood at 21.30% in, slightly increasing from 20.60% a year earlier. Returnonaverage assets for the year amounted to 1.52%, improving from the previously 1.46% recorded in. On the other hand, earnings per share increased to USD12.88 in from USD10.69 in. Evolution of Net Income (in USD Millions)

51 Management Discussion & Analysis 7.1 Net interest income Net interest income registered a 2.15% increase in to USD million. The growth came as a result of a 5% increase in interest and similar income to USD 1, million in, and a 6.74% increase in interest charges in to reach USD million. On the other hand, net interest revenue after provisions and doubtful loans, went up by 5.21% to reach USD million in as compared to USD million in. The growth of net interest income will be further elaborated through the breakdown of net interest income into interest and similar income, interest and similar charges, interest margin as well as net provisions for doubtful loans Interest and similar income Interest and similar income witnessed a 5% increase in. Average interest earning assets increased by 12.43% to reach USD 16,968 million in, up from USD 15,092 million in. The below table illustrates the breakdown of average earning assets by currency at the end of : Breakdown of Average Interest Earning Assets at the End of (in USD Millions) LBP Foreign currencies Total Lebanese Treasury Bills and Other Governmental Bills Deposits with Banks and Central Banks Bonds and Other Financial Instruments with Fixed Income Including Certificates of Deposit Loans and Advances Total 2, , ,543 2,228 4,829 2,037 3,331 12,425 4,437 4,967 3,875 3,689 16,968 In, the weights of interest and similar interest generating assets changed from those of the year. Lebanese and other governmental bills accounted for 26.15% of total average interest earning assets in, falling from 26.62% in. The average deposits with banks and central banks stood at 29.27% of the total in, down from 34.64% in. The share of bonds and other financial instruments with fixed income, including certificates of deposit, accounted for 22.84% up from 17.28%, a year earlier and the weight of loans and advances increased to 21.74% in, compared to 21.46% in. The breakdown of Interest and Similar Income is detailed in the following table: Breakdown of Interest and Similar Income (in USD Millions) End of End of Amount % of total Amount % of total Lebanese Treasury Bills and Other Governmental Bills Deposits with Banks and Central Banks Bonds and Other Financial Instruments with Fixed Income Including Certificates of Deposit Loans and Advances Including Related Parties Total , % 9.39% 30.12% 26.11% % , % 22.00% 20.34% 25.38% % The breakdown of interest and similar income reveals an increase in the share of Lebanese Treasury Bills and other governmental bills to 34.38% in compared to 32.28% in. On the other hand, the portion of income generated from deposits with banks and central banks dropped to 9.39% from 22%. This is attributed to the diversification of interest income generating instruments where the bank opted to make better use of investments by transferring into relatively safer and better yielding bonds and certificates of deposit. As a result, the contribution of bonds and other financial instruments with fixed income (including certificates of deposit) stood at 30.12% in, up from 20.34% a year earlier. Finally, interest income generated from loans and advances including related parties represented 26.11% of the total in, increasing from 25.38% in due to the increase in retail lending. 49

52 Breakdown of Interest and Similar Income g Lebanese Treasury Bills and Other Governmental Bonds g Deposits with Banks and Central Banks 26.11% 34.38% 25.38% 32.28% g Bonds and Other Financial Instruments with Fixed Income including Certificates of Deposit g Loans and Advances (including related parties) 30.12% 9.39% 20.34% 22.00% Interest and Similar Charges Interest and similar charges rose by 6.74% to USD million in up from USD million in, and average interest bearing liabilities went up by 13.77% to USD 16,756 million compared to USD 14,728 million a year earlier. Deposits from customers including related parties accounted for the largest share of the average interest bearing liabilities, amounting to 98.85% in while deposits from banks and financial institutions represented the remaining 1.15%. Breakdown of Average Interest Bearing Liabilities (in USD Millions) LBP Foreign currencies Total Deposits and Similar Accounts from Banks and Financial Institutions Deposits from Customers Including Related Parties Total 16 4,483 4, ,080 12, ,563 16,756 The breakdown of the interest and similar charges shows a decrease in the portion of deposits and similar accounts from banks and financial institutions to 0.97% in, down from 1.84% in while the share of interest paid on customers deposits slightly increased to 99.03% in compared to 98.16% in. Finally, charges from notes and fixed income financial instruments remained nil for the third year in a row. Breakdown of Interest and Similar Charges (in USD Millions) Amount % of total Deposits & Similar Accounts from Banks & Financial Institutions Deposits from Customers Including Related Parties Total % 99.03% % 50

53 Management Discussion & Analysis Breakdown of Interest and Similar Changes g Deposits and Similar Accounts with Banks and Financial Institutions 0.97% 1.71% g Deposits from Customers Including Related Parties 99.03% 98.29% Interest Margin (Before Provisions For Doubtful Loans) The Bank s Net Interest Income before provisions for doubtful loans rose by 2.15% in to USD million, while the net interest margin before provisions on doubtful loans stood at 2.18% in, down from 2.42% in. The ratio of interest charges to interest income increased to 63.13% up from 62.10% in due to a slight higher increase in interest charges than the increase in interest income. (Offset by a faster drop in interest income yielding investments) Net Interest Income (in USD Millions)

54 Net Interest Margin (in percent) 3.00% 2.50% 2.00% 1.50% 2.34% 2.13% 1.75% 1.77% 2.13% 2.03% 2.42% 2.18% 1.00% 0.50% 0.00% Interest Cost / Interest Income Ratio (in percent) 72.0% 70.0% 70.40% 70.91% 71.25% 70.66% 69.69% 68.0% 66.0% 67.81% 64.0% 62.0% 62.10% 63.13% 60.0% 58.0% 56.0% Net Provisions for Doubtful Loans The net provisions for doubtful loans increased from a negative balance of USD 8.65 million in to a positive balance of USD 3.46 million in, in the wake of the consequences of the global recession. 7.2 NonInterest Income Noninterest income decreased by 1.48% yearonyear, amounting to USD million in compared to USD million in. 52

55 Management Discussion & Analysis Breakdown of NonInterest Income (in USD Millions) Net Commissions Net Trading Income Net Gain/Loss on Financial Assets & Liabilities designated at fair value through Profit & Loss Net Gain/Loss on Financial Operations Other Operating Income Total Amount % of total 54.67% 16.20% 3.37% 17.31% 8.45% % Amount (3.00) % of total 49.37% 18.27% 2.00% 4.34% 30.02% % % change 9.09% 12.66% % % 72.26% Although, the ongoing financial and economic turmoil in impacted the non interest income bearing operations of the bank, BLOM BANK was able to record an increase as a result of its operational efficiency. Net commissions decreased from by 9.09% to USD million in, but still maintained the largest share of total noninterest income, accounting for 54.67%, down from 49.37% in. Moreover, net trading income recorded a year on year decline of 12.66% to USD million, representing 16.20% of the total noninterest income as compared to 18.27% in. Net loss on financial assets and liabilities designated at fair value through Profit & Loss rose significantly from USD 3.00 million in to USD 4.98 million in, accounting for 3.37% of the total and increasing from 2.00% in. Net income from financial operations, which rose % to USD million, stood at 17.31% of total noninterest income, increasing sharply from 4.34% in. In the wake of an increase in investment and banking operations, other operating income decreased by 72.26% to USD million in, representing 8.45% of the total compared to 30.02% in. Constituents of NonInterest Income g Net Commissions g Net Trading Income 8.45% 54.67% 30.02% 49.37% g Net Gain/Loss on Financial Assets and Liabilities designated at Fair Value Through Profit and Loss g Net Gain/Loss on Financial Operations 17.31% 3.37% 4.34% 2% g Other Operating Income 16.20% 18.27% 7.3 Staff and Operating Expenses Staff and operating expenses reached USD million in, registering a yearonyear increase of 8.04% as the bank expanded its operations locally and regionally. Staff expenses (salaries and related benefits) increased by 10.27% in to USD million while operating expenses went up by 4.61% to reach USD million. Thus, staff expenses accounted for the largest share of staff and operating expenses with 61.83% of the total while operating expenses stood at 38.17%. That said, BLOM Bank is still maintaining a relatively low costtoincome ratio, reflecting the Bank s efficient costcontainment policy. The costtoincome ratio fell to % in compared to 37.26%. Distribution of Staff and Operating Expenses (in USD Millions) Staff Expenses Operating Expenses Total Amount % of total 61.83% 38.17% % Amount % of total 60.58% 39.42% % % change 10.27% 4.61% 8.04% 53

56 Cost to Income Ratio 55% 50% 47.34% 45% 40% 35% 30% 42.56% 38.58% 38.37% 36.80% 38.09% 39.77% 40.93% 34.11% 35.10% 34.63% 37.26% 35.58% 25% DIVIDEND DISTRIBUTION AND PREFERRED SHARES REVENUES During BLOM Bank s Annual General Assembly, on April 9th 2010, the distribution of dividends for the year was approved. Holders of preferred shares series 2004 and 2005 received a respective of USD 8.5 and USD 9.5 per share. As for holders of common stocks and Global Depositary Receipts (GDR), they received the equivalent of LBP 6,000 per share. 9. CAPITAL ADEQUACY RATIOS The Bank s capital adequacy ratio reached 26.33% (before dividend distribution) at the end of, which is almost three folds the international ratio of 8% required by the Basel I Commission. For Tier I capital alone, the capital adequacy ratio stood at 24.96% at the end of. After dividend distribution, the capital adequacy ratio reached 13.96% for Tier I &Tier II and 13.68% for Tier I alone. Capital Adequacy Ratios before Dividend Distribution (in percentage) (According to Basel I) 40.00% 35.00% 30.00% 25.00% 20.00% 29.88% 26.06% 29.76% 28.22% 33.23% 28.02% 27.34% 30.71% 36.10% 35.33% 29.05% 27.85% 26.33% 28.60% 27.61% 24.96% 15.00% Tier I Tier I + Tier II Capital 10. INTEREST RATE RISK Interest rate risk arises from adverse movements in interest rates, thus affecting the bank s interest earning assets and liabilities. Interest rate risk is well managed through the continuous repricing of assets and liabilities. Most assets and liabilities are repriced within one year. Given that the majority of the bank s deposits are repriced within the three months interval, while most of the bank s treasury bills and government bonds portfolio are repriced after the three months period, interest rate risk continues to concentrate within this period. 54

57 Management Discussion & Analysis The bank s interest rate sensitivity position based on contractual repricing arrangements as of December 31, is as follows: InterestRate Sensitivity Position (in USD Millions) Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 2 years From 2 to 5 years Over 5 years NonSensitive to Interest rate Risk Total Total Assets Total Liabilities and Shareholder's Equity Interest Rate Sensitivity Gap for Cumulative Interest Rate Sensitivity Gap 4,764 12,575 (7,811) (7,811) 885 3,433 (2,548) (10,359) 1, (10,156) 1, ,030 (9,126) 2, ,354 (6,772) 5, ,233 (1,539) 1, , ,022 3,126 (104) 20,702 20, RISK MANAGEMENT AND BASEL II PREPARATIONS 11.1 RISK MANAGEMENT The consolidated Basel II Capital Adequacy ratio of the group reached 13.96% by the end of against 12.7% in. This ratio is calculated in accordance with the Standardized Approach for Credit Risk, the Basic Indicator Approach for Operational Risk and the Standardized Measurement for Market Risk. The Bank s policy is to maintain a Capital Adequacy Ratio above the 10% threshold, as means of sustaining capital buffer. BLOM BANK GROUP (excl. Arope) Capital Adequacy Ratio/Tier I Ratio 14.00% 13.50% 13.00% 12.50% 12.00% 2007 Tier I Ratio CAR For regulatory as well as internal purposes, the Bank calculates Basel Capital Adequacy Ratio on a group consolidated basis and by individual legal entity, allowing for close monitoring of the capital position of each banking subsidiary. In the latter case, every single entity achieved a Basel II Capital Adequacy Ratio above the minimum 8% international requirement. By type of risk, Credit Risk comprises the largest proportion of Risk Weighted Assets, accounting for some 90% of the total. This position is relatively affected by Lebanon s sovereign rating of B+ which impacts the Risk Weighting of Foreign Currency government securities holdings of the bank. BLOM BANK GROUP (excl. Arope) Risk Weighted Assets by Risk Type (in Millions of LBP) 20,000,000 15,000,000 10,000,000 5,000, Market Risk Tier I Ratio Credit Risk 55

58 56 The Bank s capital position is closely monitored by General Management and Group Risk Management. The latter is delegated by the Board of Directors to ensure sound, comprehensive and effective Risk Management practices and processes are in place throughout the Group. To help achieve this, Group Risk Management has developed a plan to implement a variety of systems that cover the three broad areas of risk and help the bank comply with some of the more advanced approaches under Pillar I of Basel II. Group Risk Management has implemented a Risk Management Structure within the Group whereby each country in which the Bank is present has its own Risk Management structure that reports to the Group Chief Risk Officer. Currently, there are eight country Risk Managers. All areas of risk coverage by the Group underwent continued development during : Under Credit Risk, the generation of Internal Ratings for our commercial and corporate credit portfolios continued with new specialized scorecards to be introduced in Application and Behavioral scorecards for a number of Retail Banking products were developed and delivered in by Fair Isaac. The retail products covered include car loans, personal loans and credit cards. In, the Sungard Capital Manager (Basel II) system which automates Basel II Capital Adequacy calculation and reporting was implemented. This system has extensive stress test and scenario generation capability which would allow the Bank to meet Pillar II requirements in relation to the credit portfolio. For Market Risk, static ALM for BLOM BANK Lebanon was implemented under the Sungard Focus ALM system project, in preparation for selling the system to subsidiary branches in Similar to the Capital Manager system, the ALM system has extensive stress testing and scenario generating capabilities which in addition to helping the Bank meet Pillar II requirements that are also extensively used by ALCO. The Market Risk team closely monitors the Bank s funding and liquidity position. The Bank places importance on maintaining high liquidity to meet short term needs, as well as a strong base of core deposits. In addition, through the Focus ALM system, tracking of Interest Rate Risk for BLOM BANK Group has been automated with detailed Interest Rate Sensitivity Gaps, Earnings at Risk and Interest Rate and Foreign Exchange Rate shock scenarios. The Operational Risk team of Group Risk Management ensures that all activities are covered by clear policies and procedures taking into account all relevant risk aspects which are highlighted through periodic risk assessments. The Bank maintains a detailed Loss Incidence Database reflecting Basel requirement whereby business lines and loss types are clearly highlighted. Moreover, the Operational Risk team is preparing a Business Continuity Plan that covers potential emergency scenarios and ensures that Business Continuity policies are in conformity with best practices. To this end, the Bank is planning a new secondary emergency site that can cater for future developments in this particular area CORPORATE GOVERNANCE The Board exercises its oversight function to a large degree through four dedicated Board Committees: the Board Audit Committee, the Board Risk Management Committee, the Consulting Strategy and Corporate Governance Committee and the Nomination and Remuneration Committee. The Board Audit Committee s responsibility is to monitor and assess the integrity of the Bank s financial accounting. The audit committee also assesses the competence of External Auditors as well as the Internal Audit Department, in addition to internal controls and compliance with the Bank s bylaws and internal regulations. The Board Risk Management Committee periodically reviews and evaluates the Risk Management function of the Group, and reports and drafts recommendations to the Board. The Consulting Strategy and Corporate Governance Committee oversees the development of the strategic plan and monitors its progress throughout the Group. It approves and monitors large projects, develops corporate governance policies and practices, and advises the Board on overall business development. The Nomination and Remuneration Committee provides assistance to the Board in identifying individuals qualified for directorship to sit on Board committees. Also, it plans the succession of executive and nonexecutive directors and evaluates the performance of top management, including Board members. The Bank in its Corporate Governance Code has established independence criteria for non executive members of the Board who must constitute a majority of the Board. The Board Committees are fully functional and meet in accordance with their stipulated frequency. The Bank firmly believes in the basic principles of accountability, reporting and transparency throughout the organizational structure. Senior management exercises the authority delegated to it by the Board through clear and segregated reporting channels, including Management Committees covering all areas of operations. They also ensure that internal risk and control procedures and structures are overseen by respective departments, namely Internal Audit, Risk Management and Compliance. The Bank makes sure that all employees act professionally, ethically and with the utmost integrity in accordance with an established Code of Ethics and Conduct. Additionally, the Bank recognizes the value of its Human Resources as a prime stakeholder in the institution, endeavoring to treat all employees in the most equitable manner. As such, all employees are required to attend presentations on the Bank s Code of Conduct and Corporate Governance. The Bank will continue to develop its Corporate Governance practices while seeking to protect and enhance stakeholders interests from shareholders to employees.

59 Management Discussion & Analysis 12. UNIVERSAL BANKING SERVICES In line with its aim of maximizing customer satisfaction and increasing shareholders value, BLOM Bank has sustained the policy of diversification of its products and services. BLOM Bank provides the following universal banking services that suit all customers needs: Private and investment banking Commercial banking and corporate banking Retail banking Islamic banking Insurance services 12.1 Private and Investment Banking BLOM Bank provides private banking services such as investment consulting and wealth management through both its investmentbanking arm BLOMINVEST Bank Sal and its Genevabased affiliate BLOM Bank Switzerland. Some of these services include: Investment Products: includes a variety of investment funds and structured products focusing on Lebanese and foreign instruments. The bank successfully launched in two mixedasset mutual funds, Blom Cedars Balanced Fund and Blom Petra Balanced Fund that target the Levant region. Project Finance: consists of extending medium and long term financing and participating in bank loan syndications. Treasury & Capital Market Services: includes brokering on the Beirut Stock Exchange (BSE), advising on trades in international equities, trading in debt securities and dealing in foreign exchange markets. Investment Banking: participates in the underwriting and distribution of Lebanese and other debt instruments and provides advice on mergers and acquisitions and privatisation. Asset & Portfolio Management: covers management of portfolios of shares, bonds and term placements in all currencies. Research Department: produces daily, weekly and quarterly reports on the Lebanese economy, and analyzes leading Lebanese economic sectors. In addition, it provides country reports on regional economies, especially those where BLOM BANK has a presence. It publishes as well the BLOM Stock Index (BSI), Lebanon s first financial market index that covers all stocks quoted on the BSE, and conducts equity research on major Lebanese and regional companies Commercial and Corporate Banking During, and despite the global financial crisis, BLOM Bank continued to expand its credit portfolio. Indeed, it benefited from two major developments. The first one was Lebanon s real estate boom and the second one was Banque du Liban s (Central Bank) directives of easing reserve requirements of banks in order to spur lending activity. Accordingly, and in line with the conservative lending practices of BLOM bank, several new loans were granted in to corporate and commercial clients, especially in project finance and real estate developments. Most notable of these was the USD 130 million long term loan granted to the Landmark Project, a large mixeduse development in the Beirut Central District (BCD) region that includes a 5star hotel, apartments, shopping mall and cinemas. In addition to the real estate projects, the bank has increased its commercial loans for small and medium size businesses operating in different sectors. The bank s expansion policy continued through the opening of a new subsidiary in Qatar in July, which emphasized the presence of the bank in the gulf region. BLOM Bank Qatar provides various conventional corporate and private banking services in the Qatari market and other GCC countries. This new subsidiary with the support of BLOM headquarters in Beirut was able in a short period of time to attract reputable corporate clients to the country by offering them diversified credit facilities. Furthermore, BLOM and its regional subsidiaries had participated in various syndicated loans that were extended to multinational corporations in order to finance huge projects in different countries such as Syria and Egypt. In short, BLOM bank kept on pursuing its mission of fundamentally contributing to the development of the Lebanese economy and Arab region through its financing of new tourism, industrial and commercial projects Retail Banking In, BLOM BANK offered more than 115 retail products, classified under different categories: Payment cards: BLOM Bank offers a wide range of payment cards that target different customers, provide several methods of payments and meet multiple purposes. These cards vary according to type and currency. The segmentation of cards took into consideration the various types of customers and their card needs; debit, charge, credit, cobranded and prepaid. As such, BLOM cards come under both brands, Visa and MasterCard and range from Electronic, Classic, Gold, Titanium, Platinum, Black Platinum, and Corporate (Business Platinum, Platinum Corporate, and Classic Corporate cards). Moreover, the Bank has Internet cards dedicated for Internet users, a Euro card for those who visit Europe frequently, and prepaid cards such as mini for those wishing to have a card without opening an account. With the approach of the football world cup, BLOM Bank launched a unique Visa card BLOM 2010 FIFA World Cup TM that has a tailormade design and enables the cardholder to enter a draw to win tickets to attend world cup matches. BLOM BANK launched a special card Watan dedicated solely to the Lebanese army, internal security and national security forces. BLOM became the first bank in Lebanon to launch the Personalize your card service whereby cardholders are able to add a personal image from their own collection, or an image from BLOM s unique Photo Library, which includes categories like sports, wildlife, love, pets, holidays and special occasions etc. This service is exclusively offered online through our website 57

60 58 BLOM also launched Watan ; a card for the sole use of the Lebanese army, internal security and national security forces. Personalize your card is the first service of its kind in Lebanon to be provided by BLOM bank. By using this feature, cardholders can add a personal image from their own collection, or select one from BLOM s Image Library, which includes categories like sports, wildlife, scenery, pets, etc. The bank exclusively offers the possibility of having this service completed via the internet by visiting both BLOM and BLOM Retail websites. This service is also available throughout our network of branches. POS Machines: Retailers wishing to install BLOM POS machines have a choice between: GPRS machines: wireless devices that require no electricity or telephone cables. With a SIM card provided by BLOM Bank, our GPRS machines are mobile. They accept dual currencies (USD and LBP) Hypercom POS machines: require electricity and a fixed telephone line. They are a dual currency machines: USD and LBP. Veriphone machines: require electricity line and a fixed telephone line. They are a single currency machine: USD or LBP. BLOM machines accept payment cards such as Visa, Visa Electron, MasterCard, MasterCard Electronic, and Maestro. The machines are equipped with the latest EMV technology that allows acceptance of chip cards. Such technology provides ultimate security to both the cardholder and the merchant. BLOM provides retailers with a next day settlement of the transaction amount, with a one day value date. BLOM bank also dedicates an account manager to handle all inquiries and suggestions concerning POS issues. In addition, BLOM Bank places at the disposal of its retailers a 24 hour call center which is tailored to cater for all needs and providing relevant support. Consumer loans BLOM Bank customers have the option to apply for a number of consumer loans that meet their various needs: KARDI for personal loans SAYARATI for car loans (new or used vehicles) DARATI for house loans (primary home or other) Housing in Collaboration with the CPH for house loans Housing Loan for projects under construction Bancassurance Services AROPE Insurance, an entity of BLOM BANK Group, offers all kinds of insurance services from personal accident to health, fire, car insurance and so on. BLOM Bank also offers investment programs coupled with a life insurance policy in collaboration with Arope Insurance. Moreover, new and more flexible products in USD were launched; DAMANATI Plus, a retirement plan coupled with life insurance and WALADI Plus, a child s education program, coupled with life insurance. Reward Programs The BLOM Golden Points Loyalty program enables customers to win a variety of gifts such as airline tickets, free stays at the finest hotels, electronics and much more by accumulating Golden points with every $100 purchases using BLOM cards. The BLOM Gifts Loyalty program allows cardholders to win valuable gifts for purchases at specified retailers over a period of 6 months. Our cobranded card, Alfa BLOM MasterCard, offers free mobile talk time to cardholders on card spending on a monthly basis. Investment Products BLOM Bank offers a collection of Investment products to help manage one s finances in a better, safer and more profitable way. Accordingly, BLOM Bank, in collaboration with BLOMINVEST Bank, offers a collection of Mutual Fund programs. Additionally, BLOM Bank and Arope Insurance offer structured products such as Tayseer, an investment product which has been introduced more than six times, each time with a different underlying investment such as Oil, Gold, BLOM GDR, Solidere, Lebanese Eurobonds, and Euro as a currency. Special Accounts BLOM Bank offers a number of special accounts, catered for specific needs. In addition to the traditional savings and current accounts, a wedding account, Maksabi a special savings account, utility bills account, salary domiciliation accounts, and three types of bundled accounts (Account Plus Classic, Account Plus Gold and Account Plus Platinum) that offer the client current accounts with various services for a monthly fee. SME Loans: Small and medium enterprises, or even self employed or business owners can benefit from a variety of loans tailored to their requirements: SMALL BUSINESS LOAN for SME BUSINESS LOAN for financing an office, a warehouse, a clinic, etc. KAFALAT is a subsidized loan for small business owners Network Branches & ATMs The primary aim of BLOM bank is to better service its customers by offering the best products and services. In addition to the traditional branches which are conveniently distributed throughout Lebanon, BLOM has already opened five retail branches that offer express retail services. All BLOM branches have ATM s which allow 24hour cash withdrawal.

61 Management Discussion & Analysis Sales Force BLOM has multiple sales channels ranging from direct sales, to indoor sales, to telemarketing teams available to promote and sell retail products/services. Call Center BLOM customers can enjoy the convenience of a 24hour call center, ready to cater for all their needs and inquiries. The retail department also has a telemarketing team to make outbound informative calls to existing clients. The Call Center s monitoring system has been upgraded to offer better services. Ebanking BLOM Bank offers its customers phone banking services such as Allo BLOM (a 24hour customer service) as well as internet banking services such as eblom. This service allows users to complete many of their routine banking transactions in the comfort of their home/office. The client may even apply for a card, issue a prepaid card, or even perform outgoing transfers. SMS Alert Service The Bank provides a convenient SMS ALERT service, enabling customers to receive alerts whenever the balance of accounts changes or whenever a transaction is being performed. Public Website BLOM retail products and services enjoy an independent, userfriendly website where users can make use of simulators and online applications through Workflow BLOM internally developed a workflow system to process car loans, personal loans, credit cards and debit cards electronically, thus benefiting from Electronic Archiving, as well as fast approval and response cycles (e.g.: 1 hour for car loans). However, the most important achievement lies in the instant granting of Personal Loans that is unique in Lebanon and second in the Middle East region Islamic Banking: The region is witnessing a fast growing Islamic financial sector. According to the latest statistics, the size of the market is growing at an increasing rate of 17% per year. In, BLOM DEVELOPMENT BANK s (BDB) depositor base grew significantly enabling BLOM s Islamic bank to tap new local and regional markets. During, BLOM DEVELOPMENT BANK s (BDB) structured Lebanon s first Sharia Compliant Capital Protected EquityMurabaha fund that was engineered by BlomInvest. The product, named QITAF, is a 3 year 100% capital protected fund with 100% participation in the upside performance of the BDB Sharia Compliant Emerging Market Index. This product is offered exclusively to investors wishing to engage in Sharia compliant emerging equity markets while diversifying their invested portfolio. BDB has also launched a Sharia Compliant stock market trading account, in conjunction with the trading desk of Blom BANK and BlomInvest, enabling its clients to buy and sell on the international equity and commodity markets the available Sharia compliant stocks and commodities. BDB is also adopting international Sharia compliant filtering methodologies. BDB ended by launching its website, which includes the latest news as well as product offerings. The website is integrated with the Group s platform. The major milestone for BDB in is undoubtedly the opening of its branch in Tripoli s Mina area. The new location will serve BDB clients in North Lebanon and it promises to mark a new phase in the strategy of our group s expansion and sustained development. In Brief, year witnessed the initial phase of BDB s strategic expansion plan which engulfs the opening of new branches in key areas in Lebanon and the development of new Sharia complaint products both on the retail and corporate fronts. BDB continues its mission in complementing the group s services regionally and globally Insurance Products & Services AROPE was able to maintain its position as the fourth insurance company on the Lebanese Market by registering increases in both life and nonlife premiums. In the light of becoming a regional insurance financial services leader, and after the establishment of Syria International Insurance (AROPE Syria) in 2006, AROPE was granted approval from the Egyptian Financial Supervisory Authority (EFSA) to establish two companies, AROPE Life Insurance s.a.l, and AROPE Insurance for Properties and Liabilities s.a.l in Egypt. Both companies are fully operational today and are showing good results. 13. INFORMATION SYSTEMS AND TECHNOLOGY The 21st century has witnessed a change in the banking industry from paperbased banks to digitized, networked and serviceoriented banks. The convergence of computing, communications, information and knowledge has fundamentally changed the delivery channels that banks use to interact with their customers. In order to reap the benefits of powerful information technologies, investments are being made in IT in order to encompass all areas of banking. In effect, we have been using stateoftheart systems to diversify our delivery channels, innovate in payments and cards technologies, manage risks, enhance systems security, address regulatory requirements, and gain customer insights and business intelligence. 59

62 13.1 Customer Relationship Management During this year, the bank kept on enhancing its online, realtime, around the clock banking services using a variety of channels including IVR, Internet, ATMs, SMS, and Call Center in addition to the traditional branches, in order to interact with its customers. This overall view of customers activity with the bank is enabled by the eblom suite of integrated electronic banking delivery channels that consist of: eblom ALLO BLOM the Bank s Interactive Voice Response system. eblom Internet Banking our online banking service that offers a wide array of services which are continuously expanded, enhanced and adapted to customers needs and demands. eblom Self Service using the bank network of ATMs deployed all over Lebanon with additional services being constantly developed. eblom SMS Alert a realtime alerting system based on delivering messages to our customers mobile phones to notify them about the latest transactions. eblom Call Center our call center is available on a 24 hour basis all year long and is benefiting from continuous enhancements based on CTI and IP telephony to achieve seamless integration with the Bank s CRM application. eblom Live Information Broadcasting System a system that enables the bank to broadcast in realtime over LCD screens at the branches live and updated information covering stock quotes, foreign exchange quotes, news feeds, marketing campaigns, new promotions, TV commercials etc. eblom Targeted Information Passing System a campaign management and referral tool that allows the profiling of customers using a centralized knowledge base that offers customers new products and services tailored to their needs. These custom offerings are presented to customers during their presence at the branch Advanced Electronic Payment Systems In, we kept on growing our Visa and MasterCard card offerings and enhancing the reliability and effectiveness of our payment systems. We also expanded into the businesstobusiness (B2B) market by providing Point of Sales to merchants across Lebanon. Furthermore, we capitalized on the benefits of our online card fraud monitoring system that is capable of sending realtime alerts to the bank call center agents, thus enabling immediate action and insight as well as reporting and tracking of fraud. The card fraud monitoring system significantly reduced fraud losses and incidences Enterprise Application Integration (EAI) During, the Service Oriented Architecture (SOA) framework was developed to achieve the highest degree of integration between the bank s different information systems through the use of webservices and a powerful yet flexible workflow engine. This will enable the bank to manage the complexity and control the quality and cost of business processes throughout their lifecycle. In addition, this EAI framework was applied to many processes, in particular to the consumer loans processing systems consisting of a loan origination system, a loan assessment system, and a loan granting system. This framework has allowed the offering of an instant loan granting system aimed at instantaneously granting walkin customers a personal loan specially targeted to their needs. In addition, a credit scoring system for loans based on the Fair Isaac scoring model was initiated. Moreover, the EAI framework was introduced in the automation of incoming checks from the national clearing house through dematerializing the checks clearing by scanning and electronically sending the checks images to the branches instead of sending the physical checks Basel II & Regulatory Compliance This year, special emphasis was put on credit management with the completion of a stateoftheart corporate and commercial credit risk rating system acquired from MOODYS. Other softwarebased systems related to Assets & Liabilities Management, Funds Transfer Pricing and Capital Management were also acquired from SUNGARD. Some of these projects were completed in while others are planned for execution during Systems Security & High Availability As a financial institution that has been around for over 55 years, the bank s systems and data are considered important assets for business continuity. Therefore, increased infrastructure availability and reliability was maintained. For this purpose, server virtualization and consolidation and enterprise storage was introduced. 60

63 Management Discussion & Analysis In, a new Disaster Recovery Data Center was put in place. This facility would protect the bank s information systems from loss in case of an unforeseen disaster and it would accelerate the development of new services to meet the bank s future demands for expansion. The Data Center also features efficient power consumption in accordance with green data center requirements and was designed in full compliance with the ANSI 942 standard, which sets prerequisites for assuring the highest levels of continuity, security and performance. Moreover, employee awareness was raised, in addition to developing Information Security Policies and Procedures to address and prevent security threats and to proactively monitor systems activity through implementing advanced preventive and detective controls and online monitoring Financial Reporting & Consolidation During, we launched the IBM Cognos 8 Controller which is a comprehensive webbased solution that offers powerful financial reporting and consolidation. It also provides builtin financial intelligence and advanced analytics that allows timely and accurate information and improved decisionmaking support. This solution will enable us to consolidate the financial statements across the entities of the BLOM Bank Group. 14. PEOPLE DEVELOPMENT 14.1 General Overview BLOM Bank Management considers human resources as a critical factor in keeping the bank on its successful path to become a major player in the regional financial sector. Human resources at BLOM are considered to be the most valuable asset, and the talent of our employees is recognized as essential for the effective functioning of the Bank. Human resources at BLOM are managed in a fair, ethical and transparent manner. A set of standards and procedures guide the relation of the bank with its employees, with regards to recruitment, promotion, compensation, development, employment conditions, and privileges. The BLOM BANK Group is an equal opportunities employer and prohibits discrimination on the basis of gender, religion, ethnicity, age and disability. All employees, on the other hand, are required to comply with a set of policies concerning safety, information security and a general code of conduct. They are expected to adhere to the highest standards of ethical behavior in what relates to confidentiality, professionalism, transparency, conflict of interest and integrity. The most visible characteristic of BLOM Bank employees is their high level of education, in addition to their relative young age. The majority of employees (74.3 percent) hold a university level degree or higher, while the average age of employees is 35.9 years. The following table presents the structure and distribution of BLOM Bank employees across the various units of BLOM Group, and according to various criteria. Distribution of BLOM Employees Across the Various Units of the Group by Gender, Age, Level of Education and Function as at 31/12/ BLOM LEBANON, BLOM INVEST BLOM DEV BLOM FRANCE BLOM SWITZERLAND BLOM EGYPT New Units* AROPE BSO Total Gender Male Female Total Age < Total Average Age Level of Education Graduate Degrees Professional Certificates Bachelor Degrees Technical Certificates Others Total Functions Managers and Above Deputies/ Assistant Managers Supervisors Employees Total * New Units include Abu Dhabi, BLOMINVEST KSA, and Qatar. 61

64 14.2 Policies and Procedures BLOM Bank recognizes the importance of the role of a talented pool of employees in keeping the bank highly competitive. Appropriate policies are implemented so that the creation and development of talent is maintained through attracting, developing and retaining the best and the brightest employees Recruitment The recruitment and selection process is of critical importance to hire the best talent in line with the principles of nondiscrimination and equal opportunities for all. The requests of all departments and branches are received by the recruitment section and matched with profiles from the data base. CVs in our data base are gathered from numerous sources including , job fairs, recommended trainees from the internship program, referrals from managers and employees, walkins, ads and recruitment agencies. Selected CVs are evaluated and approved by line managers and department heads before a set of exams is administered to the selected candidates. This will be followed by a set of interviews including the HR department, the concerned manager, and, for senior positions, the General Manager. The file will be then presented to the HR committee for final decision after it passes a satisfactory background check and a clearance from the AntiMoney Laundering unit. During the year, the various units of BLOM Bank group recruited a total of 600 new employees to support the expansion of the bank across the region and to replace departing and retiring employees (see table below). New banking units in Saudi Arabia, Qatar, and Abu Dhabi started their operations during, and a host of new branches in the various units of the group were added to our branch network. The majority of the new recruits were in BLOM Lebanon, (38%), BSO (21%), AROPE (19%), and BLOM Egypt (14%). New Recruits and Turnover Rates of the Various Units of BLOM Group in BLOM LEBANON BLOM INVEST BLOM DEV ELOPMENT BLOM FRANCE BLOM SWITZERLAND BLOM EGYPT NEW UNITS* Arope BSO Total New Recruits Turnover Rate *New Units include Abu Dhabi, BLOMINVEST KSA, and Qatar Training Investment in intellectual capital ranks amongst BLOM Bank s top priorities, and the importance of continuous training is very much emphasized by BLOM management. Effective training ensures that the skills, knowledge, abilities and performance meet the current and future needs of both, the individual employee and the bank. This is done by performing training needs assessment on regular basis, and through the development, implementation and evaluation of training programs addressing the specific needs of groups and individuals. The HR department organizes a wide range of inhouse and external training seminars for central departments and branch employees. Technical inhouse seminars are usually developed and delivered by field experts from BLOM Bank, while soft skill development seminars are delivered by professional trainers from local and international training firms. The total number of training hours performed during reached 79,851 (see table below). Training was made available to the majority of BLOM employees, where the training activities covered technical and nontechnical areas such as finance, banking techniques, risk management, marketing, leadership, information technology, and foreign languages. Distribution of Training Activities Across the Various Units of BLOM Group in BLOM LEBANON BLOM INVEST BLOM DEVEVELOPMENT BLOM FRANCE BLOM SWITZERLAND BLOM EGYPT NEW UNITS* BSO AROPE Total Hours of training 44,293 2, , ,797 3,695 84,591 *New Units include Abu Dhabi, BLOMINVEST KSA, and Qatar 62

65 Management Discussion & Analysis Career Development and Promotion Career development and promotion at BLOM Bank focuses on a number of well defined criteria. This ensures that the selection of candidates for supervisory and managerial positions is made up of highly competitive and qualified people who have the necessary skills and competencies required for toplevel performance. BLOM Bank policy emphasizes the importance of career development for employees in order to help in creating a large pool of talent that is essential for keeping the bank highly competitive in the local and the regional markets. This is supported by the increasing level of investment in human capital. In addition to the individual training programs that are designed for high potential employees to prepare them for higher positions in the future, two particular programs, the Management Training Program (MTP), and the Fast Track Program (FTP) were designed to respond to the immediate need for talent and develop those talents. The selection of candidates for these two programs follows a rigorous and transparent process where immediate supervisors, line managers and HR are involved to ensure that the best performers with the highest potential are selected from the pool of young, ambitious and motivated employees. At the end of, the number of participants in the Management Training Program was 41, and the number of participants in the Fast Track Program was 50. We continue to spare no effort to win the war for talent to better serve our customers and maintain our competitive edge. 15. BANK S OPERATIONAL EFFICIENCY In, the group achieved a major improvement in its operational efficiency. Net profit per branch increased by 9.6% to reach USD 2,154,564 at a time when the number of branches increased by 6.2%. Furthermore, net profit per employee gained 7.3% to USD 82,332. In addition, average assets by branch rose by a significant 8.86% to reach USD 152,223,411 at the end of year, compared to USD 139,828,125 recorded in. BLOM Group s Operational Efficiency Indicators Number of Employees Number of Branches USD Net Profit per Employee USD Average Assets per Employee USD Average Assets per Branch USD Net Profit per Branch 3, ,332 5,816, ,223,411 2,154,564 3, ,730 5,458, ,828,125 1,965, REGIONAL EXPANSION In, BLOM BANK continued to pursue its expansionary policy both in Lebanon and abroad. In Lebanon, BLOM BANK finalized the groundwork for the opening of five new branches in 2010: Bab Idriss (Beirut Central District), Kfar Hbab (Kesrwan, North Beirut), Jib Jannine (South Lebanon), Amyoun (North Lebanon), and Broumana (Metn Area), bringing the total number of branches to 62. In terms of regional expansion, BLOM BANK JORDAN completed the opening of a branch in Abdoun. On the other hand, Bank of Syria and Overseas (BSO) increased the number of its branches by three in : Hasya a and Mahatta in Homos, and Al Fourkan in Aleppo. Moreover, BSO concluded planning on introducing four branches in 2010: Mouhardeh in Hama, Al Jeser Al Abyad in Damascus, Deir Al Zour, and Banyas, therefore expanding the number of branches in Syria to 27. In Egypt, BLOM BANK EGYPT opened two new branches in Port Said and Manshia in and plans on opening another branch in Haram in 2010, thus increasing the number of branches to a total of 26. By the end of, BLOM INVEST SAUDI ARABIA (Investment Bank) and BLOM BANK QATAR (Commercial and Private Bank) became operational. In Europe, BLOM BANK FRANCE opened a branch in Volontarii (Romania) in and is in the process of opening an electronic branch in Dubai (Jabal Ali). 63

66

67

68

69 BLOM BANK S.A.L CONSOLIDATED AUDITED FINANCIAL STATEMENTS

70

71 69

72 CONSOLIDATED INCOME STATEMENT Year ended 31 December NOTES Interest and similar income Interest and similar expense 4 5 1,712,928 (1,081,395) 1,631,367 (1,013,138) Net interest income 631, ,229 Fees and commission income Fees and commission expense 144,735 (22,957) 138,208 (15,976) Net fees and commission income 6 121, ,232 Net trading income Net gain (loss) on financial assets designated at fair value through profit or loss Net profit on financial investments Other operating income ,081 7,507 38,558 18,836 41,305 (4,523) 9,809 7,433 Total operating income 854, ,485 Credit loss (expense) income Impairment losses on financial investments ,215 15,721 (13,040) (15,723) Net operating income 875, ,722 Personnel expenses Depreciation of property and equipment Amortization of intangible assets Other operating expenses (192,083) (33,118) (1,770) (120,676) (174,191) (25,462) (947) (112,420) Total operating expenses (347,647) (313,020) Net operating profits 527, ,702 Net profit from sale or disposal of other assets 129 5,024 Profit before tax , ,726 Income tax expense (85,982) (78,472) Profit for the year 441, ,254 Attributable to: Equity holders of the parent Minority interest 429,558 12, , ,271 13, ,254 Basic/diluted earnings per share attributable to equity holders of the parent for the year (in LL) 13 19,421 16,116 70

73 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December Profit for the year Net gain (loss) on availableforsale financial assets Exchange differences on translation of foreign operations Other comprehensive income (loss) for the year Total comprehensive income for the year Attributable to: Equity holders of the parent Minority interests 441, ,864 (9,882) 94, , ,441 14, , ,254 (11,966) 5,229 (6,737) 372, ,838 15, ,517 71

74 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 December ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Noncurrent assets held for sale Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity Investment properties Property and equipment Intangible assets Other assets Goodwill Total assets Liabilities and equity Liabilities Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Current tax liabilities Other liabilities Provisions for risks and charges Retirement benefits obligation Total liabilities Equity attributable to equity holders of parent Share capital common shares Share capital preferred shares Share premium on common shares Share premium on preferred shares Capital reserves Treasury shares Reserves for revaluation variance real estate Availableforsale reserve Foreign currency translation reserve Other reserves Results of the financial period profit Retained earnings Minority interest Total equity Total liabilities and equity NOTES ,693,974 5,787,117 33,544 24, ,402 6,046,601 11, ,637 29,846 4,694,221 8,200, , ,850 6, ,510 63,268 31,208, ,438 23,526 26,859, , ,637 48, ,522 38,421 38,558 28,633, ,600 18, , , ,051 (58,723) 14, ,184 37, , ,061 2,446, ,022 2,575,549 31,208,844 3,580,467 5,817,382 39,867 14,264 81,955 5,230,447 6, ,211 27,561 4,691,986 6,094, , ,576 5, ,600 63,145 26,980,813 1,196,746 56,779 22,636, , ,211 53, ,211 31,481 34,534 24,781, ,600 18, , , ,391 (39,877) 14,727 3,905 46, , ,863 2,078, ,199 2,199,319 26,980,813 72

75 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 December (CONTINUED) NOTES OFF FINANCIAL POSITION Financing commitments Commitments issued to financial institutions Commitments received from financial institutions Commitments issued to customers ,805 33, ,711 35,517 31, ,489 Guarantees commitments Guarantees issued to financial institutions Guarantees received from financial institutions Guarantees issued to customers Guarantees received from customers (A) 209,040 45, ,602 9,561, ,675 58, ,271 8,625,099 Foreign currency operations Foreign currencies to receive Foreign currencies to deliver 16 3,699,067 3,708,139 2,072,651 2,056,942 Commitments on term financial instruments Other commitments Fiduciary deposits Financial assets under management Impaired loans fully provided for and transferred to off financial position ,110, , ,344 5,312,368 82,695 77, ,144 1,225,649 4,082,514 83,928 73

76 CONSOLIDATED STATEMENT OF CASH FLOW for the Year ended 31 December NOTES OPERATING ACTIVITIES Profit for the financial period before income tax Adjustments for: Prior year adjustment by subsidiary company Depreciation of property and equipment Amortization of intangible assets Profit from sale of property and equipment Writeback of provision for loans and advances, net Provision for impairment of financial assets Impairment allowance for placements with other banks Unrealized loss (profit) for investment properties Provision for doubtful sundry debtors Provision for retirement obligation benefits Net provision for risks and charges Provision for fiduciary customers commitments Net provision for outstanding claims and IBNR reserves Profit from sale of noncurrent assets held for sale Profit from sale of financial assets classified as loans and receivables Profit from sale of availableforsale financial investments Unrealized loss on financial assets designated at fair value through profit or loss Changes in operating assets and liabilities: Financial assets heldfortrading (2) Financial assets designated at fair value through profit or loss Banks and financial institutions debit Derivative financial instruments debit Loans and advances to customers Loans and advances to related parties Noncurrent assets held for sale Other assets Derivative financial instruments credit Banks and financial instruments credit Customers' deposits Related parties deposits Other liabilities ,711 33,118 1,770 (129) (5,215) (15,721) (37) 6,484 1,575 7,056 (2,474) (23,398) (14,265) (7,507) 508,968 (10,499) (49,940) (142,618) 6,323 (810,939) (4,596) ,677 (33,253) (125,650) 4,222,956 90,276 61, ,726 (8,773) 25, (5,024) (1,160) 15,723 3, ,275 10, ,160 7,226 (1,184) (101) (9,232) 4, ,454 26,866 (23,408) (229,354) (20,837) (1,055,920) (986) (13,460) (34,144) 32, ,308 2,029,542 38,315 47,903 Cash from operations Taxes paid Settlement of provisions for risks and charges Retirement obligation benefits paid 32 3,758,268 (91,055) (1,915) (2,551) 1,412,975 (56,838) (1,591) (2,194) Net cash from operating activities 3,662,747 1,352,352 74

77 NOTES INVESTING ACTIVITIES Term deposits with central banks Financial investments available for sale (1) (3) Financial assets classified as loans and receivables (1) (2) (3) Financial assets held to maturity Purchase of intangible assets Purchase of property and equipment Cash proceeds from the sale of property and equipment , ,717 (2,067,550) (140,041) (3,451) (115,848) 23,406 (199,704) (1,588,100) (180,179) (634,956) (1,760) (98,760) 11,034 Net cash used in investing activities (2,059,476) (2,692,425) FINANCING ACTIVITIES Redemption of preferred shares Purchase of treasury shares, net Minority interests Dividends paid 38,35 (17,128) (6,447) (136,906) (113,093) (3,635) 17,446 (157,552) Net cash used in financing activities (160,481) (256,834) Effect of exchange rate changes (8,908) 4,879 Increase (Decrease) in cash and cash equivalents 1,433,882 (1,592,028) Cash and cash equivalents as of 1 January Cash and cash equivalents as of 31 December 37 7,261,500 8,695,382 8,853,528 7,261,500 Operational cash flows from interest and dividends Interest paid Interest received Dividend received 1,053,850 1,693,483 1,500 1,019,578 1,593,881 8,255 (1) Non cash transactions in the investing activities include an increase in financial assets classified as loans and receivables in the amount of LL 2,775,362 million, against a decrease in financial investments availableforsale in the investing activities in the same amount during. (2) Non cash transactions in the investing activities include an increase in financial assets classified as loans and receivables in the amount of LL 63,424 million, against a decrease in financial assets held for trading in the operating activities in the same amount during. (3) Non cash transactions in the investing activities include an increase in financial assets classified as loans and receivables in the amount of LL 921,530 million against a decrease in financial investments availableforsale for the same amount during. 75

78 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December Attributable to equity holders of the parent Share capital common shares Share capital preferred shares Share permium on common shares Share permium on preferred shares Capital reserves Treasury shares Balance at 1 January 223,600 18, , , ,391 (39,877) Results of the financial period profit for the year Other comprehensive income Total comprehensive income Minority interests share in capital increase of a subsidiary company (note 33) Dividends distributions (note 38) Appropriation of profits (note 34) Purchase of treasury shares (note 35) Sales of treasury shares (note 35) Minority interests share from dividends distribution in subsidiary companies Dividends on treasury shares (note 35) 116,942 1,718 (78,373) 59,527 Balance at 31 December 223,600 18, , , ,051 (58,723) Balance at 1 January 215,000 25, , , ,961 (36,122) Results of the financial period profit for the year Other comprehensive loss Total comprehensive income Capital increase (note 33, 34) Redemption of preferred shares 2002 (note 33) Dividends distributions (note 38) Appropriation of 2007 profits (note 34) Purchase of treasury shares Sale of treasury shares (note 35) Minority interests share in capital of newly established subsidiary companies Minority interests share from dividends distribution in subsidiary companies Reallocation of tax related to dividends distribution booked in 2007 Dividends on treasury shares (note 35) Other adjustment related to a subsidiary Other transfers 8, (7,500) (105,593) (9,300) 83, (8,326) (14,900) 11,145 Balance at 31 December 223,600 18, , , ,391 (39,877) 76

79 Results of the financial period profit Total Equity Total Minority interest Availableforsales reserve Retained earnings Foreign currency translation reserve Other reserve Reserve for revaluation variance Real Estate 14,727 14,727 14,727 14,727 3, , , ,184 13,995 (10,090) (10,090) 3,905 46,565 (9,396) (9,396) 37,169 37,737 1,657 1,657 7,171 46, , ,923 5, , ,603 60,289 8,326 1,589 (8,773) (7,171) 229, , , ,558 (142,181) (223,090) 429, , , ,271 (159,141) (144,331) 365,271 2,078, ,558 92, ,441 (142,181) (78,373) 61,245 5,275 2,446,527 2,004, ,271 (8,433) 356,838 (113,093) (159,141) (14,900) 11,265 1,589 (8,773) 2,078, ,199 12,171 2,099 14, (13) 13 (6,522) 129,022 88,074 13,983 1,696 15,679 21,227 (3,730) (51) 121,199 2,199, ,729 94, , (142,181) (78,386) 61,258 (6,522) 5,275 2,575,549 2,092, ,254 (6,737) 372,517 (113,093) (159,141) (14,900) 11,265 21,227 (3,730) 1,589 (8,824) 2,199,319 77

80

81

82

83 NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION ACCOUNTING POLICIES SEGMENTAL INFORMATION INTREST AND SIMILAR INCOME INTREST AND SIMILAR EXPENSES NET FEES AND COMMISSION INCOME NET TRADING INCOME NET PTOFIT ON FINANCIAL INVESTMENTS CREDIT LOSS INCOME (EXPENSES) PERSONNEL EXPENSES OTHER OPERATING EXPENSES INCOME TAX EARNINGS PER SHARE CASH AND BALANCES WITH CENTRAL BANKS DUE FROM BANKS AND FINANCIAL INSTITUIONS DERIVATIVE FINANCIAL INSTRUMENTS FINANCIAL ASSETS HELD FOR TRADINGS FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS LOANS AND ADVANCES TO CUSTOMERS BANK ACCEPTANCES/ ENGAGEMENTS BY ACCEPTANCES NONCURRENT ASSETS HELD FOR SALE FINANCIAL INVESTMENTS PROPERTY AND EQUIPMENT INTANGIBLE ASSETS OTHER ASSETS GOODWILL DUE TO BANKS AND FINANCIAL INSTITUTIONS CUSTOMERS DEPOSITS CURRENT TAX LIABILITIES OTHER LIABILITIES PROVISIONS FOR RISKS AND CHARGES RETIREMENT BENEFITS OBLIGATION SHARE CAPITAL AND PERMIUMS CAPITAL RESERVES TREASURY SHARES CUMULATIVE CHANGES IN FAIR VALUES CASH AND CASH EQUIVALENTS DIVIDENDS DECLARED AND PAID RELATED PARTY TRANSACTIONS CONTINGENT LIABILITIES, COMMITMENTS AND LEASING ARRANGEMENTS FIDUCIARY DEPOSITS, ASSETS UNDER MANAGEMENT AND CUSTODY ACCOUNTS FAIR VALUE OF THE FINANCIAL INSTRUMENTS MATURITY ANALYSIS OF ASSETS AND LIABILITIES LEGAL CASES AND CONTINGENT LIABILITIES RISK MANAGEMENT CAPITAL MANAGEMENT COMPARATIVE INFORMATION 141

84 1. CORPORATE INFORMATION BLOM Bank SAL (the Bank ), a Lebanese joint stock company, was incorporated in 1951 and registered under No 2464 at the commercial registry of Beirut and under No 14 on the banks list published by the Bank of Lebanon. The headquarters of the Bank are located in Verdun, Rashid Karameh Street, Beirut, Lebanon. The Bank, together with its affiliated banks and subsidiaries (the Group), provides a wide range of banking (commercial, investment and private) as well as insurance and brokerage services. On 14 February, the Central Bank of the United Arab Emirates licensed BLOM Bank SAL to open a representative office in Abu Dhabi. This license is valid for five years. On 12 March, the Group obtained the approval from the Egyptian authorities for the establishment of two insurance companies in Egypt: (1) Arope Life Insurance Egypt SAE, activity includes life insurance, with a capital of EGP 100 million, and (2) Arope Insurance of Properties and Responsibilities Egypt SAE, activity includes properties and related responsibilities insurance, with a capital of EGP 100 million. On 11 June, the Group paid 50% of the issued capital allocated to the Group. 2. ACCOUNTING POLICIES 2.1 Basis of preparation The consolidated financial statements are prepared under the historical cost convention as modified 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 derivative financial instruments, financial assets heldfortrading, financial assets designated at fair value through profit or loss, financial investments availableforsale. The consolidated financial statements have been presented in millions of Lebanese Lira (s), which is the functional currency of the Bank. Balances denominated in other currencies have been presented in thousands. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by International Standards Board (IASB), and the regulations of the Bank of Lebanon and the Banking Control Commission. The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (noncurrent) is presented in note 43. Financial assets and financial liabilities are offset and the net amount 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. Income and expense will not be 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. 82

85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries for the year ended 31 December. The financial statements of the Bank s subsidiaries are prepared for the same reporting year as BLOM Bank SAL, using consistent accounting policies. All intragroup balances, transactions, income and expenses are eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Bank. Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal. Minority interests represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Bank and are presented separately in the consolidated income statement and within equity in the consolidated statement of financial position, separately from parent shareholders equity. Any losses applicable to the minority interests in excess of the minority interests are allocated against the interests of the parent. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the fair value of the share of the net assets acquired is recognized as goodwill. If the cost of acquisition is below the fair values of the identifiable net assets acquired (i.e. a discount on acquisition), the difference is recognized directly in the consolidated statement of comprehensive income in the year of acquisition. The consolidated financial statements include the financial statements of BLOM Bank SAL and the subsidiaries listed in the following table: % Effective equity interest BLOM Bank France SA BLOM Bank (Switzerland) SA BLOM Invest Bank SAL BLOM Development Bank SAL Bank of Syria and Overseas SA Arope Insurance SAL Syria International Insurance (Arope Syria) SA BLOM Bank Egypt SAE BLOM Egypt Securities SAE BLOM Invest Saudi Arabia BLOM Bank Qatar LLC Arope Life Insurance Egypt SAE Arope Insurance of Properties and Responsibilities Egypt SAE Syria and Overseas Company for Financial Services Notes c a d and f b and d c and f d e e d and e d and e e and g Country of incorporation France Switzerland Lebanon Lebanon Syria Lebanon Syria Egypt Egypt Saudi Arabia Qatar Egypt Egypt Syria Activities Banking activities Banking activities Banking activities Islamic banking activities Banking activities Insurance activities Insurance activities Banking activities Brokerage activities Banking activities Banking activities Insurance activities Insurance activities Brokerage activities % % (a) Effective 1 January 2004, the Group obtained control, by virtue of agreement with other investors, over Bank of Syria and Overseas SA, and consequently, the financial statements of Bank of Syria and Overseas SA have been consolidated with those of the Group. (b) Effective 1 January 2006, the Group obtained control, by virtue of agreement with other investors, over Syria International Insurance (Arope Syria) SA, and consequently, the financial statements have been consolidated with those of the Group. (c) In November 2007, BLOM Bank Egypt SAE sold its branches in Romania to BLOM Bank France SA. Consequently, the Group realized foreign currency translation reserve in the amount of LL 7,171 million upon the sale of the branches in Romania. During, the Group reclassified the foreign currency translation reserve realized in 2007 upon the sale of the branches in Romania from Retained earnings to Foreign currency translation reserve. 83

86 (d) The change in ownership is due to restructuring among the Group with no economic substance. (e) These subsidiaries were established in. (f) The ownership interests of these subsidiaries were affected by the share capital increase of the respective subsidiaries which resulted in dilution of minority share. (g) Syria and Overseas Company for Financial Services is 52% owned by Bank of Syria and Overseas SA. Consequently the financial statements of Syria and Overseas Company for Financial Services have been consolidated with those of the Group. 2.2 Changes in accounting policies The accounting policies adopted are consistent with those used in the previous financial year except that the Group has adopted the following standards, amendments and interpretations; which did not have any effect on the financial performance or position of the Group. They did however, give rise to additional disclosures. IAS 1 Presentation of financial statements This standard requires an entity to present all owner changes in equity and all nonowner changes to be presented either in one statement of comprehensive income or in two separate statements of income and comprehensive income. The revised standard also requires that the income tax effect of each component of comprehensive income be disclosed. In addition, it requires entities to present a comparative statement of financial position as at the beginning for the earliest comparative period when the entity has applied an accounting policy retrospectively, makes a retrospective restatement, or reclassifies items in the financial statements. The Group has elected to present comprehensive income in two separate statements of income and comprehensive income. Information about the individual components of comprehensive income as well as the tax effects have been disclosed in the notes to the financial statements. The Group has not provided a restated comparative set of financial position for the earliest comparative period, as it has not adopted any new accounting policies retrospectively, or has made retrospective restatements, or retrospectively reclassified items in the financial statements. Amendments to IFRS 7 Financial Instruments: Disclosures Improving Disclosures about Financial Instruments. The amendments to IFRS 7 were issued in March to enhance fair value and liquidity disclosures. With respect to fair value, the amendments require disclosure of a threelevel fair value hierarchy, by class, for all financial instruments recognised at fair value and specific disclosures related to the transfers between levels in the hierarchy and detailed disclosures related to level 3 of the fair value hierarchy. In addition, the amendments modify the required liquidity disclosures with respect to derivative transactions and assets used for liquidity management. IFRS 8 Operating Segments This standard requires disclosure of information about the Group s operating segments and replaced the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. The Group concluded that the operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14, IFRS 8 disclosures are shown in Note 3. IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 is effective for accounting periods beginning on or after 1 October with early application permitted. The Interpretation applies to a entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS

87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December In addition, the following standards and interpretations are effective for the financial year. The adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group: IAS 23 (Borrowing costs) (Revised) Amendments to IAS 32 Financial Instruments: Presentations and IAS 1 Presentation of financial Statements, Puttable financial Instruments and Obligations Arising on Liquidation. Amendments to IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives. IFRIC 13 Customer Loyalty Programmes. IFRIC 15 Agreements for the Construction of Real Estate Improvements to International Financial Reporting Standards (issued ) Improvements to International Financial Reporting Standards (issued ) Future changes in accounting policies Below is the list of standards issued but not yet effective for the year ended 31 December : IFRS 2 Share based Payment: Group Cashsettled Share based Payment Transactions IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and separate Financial Statements (Amended) IFRS 9 Financial Instruments: Classification and Measurement. Amendment to IAS 39 Financial Instruments: Recognition and Measurement eligible Hedged items. IFRIC 17 Distributions on Noncash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Management does not expect the above standards to have a significant impact on the Group s financial statements when implemented in future years. Improvements to IFRSs In May and April the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separated transitional provisions for each standard. The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group: IFRS 5:Noncurrent Assets Held for Sale and Discontinued Operations IAS 7: Statement of Cash Flows IAS 8: Accounting Policies, Change in Accounting Estimates and Error IAS 10: Events after the Reporting Period IAS 16: Property, Plant and Equipment IAS 18 Revenue IAS 19: Employee Benefits IAS 20: Accounting for Government Grants and Disclosures of Government Assistance IAS 27: Consolidated and Separate Financial Statements IAS 28: Investment in Associates IAS 31: Interest in Joint ventures IAS 34: Interim Financial Reporting IAS 36: Impairment of Assets IAS 38: Intangible Assets IAS 39: Financial Instruments: Recognition and Measurement IAS 40: Investments Properties 2.3 Summary of significant accounting policies (1) Foreign currency translation The consolidated financial statements are presented in Lebanese Lira which is the Bank s functional and presentation currency. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. 85

88 Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the statement of financial position date. All differences arising on nontrading 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 other comprehensive income until the disposal of the net investment, at which time they are recognized in the income statement. Tax charges and credits attributable to exchange differences on those borrowings are also recorded in other comprehensive income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 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. Group companies As at the reporting date, the assets and liabilities of subsidiaries and overseas branches are translated into the Bank s presentation currency at the rate of exchange as at the statement of financial position date, and their income statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. 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, respectively. (2) Financial instruments initial recognition and subsequent 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) Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on the purpose and the management s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss and held for trading assets. (iii) Derivatives recorded at fair value through profit or loss The Group uses derivatives such as forward foreign exchange contracts and options on foreign currencies. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in Net trading income. Derivatives embedded in other financial instruments, such as the conversion option in an acquired convertible bond, are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself heldfortrading or designated at fair value through profit or loss. The embedded derivatives separated from the host are carried at fair value in the trading portfolio with changes in fair value recognized in the consolidated income statement. (iv) Financial assets heldfortrading Financial assets heldfortrading are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recognized in Net trading income. Interest and dividend income or expense is recorded in Net trading income according to the terms of the contract, or when the right to the payment has been established. 86

89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Included in this classification are debt securities and equities which have been acquired principally for the purpose of selling or repurchasing in the near term. The Group evaluated its financial assets heldfortrading at fair value whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management s intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rate circumstances. The reclassification to loans and receivables, availableforsale or heldtomaturity depends on the nature of the asset. (v) Financial assets designated at fair value through profit or loss Financial assets classified in this category are those that have been designated by management on initial recognition. Management may only designate an instrument at fair value though profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis: The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or The assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or The financial instrument contains one or more embedded derivatives which significantly modify the cash flows that otherwise would be required by the contract. Financial assets at fair value through profit or loss are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recorded in Net gain or loss on financial assets designated at fair value through profit or loss. Interest earned is accrued in Interest income using the effective interest rate, while dividend income is recorded in Other operating income when the right to the payment has been established. (vi) Availableforsale financial investments Availableforsale investments include equity and debt securities. Equity investments classified as availableforsale are those which are neither classified as heldfortrading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, availableforsale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the availableforsale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in net profit or loss on financial operations. Where the Bank holds more than one investment in the same security they are deemed to be disposed of on a firstin firstout basis. Interest earned whilst holding availableforsale financial investments is reported as interest income using the effective interest rate. Dividends earned whilst holding availableforsale financial investments are recognized in the income statement as Net gain on financial investments when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the consolidated statement of income in Impairment losses on financial investments and removed from the Availableforsale reserve. The Group evaluated its availableforsale financial assets whether the ability and intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management s intent significantly changes to do so in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables and has the intent and ability to hold these assets for the foreseeable future or maturity. The reclassification to heldtomaturity is permitted only when the entity has the ability and intent to hold until the financial asset accordingly. 87

90 (vii) Heldtomaturity financial investments Heldtomaturity financial investments are nonderivative financial assets with fixed or determinable payments and fixed maturities, which the Bank has the intention and ability to hold to maturity. After initial measurement, heldtomaturity financial investments are subsequently measured at amortized cost using the effective interest rate, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in Interest and similar income in the income statement. The losses arising from impairment of such investments are recognized in the income statement line Credit loss expense. If the Group were to sell or reclassify more than an insignificant amount of heldtomaturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as availableforsale. Furthermore, the Bank would be prohibited from classifying any financial assets as heldtomaturity during the following two years. (viii) Financial assets classified as loans and receivables Financial assets classified as loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. 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, loans and receivables are measured at amortised cost, using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee that are integral part of the effective interest rate. The amortisation is included in Interest and similar income in the consolidated statement of income. Gain or losses are recognized in the consolidated statement of income when the investments are derecognised or impaired. The losses arising from impairment are recognized in the consolidated of income statement in Credit loss expense. (ix) Due from banks and loans and advances to customers Due from banks and Loans and advances to customers, include nonderivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: Those that the Group intends to sell immediately or in the near term and those that the Group upon initial recognition designates as at fair value through profit or loss; Those that the Group, upon initial recognition, designates as availableforsale; or Those for which the Group may not recover substantially all of its initial investment, other than because of credit deterioration. After initial measurement, amount Due from banks and Loans and advances to customers are subsequently measured at amortized cost using the effective interest rate, 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 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 Credit loss expense. (x) Reclassification of financial assets Effective from 1 July, the Group may reclassify, in certain circumstances, nonderivative financial assets out of the Heldfortrading category and into the Availableforsale, Loans and receivables, or Heldtomaturity categories. From this date it may also reclassify, in certain circumstances, financial instruments out of the Availableforsale category and into the Loans and receivables category. Reclassifications are recorded at fair value at the date of reclassification which becomes the new amortized cost. The Group may reclassify a nonderivative trading asset out of the Heldfortrading category and into the Loans and receivables category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate. 88

91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December For a financial asset reclassified out of the Availableforsale category, any previous gain or loss on that asset that has been recognized in other comprehensive income is amortized to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in other comprehensive income is recycled to the consolidated income statement. Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Group does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. An analysis of reclassified assets is disclosed in Note 42. (3) Derecognition of financial assets and financial liabilities i. Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a passthrough arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. ii. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. (4) Determination of fair value The fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 42. (5) Impairment of financial assets The Group assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. 89

92 Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (i) Financial assets carried at amortised cost For financial assets carried at amortised cost (such as amounts due from banks, loans and advances to customers, financial assets classified as loans and receivables as well as heldtomaturity investments), the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of Interest and similar income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future writeoff is later recovered, the recovery is credited to the Credit loss expense. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. If the Group has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new effective interest rate (Refer to Note 2.3 (2) (x) above) determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, pastdue status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. See Note 22 for details of impairment losses on financial assets carried at amortized cost and Note 19 for an analysis of impairment allowance on loans and advances by class. (ii) Availableforsale financial investments For availableforsale financial investments, the Group assess at each statement of financial position date whether there is objective evidence that an investment is impaired. 90

93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December In the case of debt instruments classified as availableforsale, the Group assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of Interest and similar income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to credit event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed through the consolidated income statement. In the case of equity investments classified as availableforsale, objective evidence would also include a significant or prolonged decline in the fair value of the investment below its cost. The Group treats significant generally as 20% and prolonged as greater than 6 months. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement is removed from other comprehensive income and recognized in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in the fair value after impairment are recognized directly in other comprehensive income. (iii) Renegotiated loans Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original effective interest rate as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan s original effective interest rate. (6) Hedge accounting The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions and firm commitments. In order to manage particular risks, the Bank applies hedge accounting for transactions which meet the specified criteria. At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship. Also at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed quarterly. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated are expected to offset in a range of 80% to 125%. For situations where that hedged item is a forecast transaction, the Group assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated income statement. (i) Fair value hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in the consolidated income statement in Net trading income. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the consolidated income statement in Net trading income. 91

94 If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, the difference between the carrying value of the hedged item on termination and the face value is amortised over the remaining term of the original hedge using the effective interest rate. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the consolidated income statement. (ii) Cash flow hedges For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is initially recognised directly in equity in the Cash flow hedge reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in Net trading income. When the hedged cash flow affects the consolidated income statement, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the consolidated income statement. When a hedging instrument expires, or is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement. (iii) Hedge of a net investment Hedges of net investments in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the income. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the consolidated income statement. (7) Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position, if, and only if, there is currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. (8) Operating leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expenses in the income statement on a straightline basis over the lease term. (9) Recognition of income and expenses Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: (i) Interest and similar income and expenses For all financial instruments measured at amortized cost, interest bearing financial assets classified as availableforsale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate. However, for a reclassified financial asset (see Note (x)) for which the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate. 92

95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (ii) Fee and commission income The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognized as an adjustment to the effective interest rate on the loan. When it is unlikely that a loan be drawn down, the loan commitment fees are recognized over the commitment period on a straight line basis. Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognized on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognized after fulfilling the corresponding criteria. (iii) Dividend income Dividend income is recognized when the Group s right to receive the payment is established. (iv) Net trading income Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities Heldfortrading. This includes any ineffectiveness recorded in hedging transactions. (10) Cash and cash equivalents Cash and cash equivalents as referred to in the cash flow statement comprise balances with original maturities of a period of three months or less including: cash and balances with central banks, deposits with banks and financial institutions, deposits due to banks and financial institutions, and treasury bills. (11) Property and equipment Property and equipment are stated at cost less accumulated depreciation and accumulated impairment in value. Certain of tangible real estate properties purchased prior to 1 January 1994 were restated for the changes in the general purchasing power of the Lebanese Lira according to the provisions of law No 282 dated 30 December The net surplus arising on revaluation is credited to the account of Reserves for revaluation variance real estate recognized in shareholders equity. Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates. Depreciation is calculated on a straight line basis to write down the cost of property and equipment to their residual values over their estimated useful lives. Freehold land is not depreciated. The estimated useful lives are as follows: Buildings Vehicles Furniture, office installations and computer equipment 50 years 6.67 years years 93

96 Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in Net profit from sale or disposal of other assets in the consolidated income statement in the year the asset is derecognised. (12) Business combinations and goodwill Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognized directly in the income statement in the year of acquisition. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cashgenerating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit to which the goodwill is allocated: represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and is not larger than an operating segment in accordance with IFRS 8 Operating Segments. Where goodwill forms part of a cashgenerating unit (or group of cashgenerating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cashgenerating unit retained. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill is recognized in the consolidated income statement. (13) Intangible assets The Group s other intangible assets include the value of computer software and key money. An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial yearend. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category consistent with the function of the intangible asset. Amortisation is calculated using the straightline method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows: Key money: Software development cost: the lesser of lease period or 5 years 25 years 94

97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December (14) Non current assets held for sale The Group occasionally acquires real estate in settlement of certain loans and advances. Such real estate is stated at the lower of the amount of the related loans and advances and the current fair value of such assets based on the instructions of the Regulatory Authorities. Gains or losses on disposal, and revaluation losses, are recognized in the consolidated income statement for the period. (15) Impairment of nonfinancial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cashgenerating unit s fair value less costs to sell and its value in use. Where the carrying amount of an asset or cashgenerating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset s or cashgenerating unit s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated income statement. Impairment losses relating to goodwill cannot be reversed in future periods. (16) Financial guarantees In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within Other liabilities ) at fair value, being the premium received. Subsequent to initial recognition, the Group s liability under each guarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the consolidated income statement and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. (17) Customers deposits All customer deposits are carried at the fair value of the consideration received, less amounts repaid. (18) Taxation (i) Current tax Taxation is provided for in accordance with the fiscal regulations of the respective countries in which the Group and its branches and subsidiaries operate. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the statement of financial position date. The Bank s profits from operations in Lebanon are subject to a tax rate of 15% after deducting the 5% tax on interest received according to Law no. 497/2003 dated 30 January Dividends are subject to a flat 10% tax, reducible to 5% provided that the Bank is listed on a regulated stock exchange. 95

98 (ii) Deferred tax Deferred tax is provided on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts in the financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except: Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the consolidated income statement. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (19) Provisions for risks and charges Provisions are recognized when the Group has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured. (20) Retirement benefits obligation The Group provides retirement benefits obligation to its employees. The entitlement of these benefits is based upon the employees final salary, length of services and other local regulations where the Group operates. The expected costs of these benefits are accrued over the period of employment. For the Bank and its branches operating in Lebanon, endofservice benefit subscriptions paid and due to the National Social Security Fund (NSSF) are calculated on the basis of 8.5% of the staff salaries. The final endofservice benefits due to employees after completing 20 years of service, at the retirement age, or if the employee permanently leaves employment, are calculated based on the last salary multiplied by the number of years of service. The Bank is liable to pay to the NSSF the difference between the subscriptions paid and the final endofservice benefits due to employees. The Bank provides for endofservice benefits on that basis. 96

99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December (21) Treasury shares Own equity instruments of the Bank which are acquired by it or by any of its subsidiaries (treasury shares) are deducted from equity and accounted for at weighted average cost. Consideration paid or received on the purchase sale, issue or cancellation of the Bank s own equity instruments is recognized directly in equity. No gain or loss is recognized in the consolidated income statement on the purchase, sale, issue or cancellation of the Bank s own equity instruments. When the Bank holds own equity instruments on behalf of its clients, those holdings are not included in the Bank s statement of financial position. (22) Fiduciary assets The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group; and accordingly are recorded as off financial position items. (23) Dividends on ordinary shares Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank s shareholders. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the statement of financial position date. (24) Segment reporting The Group s segmental reporting is based on the following operating segments: Retail banking, corporate banking, treasury, money and capital markets and asset management and private banking. (25) Accounting policies of subsidiaryinsurance companies The financial statements of the subsidiary insurance companies have been prepared in accordance with International Financial Reporting Standards and the requirements of the regulations related to insurance and reinsurance companies where the subsidiaries operate. The key accounting policies are as follows: Premiums earned Net premiums and accessories (gross premiums) are taken to income over the terms of the policies to which they relate using the prorata temporis method for nonmarine business and 25% of gross premiums for marine business. Unearned premiums reserve represents the portion of the gross premiums written relating to the unexpired period of coverage. If the unearned premiums reserve is not considered adequate to cover future claims arising on these premiums a premium deficiency reserve is created. Commissions earned and paid Commissions earned are recognized at the time policies are written. Commissions paid are expensed over the terms of the policies to which they relate using the prorata temporis method for nonmarine business and 25% of commissions paid for marine business. Deferred acquisition costs represent the portion of commissions paid relating to the unexpired period of coverage. (26) Bank acceptances Bank acceptances represent term documentary credits which the Group has committed to settle on behalf of its clients against commitments by those clients (acceptances). The commitments resulting from these acceptances are stated as a liability in the statement of financial position for the same amount. 2.4 Significant accounting judgments and estimates In the process of applying the Group s accounting policies, management has exercised judgment and estimates in determining the amounts recognized in the financial statements. The most significant use of judgment and estimates are as follows: 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, the 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. 97

100 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 input to these models is taken from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. The valuation of financial instruments is described in more detail in Note 42. Impairment losses on loans and advances The Group reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the 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), concentrations of risks and economic data (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups). The impairment loss on loans and advances is disclosed in more detail in note 9. Impairment of availableforsale investments The Group reviews its debt securities classified as availableforsale investments at each statement of financial position date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances. The Group also records impairment charges on availableforsale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates, among other factors, historical share price movements and the duration and extent to which the fair value of an investment is less than its cost. 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. 3. SEGMENTAL INFORMATION The Group s segments provide products or services subject to different risks and returns than other segments. The Group operates in four major business segments: retail, corporate, treasury, money and capital markets, and asset management and private banking. Retail banking: Corporate banking: Treasury, money and capital markets: Principally handling individual, customers deposits and providing consumer loans, overdrafts, credit cards facilities and funds transfer facilities. Principally handling loans and other credit facilities and deposit and current accounts for corporate and institutional customers. Principally handling various investment services including operations in the money market for the Group s customers, trading operations (locally and internationally) and management of the liquidity risks and market risks. This segment also handles the management of the Group s portfolio of equities, debt securities and other financial instruments. 98

101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Asset management and private banking: Principally providing investment products and services to institutional investors and intermediaries. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the financial statements. Income taxes are not allocated to operating segments. Interest income is reported net since the majority of the segments revenues are from interest. Management primarily relies on net interest revenue as performance measure, not the gross revenue and expense amounts. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group s total revenue in or. Transfer prices between operating segments are on an arm s length basis in a manner similar to transactions with third parties. The following table presents income and profit and certain asset and liability information regarding the Group s operating segments. Revenue Net interest income Net fee and commission income Net trading income Net gain on financial assets designated at fair value through profit or loss Net gain on financial investments Other operating income Treasury, money and capital markets 466,617 11,200 11,639 7,507 38,558 Corporate banking 102,679 67,343 Retail banking 58,043 16,140 24,442 18,836 Asset management and private banking 4,194 9,537 Unallocated 17,558 Total 631, ,778 36,081 7,507 38,558 18,836 Total operating income 535, , ,461 13,731 17, ,293 Credit loss income (expense) Writeback of provision on financial investments 15,721 6,915 (1,700) 5,215 15,721 Net operating income 551, , ,761 13,731 17, ,229 Unallocated expenses Income tax expense (347,518) (85,982) Profit of the year 441,729 Segment s assets 24,314,720 4,266,159 1,617, , ,724 31,208,844 Segment s liabilities 20,536,777 4,519,098 2,554, , ,959 28,633,295 99

102 Revenue Net interest income Net fee and commission income Net trading income Net loss on financial assets designated at fair value through profit or loss Net gain on financial operations Other operating income Treasury, money and capital markets 461,325 11,914 14,269 (4,523) 9,809 Corporate banking 117,474 71,066 Retail banking 34,987 20,627 27,036 7,433 Asset management and private banking 4,443 8,030 Unallocated 10,595 Total 618, ,232 41,305 (4,523) 9,809 7,433 Total operating income 492, ,540 90,083 12,473 10, ,485 Credit loss income (expense) Impairment losses on financial investments (14,200) (15,723) (13,040) (15,723) Net operating income 462, ,522 90,261 12,473 10, ,722 Unallocated expenses Income tax expense (307,996) (78,472) Profit of the year 379,254 Segment s assets 20,954,459 3,946,658 1,324, , ,769 26,980,813 Segment s liabilities 17,931,199 4,566,084 1,359, , ,596 24,781,494 Geographic information The Group operates in two geographic markets based on the location of its markets and customers. The local market represents the Lebanese market and the international market represents markets outside Lebanon. The following table shows the distribution of the Group s external net operating income, total assets and capital expenditure by geographical segment. Domestic International Total Revenue Net interest income Net fees and commission income Net trading income Net gain or loss on financial assets designated at fair value through profit or loss Net profit on financial investments Other operating income Credit loss (expense) income Write back of provision (impairment losses) on financial investments 515,015 71,566 13,419 7,507 31,619 7,411 8, ,145 60,591 10,879 (4,523) 7,655 3,418 5, ,518 50,212 22,662 6,939 11,425 (3,054) 15, ,084 61,641 30,426 2,154 4,015 (18,510) (15,723) 631, ,778 36,081 7,507 38,558 18,836 5,215 15, , ,232 41,305 (4,523) 9,809 7,433 (13,040) (15,723) Net operating income 654, , , , , ,722 Total operating expenses Net profit from sale or disposal of other assets (188,734) 75 (182,294) 725 (158,913) 54 (130,726) 4,299 (347,647) 129 (313,020) 5,024 Profit before tax 466, ,066 61, , , ,726 Total assets 18,674,224 15,718,922 12,534,620 11,261,891 31,208,844 26,980,813 Capital expenditures 34,156 37,217 85,143 63, , , The Group s major business segment is banking. Insurance activities represent 2% (: 2%) of profit before income tax and 1% (: 1%) of total assets.

103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 4. INTEREST AND SIMILAR INCOME Financial investments availableforsale Financial investments classified as loans and receivables Financial investments held to maturity Financial investments fair value through profit or loss Deposits and similar accounts with banks and financial institutions Loans and advances to customers Loans and advances to related parties 389, ,444 27,648 3, , ,272 1,034 1,712, , ,873 29,108 3, , , ,631, INTEREST AND SIMILAR EXPENSES Deposits and similar accounts from banks and financial institutions Deposits from customers and other credit balances Deposits from related parties 10,534 1,064,548 6,313 1,081,395 18, ,085 5,371 1,013, NET FEES AND COMMISSION INCOME Fees and commission income Letters of credit, guarantees and acceptances Loans and advances to customers Asset management and correspondent s accounts (arising from fiduciary activities) Checking accounts and transfers Credit cards Customers deposits Insurance premiums commissions Other services Fees and commission expense: Correspondents accounts 26,538 22,263 9,537 11,200 12,258 18,541 17,558 26, ,735 (22,957) 121,778 28,325 24,005 8,030 11,914 10,278 18,736 10,595 26, ,208 (15,976) 122, NET TRADING INCOME Debt securities Equities Foreign exchange Equities income includes the results of buying and selling, and changes in the fair value of equity securities. 1,793 6,808 27,480 36,081 4,673 4,730 31,902 41,305 Debt securities income includes the results of buying and selling and changes in the fair value of debt securities as well as the related interest income and expense. Foreign exchange income includes gains and losses from spot and forward contracts and other currency derivatives. 8. NET PROFIT ON FINANCIAL INVESTMENTS Dividend income Gain from sale of financial assets classified as loans and receivables Gain from sale of available for sale financial investments ,398 14,265 38, ,232 9,

104 9. CREDIT LOSS INCOME (EXPENSES) Provisions for loans and advances: Commercial loans (note 19) Consumer loans (note 19) Banks and financial institutions (note 15) Fiduciary customers commitments (note 31) Sundry debtors (note 25) Writeback of provisions for loans and advances: Commercial loans (note 19) Consumer loans (note 19) Unrealized interest (note 19) Offfinancial position loans Commitment by signature Settled legal suits Risk and charges (6,744) (3,331) (10,075) 4,980 1,631 2,412 5, ,290 5,215 (24,270) (99) (3,765) (9,160) (1,275) (38,569) 12, ,630 6, ,529 (13,040) 10. PERSONNEL EXPENSES Wages and salaries Social security contributions Provisions for retirement benefits obligation (note 32) Additional allowances Bonus paid 100,726 17,709 6,484 22,482 44, ,083 89,898 15,893 10,526 17,818 40, , OTHER OPERATING EXPENSES Board of directors attendance fees Taxes and fees Fee for guarantee of deposits Rent and related charges Electricity and fuel Professional fees Postage and telecommunications Maintenance and repairs Travel expenses Insurance Marketing and advertising Stationary and printings Fiscal stamps Others 1,238 12,346 8,225 9,117 4,670 13,036 9,972 10,800 3,378 1,791 9,604 5,162 4,119 27, ,676 1,153 6,566 6,768 8,585 4,710 10,855 10,706 8,374 3,973 1,201 10,265 6,973 3,427 28, ,

105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 12. INCOME TAX The components of income tax expense for the years ended 31 December and are: 5% tax paid on interest revenue during the year Income tax on profit for the year 32,327 53,655 85,982 21,678 56,794 78,472 Reconciliation of total tax change The relationship between taxable profit and accounting profit of BLOM Bank SAL and its foreign branches and subsidiaries is as follow: Profit before income tax Less: Results of the subsidiary insurance company located in Lebanon(*) Accounting profit before income tax Add: Provisions non tax deductible Other non tax deductible charges Unrealized loss on difference of exchange Less: Dividends received and previously subject to income tax Remunerations already taxed 4% of a subsidiary s capital eligible to be tax deductible Writeback of provisions previously subject to income tax Non taxable income Permanent deductible charges Losses related to prior years Others Taxable profit Effective income tax rate Income tax expense in the consolidated income statement 527,711 (7,702) 520,009 4,761 41, ,319 (3,969) (8,571) (400) (30,505) (6,582) (13,895) (41,655) (172) 461, % 85, ,726 (6,722) 451,004 50,157 31,579 1, ,654 (410) (8,735) (400) (18,137) (2,956) (49,964) (21,393) (132) 432, % 78,472 (*) The insurance company in Lebanon is subject to income tax at the rate of 15% calculated based on gross insurance premiums weighted differently for each class of business. 13. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year. The following table shows the income and share data used in the basic earnings per share calculations: Net profit for the year Less :Proposed dividends on preferred shares (note 38) Minority interest Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Basic earnings per share LL 441,729 (23,931) (12,171) 405,627 20,885,997 19, ,254 (23,931) (13,983) 341,340 21,179,584 16,116 No figure for diluted earnings per share has been presented as the Bank has not issued any instruments which would have an impact on earnings per share when exercised. 103

106 There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of approval of these consolidated financial statements. 14. CASH AND BALANCES WITH CENTRAL BANKS Cash on hand Current accounts with Central Banks Deposits with the Central Banks Cash and balances with the Central Banks include noninterest bearing balances held by the Group at the Bank of Lebanon in coverage of the obligatory reserve requirements for all banks operating in Lebanon on deposits in Lebanese Lira as required by the Lebanese banking rules and regulations. This obligatory reserve is calculated on the basis of 25% of sight commitments and 15% of term commitments. In addition to the above, all banks operating in Lebanon are required to deposit with the Bank of Lebanon interest bearing placements at the rate of 15% of total deposits in foreign currencies regardless of nature. Foreign subsidiaries are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are located. 15. DUE FROM BANKS AND FINANCIAL INSTITUTIONS 168,331 1,870,986 2,654,657 4,693, ,257 1,262,770 2,160,440 3,580,467 Current accounts Current accounts 554, ,017 Time deposits Time deposits Doubtful accounts with banks Less: Impairment allowance for placements with other banks (note 9) Less: Unrealized interest for placements with other banks Time deposits include US$ 185 million (: US$ 450 million) being guarantees against short term cash advances in the amount of Euro 105 million (: Euro 290 million). According to the contracts entered into with these banks, the Bank can withdraw these term deposits upon the settlement of the shortterm cash advances. The movement of the impairment allowance for placements with other banks is due to the difference of exchange of LL 4 million. 16. DERIVATIVE FINANCIAL INSTRUMENTS 5,231,027 5,197 (3,769) (58) 5,232,397 5,787,117 5,282,988 5,142 (3,765) 5,284,365 5,817,382 The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at the year end and are indicative of neither the market risk nor the credit risk. Assets Liablities Total Notional amount Assets Liablities Total Notional amount Derivatives heldfortrading Forward foreign exchange contracts Equity swaps and options Derivatives used as fair value hedges Forward foreign exchange contracts (Hedge of net investment in foreign operations) 21,632 5,072 26,704 6,840 6,840 33,544 18,454 5,072 23,526 23,526 3,466,008 1,110,062 4,576, , ,059 4,809,129 37,873 1,994 39,867 39,867 30,836 1,994 32,830 23,949 23,949 56,779 1,842,082 77,325 1,919, , ,569 2,149,

107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Derivatives often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the value of the asset, rate or index underlying a derivative contract may have a significant impact on the profit or loss of the Group. Overthecounter derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position. The Group s exposure under derivative contracts is closely monitored as part of the overall management of the Group s market risk (see also Note 45). Forwards Forward contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. Forwards are customized contracts transacted in the overthecounter market. The Group has credit exposure to the counterparties of forward contracts. Forward contracts are settled gross and are, therefore, considered to bear a liquidity risk. Forward contracts result in market risk exposure. Options Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. The Group purchases and sells options through regulated exchanges and in the overthecounter markets. Options purchased by the Group provide the Group with the opportunity to purchase (call options) or sell (put options) the underlying asset at an agreedupon value either on or before the expiration of the option. The Group is exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value. Derivative financial instruments held for trading purposes Most of the Group s derivative trading activities relate to deals with customers which are normally offset by transactions with other counterparties. The Group may also take positions with the expectation of profiting from favorable movements in prices, rates or indices. Also included under this heading are any derivatives entered into for hedging purposes which do not meet the IAS 39 hedge accounting criteria. Derivative held for hedging purposes As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its exposure to currency risk. The Group uses forward foreign exchange contracts to hedge against specifically identified currency risks. Hedge of net investment in foreign operations Forward foreign exchange contracts (to sell Euros and buy US Dollars) designated as a hedge of the Bank s net investment in its French subsidiary, and is being used to hedge the Bank s investment exposure to foreign exchange risk on this investment amounting to Euro 107,904 thousand (: same). The notional amount of these contracts amounted to Euro 107,904 thousand (LL 233,059 million) as at 31 December (: LL 230,569 million). The forward foreign exchange contracts were revalued as of 31 December and resulted in unrealized gain of LL 6,840 million (: unrealized losses of LL 23,949 million). The contracts mature on 4 February 2010 at latest. 17. FINANCIAL ASSETS HELDFORTRADING Debt securities Equities Investment funds 8,654 13,397 2,712 24,763 2,335 9,793 2,136 14,

108 18. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Convertible bonds Investments related to unitlinked contracts (i) 66,305 73, ,402 40,950 41,005 81,955 (i) The unrealized gain on investments related to unitlinked contracts amounted to LL 3,497 million for the year ended 31 December (: unrealized loss of LL 3,138 million) 19. LOANS AND ADVANCES TO CUSTOMERS Commercial loans Consumer loans Less: Allowance for impairment losses Allowance for unrealized interest on impaired loans Breakdown by economic sector 4,621,866 1,641,713 (178,946) (38,032) 6,046,601 4,102,485 1,346,041 (182,260) (35,819) 5,230,447 Agriculture and forestry Manufacturing Trade retail Trade wholesale Services Construction Freelance professions Consumer loans A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows: Commercial loans Consumer loans Total Commercial loans Consumer loans 24, , , ,881 1,653, , ,243 1,641,713 6,263,579 39, , ,911 1,013,297 1,237, , ,838 1,346,041 5,448,526 Total Balance at 1 January Add: Charge for the year Provision transferred from off financial position Recovery Foreign exchange difference Less: Provisions writtenoff Writeback of provisions Provision transferred to off financial position Foreign exchange difference Balance at 31 December 161,159 6,744 3, ,986 (4,685) (4,980) (5,144) (57) (14,866) 156,120 21,101 3, ,457 (1,631) (1,631) 22, ,260 10,075 3, ,443 (4,685) (6,611) (5,144) (57) (16,497) 178, ,025 24, (1,122) 254,400 (59,423) (12,218) (21,706) 106 (93,241) 161,159 21, ,410 (32) (277) (309) 21, ,336 24, (1,122) 275,810 (59,455) (12,495) (21,706) 106 (93,550) 182,260 Individual impairment Provision for loans not classified yet Gross amount of loans individually determined to be impaired 134,618 21, , ,828 5,076 17,750 22,826 13, ,694 39, , , ,456 19, , ,043 3,351 17,750 21,101 10, ,807 37, , ,

109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Collateral repossessed During the year, the Bank took possession of real estates with a carrying value of LL 14,411 million (: LL 15,463 million) at the statement of financial position date, which the Bank is in the process of selling. A reconciliation of allowance for unrealized interest on impaired loans, by class, as follows: Balance at 1 January Add: Unrealized interest for the year Foreign exchange difference Transferred from offfinancial position Less: Recoveries of unrealized interest Amounts writtenoff Transferred to offfinancial position Balance at 31 December Unrealized interest on substandard loans Unrealized interest on doubtful loans Commercial loans 35,819 35,118 (1,553) 69,384 (2,412) (26,505) (2,435) 38,032 13,000 25,032 38,032 Commercial loans 89,841 7, ,089 (6,630) (17,664) (36,976) 35,819 12,187 23,632 35,819 As required by Bank of Lebanon regulations, impaired loans fulfilling certain conditions have been transferred to off financial position, together with the related allowance for impairment losses provisions and allowance for unrealized interest. The movement of allowance for impairment losses and allowance for unrealized interest against fully impaired loans included in the off financial position accounts is as follows: Balance at 1 January Add: Unrealized interest for the year Provision and unrealized interest transferred from the statement of financial position Foreign exchange difference Less: Provisions writtenback Recoveries Amounts writtenoff Provision and unrealized interest transferred to the statement of financial position Foreign exchange difference Balance at 31 December 83,928 6,747 7, ,290 (2,767) (2,762) (10,066) (15,595) 82,695 28,312 5,756 58,682 92,750 (3,632) (2,537) (2,251) (288) (114) (8,822) 83,

110 The fair value of collateral that the Group holds relating to loans and advances to corporate customers individually determined to be impaired amounts to LL 179,329 million as of 31 December (LL 122,459 million as of 31 December ). The collateral consists of cash, securities, letters of guarantee and properties. As for the consumer loans that are individually determined to be impaired, the fair value of the collateral that the Group holds exceed the carrying value of these loans at the statement of financial position date. 20. BANK ACCEPTANCES / ENGAGEMENTS BY ACCEPTANCES Acceptances as of 31 December Acceptances resulted from letters of credit opened for accounts of customers, with deferred payments. 197, , NONCURRENT ASSETS HELD FOR SALE Cost At 1 January Additions Disposals Translation difference 34,765 14,411 (12,189) 63 20,099 15,463 (819) 22 At 31 December 37,050 34,765 Impairment At 1 January (7,204) (7,204) At 31 December (7,204) (7,204) Net carrying value At 31 December 29,846 27, FINANCIAL INVESTMENTS Quoted investments Equities Debt securities Certificates of deposit commercial banks and financial institutions Unquoted investments Government debt securities Debt securities (i) Certificates of deposit Central Bank of Lebanon Certificates of deposit Commercial banks and financial institutions Equities (ii) Granted financial loans Investment fund (iii) Collective impairment Availableforsale investments , , ,640 4,313,911 13,858 72,460 6, ,406,581 4,694,221 Financial investments classified as loans & receivables 554,365 4, ,922 2,256,217 5,158, , ,551 7,641,325 8,200,247 Heldtomaturity investments 440, , ,835 36,554 30, , ,997 Available forsale investments , ,628 4,533,923 13,858 70,083 5, ,623,358 4,691,986 Financial investments classified as loans & receivables 501,425 4, ,971 2,393,514 2,907, , ,594 5,603,336 (15,075) 6,094,232 Heldtomaturity investments 411, , ,616 24, ,163 (650) 634,

111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Collective impairment allowance for financial investments classified as loans and receivables and heldto maturity A reconciliation of the collective impairment allowance for financial investments classified as loans and receivables and heldtomaturity (relating to unquoted debt securities), is as follows: At 1 January Charge for the year Writeback during the year Difference on exchange At 31 December 15,725 (15,721) (4) 15, ,725 All unquoted availableforsale financial investments are recorded at fair value as of 31 December except for the following: Debt securities (i) Equities (ii) Investment fund (iii) 13,858 6, ,210 13,858 5, ,352 All unquoted availableforsale financial investments listed above are recorded at cost since their fair value cannot be reliably estimated. There is no market for these investments, and the Group intends to hold them for the long term. In and due to the financial crisis in international markets and the ongoing decrease in the market value of some financial instruments, the Group s management decided to provide a collective provision covering any upcoming decrease in the value of its financial assets amounted to USD 10,431 thousand (LL 15,725 million) for the year ended 31 December. This provision was writtenbank during taking into consideration the significant increase in the market value of these financial instruments. 23. PROPERTY AND EQUIPMENT Freehold land and buildings Vehicles Furniture, office installations and computer equipment Advances on acquisition of fixed assets and construction in progress Total Cost At 1 January Additions Disposals Transfers Adjustments Translation difference 217,575 24,587 (2,043) 28, ,807 1,110 (639) 60 (231) 199,002 22,383 (4,013) 6,989 (2,968) 47,411 67,768 (19,721) (35,910) (9,587) , ,848 (26,416) (225) (9,587) (2,321) At 31 December 269,405 5, ,393 50, ,094 Depreciation At 1 January Charge for the year Relating to disposals Translation difference 34,672 5,959 (85) 2, (590) (147) 106,741 26,345 (2,983) (2,288) 144,219 33,118 (3,573) (2,520) At 31 December 40,546 2, , ,244 Net carrying value At 31 December 228,859 2,224 93,578 50, ,

112 Freehold land and buildings Vehicles Furniture, office installations and computer equipment Advances on acquisition of fixed assets and construction in progress Total Cost At 1 January Additions Disposals Transfers Translation difference 182,812 36,567 (6,595) 7,871 (3,080) 4, (125) (86) 146,119 36,335 (1,729) 18,380 (103) 48,583 25,338 (421) (26,251) ,012 98,760 (8,870) (3,107) At 31 December 217,575 4, ,002 47, ,795 Depreciation At 1 January Charge for the year Relating to disposals Translation difference 31,198 5,193 (1,123) (596) 2, (124) 4 88,989 19,421 (1,613) (56) 122,265 25,462 (2,860) (648) At 31 December 34,672 2, , ,219 Net carrying value At 31 December 182,903 2,001 92,261 47, ,576 Certain freehold land and buildings purchased prior to 1 January 1999 were restated for the changes in the general purchasing power of the Lebanese Lira giving rise to a net surplus amounting to LL 14,727 million, which was credited to equity under reserves for revaluation variance real estate. 24. INTANGIBLE ASSETS Cost At 1 January Additions Disposals Transfers Translation difference Software development 8,299 3,038 (149) Key money 9, Advances on acquisition of intangible assets (434) (8) (17) Total 17,822 3,451 (583) At 31 December 11,477 9, ,055 Amortization At 1 January Charge for the year Relating to disposals Translation difference 5,900 1,623 (149) 127 6, ,515 1,770 (149) 192 At 31 December 7,501 6,827 14,328 Net carrying value At 31 December 3,976 2, ,

113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Cost At 1 January Additions Transfers Translation difference Software development 6,007 1, Key money 8, Advances on acquisition of intangible assets (707) (54) Total 15,763 1, At 31 December 8,299 9, ,822 Amortization At 1 January Charge for the year Translation difference 4, , , At 31 December 5,900 6,615 12,515 Net carrying value At 31 December 2,399 2, , OTHER ASSETS Compulsory deposits (i) Precious metals and stamps Customers transactions between head office and branches Prepaid expenses Transactions pending between consolidated subsidiaries Sundry debtors (ii) Other revenues to be collected Reinsurer s share of technical reserves Taxes paid in advance Investment in a nonconsolidated subsidiary (iii) Other assets 15, ,505 22,275 6,252 8,874 7,754 21, , ,510 15, ,929 27,762 5,729 2,549 8,528 14,448 34, , ,600 (i) Compulsory deposits represent amounts deposited with local authorities based on local regulations of the countries in which the subsidiaries are located, and are detailed as follows: BLOM Invest SAL Bank of Syria and Overseas SA BLOM Development Bank SAL 1,500 9,094 4,500 15,094 1,500 9,033 4,500 15,033 (ii) Sundry debtors Sundry debtors Less: Provision against sundry debtors 11,613 (2,739) 8,874 5,286 (2,737) 2,

114 The movement of provision against sundry debtors is summarized as follows: Balance at 1 January Provided during the year (Note 9) Translation difference Balance at 31 December 2, ,739 1,466 1,275 (4) 2,737 (iii) The book value of the subsidiary s equity which was not consolidated because it is immaterial to the consolidated financial statements as at 31 December is detailed as follows: Shareholders equity Société de Services d Assurances et de Marketing SAL GOODWILL Cost: At 1 January Translation difference At 31 December 63, ,268 60,586 2,559 63,145 Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to two individual cashgenerating units, which are subsidiaries of the Bank, for impairment testing as follows: BLOM Bank Egypt SAE BLOM Bank (Switzerland) SA The carrying amount of goodwill allocated to each of the subsidiaries is as follows: BLOM Bank Egypt SAE BLOM Bank (Switzerland) SA 61,550 1,718 63,268 62,077 1,068 63,

115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Key assumptions used in value in use calculations The recoverable amount of BLOM Bank Egypt SAE has been determined based on a value in use calculation, using cash flow projections based on financial budgets approved by senior management covering a tenyear period. The following rates are used by the Bank. Discount rate Projected growth rate (average during the first 5 years) Projected growth rate beyond the five year period % % The calculation of value in use for BLOM Bank Egypt SAE is most sensitive to the following assumptions: Interest margins; Discount rates; Projected growth rates; Gross domestic product of the country where the subsidiary operates; Local inflation rates. Interest margins Interest margins are based on average values achieved in the 13 months proceeding of the budget period. These are increased over the budget period for anticipated market conditions. Discount rates Discount rates reflect management s estimate of return on capital employed. Discount rates are calculated by using the weighted average cost of capital. Projected growth rates, GDP and local inflation rates Assumptions are based on management analysis and published industry research. Sensitivity to changes in assumptions Management believes that reasonable possible change in any of the above key assumptions would cause the carrying value of the units to exceed their recoverable amount. 27. DUE TO BANKS AND FINANCIAL INSTITUTIONS Current accounts Time deposits 305, , , , ,834 1,196,

116 28. CUSTOMERS' DEPOSITS Sight deposits Time deposits Saving accounts Credit accounts and deposits against debit accounts Customers' deposits include coded deposit accounts in BLOM Bank SAL and BLOM Invest Bank SAL amounting to LL 82,778 million as of 31 December (: LL 64,306 million). 29. CURRENT TAX LIABILITIES 3,666,255 12,630,830 9,539,939 1,022,027 26,859,051 Income tax payable The relationship between taxable profit and accounting profit of BLOM BANK SAL and its foreign branches and subsidiaries is as follows: 2,632,131 10,532,384 8,696, ,247 22,636,095 Income tax liability 48,588 53,159 Income tax payable is detailed as follows: At 1 January Tax expense for the year Tax paid during the year Exchange difference At 31 December 53,159 53,655 (58,728) ,588 31,984 56,794 (35,160) (459) 53, OTHER LIABILITIES Margins on letters of credit Deposits related to entities under constitution Transactions pending between consolidated subsidiaries Advances from customers for acquisition of securities Sundry creditors Dividends payable Accrued expenses Transactions pending between branches Unearned premiums and liability related to unit linked insurance contracts Complementary taxes due related to a subsidiary bank (i) Other taxes due Other liabilities 81,134 21,322 22,119 41, ,887 56, ,352 10,136 17,586 6, ,522 61, ,024 18,757 45, ,686 17, ,993 50,269 12, ,211 (i) Complementary taxes due related to a subsidiary bank represents mainly accruals for additional complementary taxes in a subsidiary resulting from inspection by tax authorities for the years from 1991 onwards. The subsidiary bank settled an amount of LL 40,133 million in. 114

117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 31. PROVISIONS FOR RISKS AND CHARGES Provision for risks and charges (i) Provision for fiduciary customers commitments (note 9) (ii) Provision for outstanding claims and IBNR reserves related to subsidiaryinsurance companies (iii) Other provision (i) Provisions for risks and charges Balance at 1 January Charge for the year Provisions paid during the year Provisions writtenback during the year Exchange difference Balance at 31 December 4,378 9,160 24, ,421 4,679 1,567 (1,915) 47 4,378 4,679 9,160 16, ,481 5, (1,591) (14) 101 4,679 (ii) The provision for fiduciary customers commitments amounting to LL 9,160 million represents a provision against probable default of Investment Dar S.A.K. Kuwait to settle the fiduciary deposits of BLOM Development Bank SAL s (a subsidiary) customers. (iii) Provisions for outstanding claims and IBNR reserves related to subsidiaryinsurance companies Balance at 1 January Provision for outstanding claims and IBNR reserves charged for the year Provisions used during the year Exchange difference Balance at 31 December 16,855 7, ,088 9,512 7,234 (8) , RETIREMENT BENEFITS OBLIGATION Balance at 1 January Charge for the year (Note 10) Benefits paid Exchange difference Balance at 31 December 34,534 6,484 (2,551) 91 38,558 26,160 10,526 (2,194) 42 34, SHARE CAPITAL AND PREMIUMS Share capital Share premium Share capital Share premium Common shares Authorized, issued and fully paid 21,500,000 shares at LL 10,400 per share as of 31 December (: same) 223, , , ,059 a On 8 May, the nominal value of the common shares was increased from LL 10,000 to LL 10,400 through the transfer of an amount of LL 8,600 million from the free reserves to the share capital. 115

118 b On 16 February 2006, the Bank issued 3,000,000 common shares with a share premium of USD 248,443 thousand (LL 374,059 million). Share capital Share premium Share capital Share premium Preferred shares Authorized, issued and fully paid 750,000 preferred shares (2004 issue) of LL 10,400 per share as of 31 December (31 December : same) 1,000,000 preferred shares (2005 issue) of LL 10,400 per share as of 31 December (31 December : same) 7,800 10, , ,720 7,800 10, , ,720 Total preferred shares 18, ,310 18, ,310 a Based on the decision of the ordinary general assembly of the shareholders held on 8 May, the Bank redeemed and cancelled all the preferred shares (2002 issue) and increased the nominal value of the preferred shares from LL 10,000 to LL 10,400 through the transfer of an amount of LL 700 million from the free reserves to the share capital. b Preferred shares consist of the following: 4 June 2004 issue 17 September 2005 issue Number of shares Premium (denominated in USD) Non cumulative benefits 750,000 LL 105,590 million (USD 70,043 thousand) An annual amount for each share equal to USD 8.5 based on the exchange rate on the date of the General Assembly Meeting, (subject to the approval of the Shareholders General Assembly Meeting and the availability of a nonconsolidated distributable net income for the year). 1,000,000 LL 140,720 million (USD 93,347 thousand) 2005 distributions to be based on a fixed amount of USD 3.75 per share and thereafter at an annual amount equal to 6% of the net consolidated profit of the Bank, with a minimum of 7.5% and a maximum of 9.5% of the issue price (subject to the approval of the Shareholder s General Assembly Meeting and the availability of a nonconsolidated distributable net income for the year). The total number of preferred shares is 1,750,000 shares as of 31 December (: 1,750,000 shares). These preferred shares (2004 and 2005 issues) are redeemable 60 days after the annual general assemblies dealing with the accounts for the years and 2010 respectively. In the event of any liquidation, dissolution or windingup of the Bank, the holders of series 2004 and 2005 preferred shares shall be entitled to be paid out of the assets of the Bank available for distribution to its shareholders on a pro rata basis, before any payment shall be made to common shareholders. All of the Bank s common and preferred shares are listed in the Beirut Stock Exchange starting 20 June. Out of the total common shares, 7,389,601 shares are listed as General Depository Receipts (GDRs) in the Luxembourg Stock Exchange. During, Blom Bank Qatar increased its capital by US$ 5 million (cv LL 7,538 million), where Blom Bank SAL acquired 99% of the new issued shares. 116

119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 34. CAPITAL RESERVES At 1 January Reserve for general banking risks 69,126 Legal reserve 136,495 General reserve 252,594 Reserve for increase of share capital 14,158 Non distributable reserve 56,588 Total 528,961 Appropriation of 2007 profits Capital increase (note 33) Reallocation of tax related to dividends distribution booked in 2007 Net gain on sale of treasury shares 10,450 25,788 35,318 (9,300) (8,326) 12, ,936 (9,300) (8,326) 120 At 31 December 79, , ,286 26,658 56, ,391 Appropriation of profits Net gain on sale of treasury shares 12,699 41,122 55,828 7,293 1, ,942 1,718 At 31 December 92, , ,114 35,669 56, ,051 Reserves for general banking risks According to the Bank of Lebanon regulations, banks in Lebanon are required to appropriate from their annual net profit a minimum of 0.2 percent and a maximum of 0.3 percent of total risk weighted assets and offfinancial position accounts based on rates specified by the Bank of Lebanon to cover general banking risks. The consolidated ratio should not be less than 1.25 percent of these risks at the end of year ten (2007) and 2 percent at the end of year twenty (2017). This reserve is part of the Group s equity and cannot be distributed as dividends. This reserve is based on the denomination (Lebanese Lira and US Dollars) of the risk weighted assets and offfinancial position accounts. Legal reserve According to the Lebanese Code of Commerce and to the Money and Credit Act, banks and companies operating in Lebanon have to transfer 10% of their annual net profit to a legal reserve. This reserve cannot be distributed as dividends. General reserve The Group appropriated general reserves from its retained earnings to strengthen its equity. This reserve amounting to LL 326,114 million as at 31 December (: LL 270,286 million) is available for dividends distribution. Reserve for increase of share capital The balance amounting to LL 35,669 million (: LL 26,658 million) represents a regulatory reserve pursuant to circular no. 167 issued by the Banking Control Commission. This reserve cannot be distributed as dividends. Details of the reserve for increase of share capital are as follows: Recoveries of provisions for doubtful debts Revaluation reserves for fixed assets sold Gain on sale of treasury shares 31, ,309 35,669 24, ,587 26,658 Non distributable reserves Non distributable reserves resulted mainly from the increase of share capital of subsidiaries through transfer from the general reserves and retained earnings. 117

120 35. TREASURY SHARES Movement of treasury shares recognized in the balance sheet is as follows: No. of common shares Amount No. of common shares Amount At 1 January Purchase of treasury shares Sales of treasury shares At 31 December 333, ,968 (586,981) 581,719 39,877 78,386 (59,540) 58, , ,782 (83,050) 333,732 36,122 14,900 (11,145) 39,877 The treasury shares represent Global Depository Receipts (GDR) owned by the Bank. The market value of one GDR was USD as of 31 December (: USD 72.85). During, the Bank refunded the distribution of dividends on the treasury shares amounting to LL 5,275 million (: LL 1,589 million) resulting from the distribution of dividends for all ordinary shares in. The Group generated profits of LL 1,718 million from the sale of treasury shares during the year (: profits of LL 120 million). Profit or loss is reflected under Reserve for increase of share capital in the Capital reserves (note 34). 36. AVAILABLEFORSALE RESERVE The availableforsale reserve related to availableforsale investments are as follows: Balance at 1 January Net changes in fair values during the year Balance at 31 December 3, , ,184 13,995 (10,090) 3, CASH AND CASH EQUIVALENTS Cash and balances with central banks Deposits with banks and financial institutions (whose original maturities are less than 3 months) Debt securities (whose original maturities are less than three months) Less: Due to banks and financial institutions (whose original maturities are less than 3 months) 4,693,974 4,620,657 1,229 9,315,860 (620,478) 8,695,382 3,438,176 4,793,540 15,920 8,247,636 (986,136) 7,261,500 Balances with the Central Banks include term placements with the Bank of Lebanon, which are considered as cash equivalent based on a contractual agreement with the Bank of Lebanon. 118

121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 38. DIVIDENDS DECLARED AND PAID According to the General Assembly meetings held during and, dividends have been distributed as follows: Distribution to preferred shareholders issue 2002 dividends of LL 22,612 / 50 per share in. Distribution to preferred shareholders issue 2004 dividends of LL 12,813 / 75 per share (: LL 12,813 / 75 per share) Distribution to preferred shareholders issue 2005 dividends of LL 14,321 / 25 per share (: 14,321 / 25 per share) Distribution to common shareholders dividends of LL 5,500 per share (: LL 5,500 per share) 9,610 14, , ,181 16,960 9,610 14, , ,141 In the meeting held on 16 March 2010, the board of directors proposed the distribution of dividend from operations as follows: Common shares (LL 6,000 per share) Preferred shares issue 2004 (LL 12,813/75 per share) Preferred shares issue 2005 (LL 14,321/25 per share) 129,000 9,610 14, , RELATED PARTY TRANSACTIONS The Group enters into transactions with major shareholders, directors, senior management, and their related concerns, and entities controlled, jointly controlled or significantly influenced by such parties in the ordinary course of business at commercial interest and commission rates. All the loans and advances to related parties are performing advances and are free of any provision for possible credit losses. The transactions with related parties are as follows: Major shareholders Board of directors and senior management Other related parties Deposits Loans and advances Indirect facilities Interest received from loans and advances Interest paid on deposits Accounting services revenues from a nonconsolidated subsidiary 120,188 6, , , , , ,554 11, ,034 6, ,278 6, , The board of directors and senior management remunerations are as follows: Board of directors and senior management remunerations All remunerations paid to board of directors and senior management are short term in nature. 30,960 25,

122 40. CONTINGENT LIABILITIES, COMMITMENTS AND LEASING ARRANGEMENTS Credit related commitments To meet the financial needs of customers, the Group enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend. Even though these obligations may not be recognized on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group (see Note 451). Letters of credit and guarantees (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credit carry a similar credit risk to loans. The Group has the following credit related commitments: Commitments issued to financial institutions Commitments issued to customers Guarantees issued to financial institutions Guarantees issued to customers Acceptances (note 20) Commitments to lend 17, , , , ,637 1,260,795 2,658,602 3,919,397 35, , , , ,211 1,473,163 2,347,564 3,820,727 Capital and operating lease commitments Capital expenditure and lease payments that were not provided for as of the consolidated statement of financial position date are as follows: Lease arrangements The commitments on capital expenditures and operating lease commitments at the statement of financial position date, which were not provided for, were as follows: Capital commitments Property and equipment Operating lease commitments Group as lessee Future minimum lease payments under operating leases as at 31 December are as follows: During one year More than 1 year and less than five years More than five years Total operating lease commitments at the statement of financial position date 24,731 1,779 6,340 9,660 17,779 37,685 1,157 4,858 8,994 15, FIDUCIARY DEPOSITS, ASSETS UNDER MANAGEMENT AND CUSTODY ACCOUNTS Fiduciary deposits Financial assets under management 951,344 5,312,368 6,263,712 1,225,649 4,082,514 5,308,163 Fiduciary accounts and financial assets under management include notes, checks, policies, treasury bills/bonds, shares and documents for collection held by the Group to the order of third parties. 120

123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 42. FAIR VALUE OF THE FINANCIAL INSTRUMENTS A. Determination of fair value and fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 31 December Financial assets Derivative financial instruments: Forward foreign exchange contracts held for trading Forward foreign exchange contracts used for hedging purposes Financial assets held for trading: Debt securities Equities Investment funds Financial investments designated at fair value through profit or loss: Investments related to unitlinked contracts Convertible bonds Financial investments availableforsale: Quoted financial assets Debt securities Equities Certificates of deposit commercial banks and financial institutions Unquoted financial assets: Government debt securities Certificates of deposit commercial banks and financial institutions Level1 8,654 13,153 21,807 66,305 66, , , ,640 Level 2 26,704 6,840 33, ,712 2,956 73,097 73,097 4,313,911 72,460 4,386,371 Level 3 Total 26,704 6,840 33,544 8,654 13,397 2,712 24,763 73,097 66, , , , ,640 4,313,911 72,460 4,386,371 Financial liabilities Derivative financial instruments: Forward foreign exchange contracts held for trading 23,526 23,526 23,526 23,526 Financial instruments recorded at fair value The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group s estimate of assumptions that a market participant would make when valuing the instruments. Derivatives Derivative products valued using a valuation technique with market observable inputs are forward foreign exchange contracts and equity swaps and options. The most frequently applied valuation technique include forward pricing model and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. 121

124 Financial investments availableforsale Availableforsale financial assets valued using a valuation technique or pricing models primarily consist of unquoted debt securities and certificates of deposit. These assets are valued using models which sometimes only incorporate data observable in the market. Fair value of financial assets and liabilities not carried at fair value The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements: (i) Assets for which fair value approximates carrying value For financial assets and financial liabilities that have a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, and savings accounts without a specific maturity. (ii) Fixed rate financial instruments The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and maturity. For quoted debt issued the fair values are determined based on quoted market prices. For those notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads. Set out below is a comparison, by class, of the carrying amounts and fair values of the Group s financial instruments that are not carried at fair value in the financial statements. This table does not include the fair value of nonfinancial assets and nonfinancial liabilities. Financial assets Cash and balances with central banks Due from banks and financial institutions Loans and advances to customers Loans and advances to related parties Financial assets classified as loans and receivables Financial investments heldtomaturity Carrying value 4,693,974 5,787,117 6,046,601 11,522 8,200, ,997 Fair value 4,804,854 5,817,238 6,049,797 11,907 8,831, ,966 Carrying value 3,580,467 5,817,382 5,230,447 6,926 6,094, ,306 Fair value 3,810,705 5,830,814 5,279,381 7,250 5,979, ,143 Financial liabilities Due to banks and financial institutions Customers' deposits Related parties deposits 705,438 26,859, , ,011 26,930, ,852 1,196,746 22,636, ,278 1,209,141 22,676, ,485 B. Reclassification of financial assets was characterized by a substantial deterioration in global market conditions, including a severe shortage of liquidity and credit availability. These conditions have led to a reduction in the level of market activity for many assets, and, particularly for residential propertyrelated assets, the inability to sell other than at substantially lower prices. Governments have taken unprecedented action to mitigate these circumstances, including the injection of substantial levels of capital into banks, and the provision of banking guarantees and liquidity facilities. However the Lebanese market was not as severely affected as the global market. 122

125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Following the amendments to IAS 39 and IFRS 7 Reclassification of Financial Assets (effective from 1 July ) and as a result of the contraction in the market for many classes of assets, the Group has undertaken a review of assets that are classified as Heldfortrading and Availableforsale, in order to determine whether this classification remains appropriate. Where it was determined that the market for an asset is no longer active, and that the Group no longer intends to trade, management have reviewed the instrument to determine whether it is appropriate to reclassify it to Loans and receivables. This reclassification has only been performed where the Group, at the reclassification date, has the clear intention and ability to hold the financial asset for the foreseeable future or until maturity. The following table shows the carrying amount and fair value of financial assets reclassified from Availableforsale to the Loans and receivables category, as at the date of reclassification and as at the reporting date. All transfers occurred on 1 July and thereafter. There were no reclassifications prior to 1 July. Availableforsale Financial assets reclassified during the year as at the date of reclassification Carrying value Fair value Carrying value 2,771,944 Fair value 2,771,944 Financial assets reclassified during as at year end 2,433,100 2,517,836 2,784,447 2,657,018 The following table shows the carrying amount and fair value of financial assets reclassified from Heldfortrading to the Loans and receivables category, as at the date of reclassification and as at the reporting date. All transfers occurred on 1 July and thereafter. There were no reclassifications prior to 1 July. Heldfortrading Financial assets reclassified during the year as at the date of reclassification Carrying value Fair value Carrying value 63,382 Fair value 63,382 Financial assets reclassified during as at year end 25,059 28,324 62,387 58,640 The following table shows the total fair value gains and losses recorded on trading and available for sale assets reclassified to the Loans and receivables category, up until the date of transfer. It also shows the undiscounted amount of cash flows expected to be recovered from and the expected effective interest rate applied to, reclassified assets, as assessed at the date of reclassification. 123

126 Cost of securities transferred Fair value losses recognized in net trading income/equity: Recorded during Recorded during 2007 Recorded prior to 2007 Carrying amount at date of reclassification Debt securities heldfortrading 62, ,382 Debt securities Available for sale 2,772,702 17,493 (2,214) (16,037) 2,771,944 Expected undiscounted cash recoveries, as assessed at the date of reclassification Anticipated average effective interest rate over the remaining life of the assets 110,189 7,84% 3,410,339 6,81% The following table shows the total fair value gains or losses and the difference net interest income that would have been recognized during the period subsequent to reclassification if the Group had not reclassified financial assets from the Heldfortrading and Availableforsale to the Loans and receivables category. This disclosure is provided for information purposes only; it does not reflect what has actually been recorded in the consolidated financial statements of the Group. Debt securities Income statement Equity Income statement Equity Gain on sale of financial investments Fair value gains and losses which would otherwise have been recorded after reclassification, during the current period Net interest income which would otherwise have been recorded after reclassification, during the current period 28,278 5, ,307 (1,703) 54 (116,724) Total income or expense which would otherwise have been recorded during the year since reclassification 33, ,307 (1,649) (116,724) The following table shows the net profit or loss actually recorded on assets reclassified to loans and receivables subsequent to reclassification: Net interest income Impairment charges Net profit Debt securities heldfortrading 5,193 5,193 Debt securities available for sale 185,401 15, ,474 Debt securities heldfortrading 1,123 1,123 Debt securities available for sale 54,353 (15,073) 39,280 The effect of the reclassification of financial assets on the basic earnings per share is: LL LL (Decrease) increase of basic earnings per share (1,613)

127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 43. MATURITY ANALYSIS OF ASSETS AND LIABILITIES The table below shows an analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled. The maturity profile of the Group s assets and liabilities as at 31 December is as follows: Less than one year More than one year Total ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Noncurrent assets held for sale Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity Investment properties Property and equipment Intangible assets Other assets Goodwill 2,894,017 5,721,689 33,544 5, ,086,173 11, ,475 1,149, , , ,648 1,799,957 65,428 19, ,945 1,960,428 3,162 29,846 3,544,351 7,261, , ,850 6,727 16,862 63,268 4,693,974 5,787,117 33,544 24, ,402 6,046,601 11, ,637 29,846 4,694,221 8,200, , ,850 6, ,510 63,268 TOTAL ASSETS 15,341,083 15,867,761 31,208,844 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Current tax liabilities Other liabilities Provisions for risks and charges Retirement obligation benefits 637,157 23,526 26,384, , ,475 48, ,100 3,204 68, ,584 3,162 23,422 38,421 35, ,438 23,526 26,859, , ,637 48, ,522 38,421 38,558 TOTAL LIABILITIES 27,990, ,224 28,633,295 NET (12,648,988) 15,224,537 2,575,

128 The maturity profile of the Group s assets and liabilities as at 31 December is as follows: Less than one year More than one year Total ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Noncurrent assets held for sale Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity Investment properties Property and equipment Intangible assets Other assets Goodwill 1,592,224 5,482,179 39,867 3,793 3,550,563 6, ,211 1,259, ,490 99, ,709 1,988, ,203 10,471 81,955 1,679,884 27,561 3,432,665 5,606, , ,576 5,307 30,891 63,145 3,580,467 5,817,382 39,867 14,264 81,955 5,230,447 6, ,211 27,561 4,691,986 6,094, , ,576 5, ,600 63,145 TOTAL ASSETS 12,859,246 14,121,567 26,980,813 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Current tax liabilities Other liabilities Provisions for risks and charges Retirement obligation benefits 1,151,521 56,779 22,463, , ,211 53, , , ,118 2,983 31,481 34,176 1,196,746 56,779 22,636, , ,211 53, ,211 31,481 34,534 TOTAL LIABILITIES 24,495, ,983 24,781,494 NET (11,636,265) 13,835,584 2,199, LEGAL CASES AND CONTINGENT LIABILITIES Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Group has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Group had several unresolved legal claims. Management, after discussing with its counselors all such cases and proceedings against the Group, considers that the aggregate liability or loss, if any, resulting from an adverse determination would not have a material effect on the consolidated financial position of the Group. The Bank s books in Lebanon have not been reviewed by the tax authorities for the years and. The ultimate outcome of any review by the tax authorities on the Bank s books in Lebanon for these years cannot be presently determined. The Bank s books in Lebanon have not been reviewed by the national social Security Fund (NSSF) since The ultimate outcome of any review by the NSSF on the Bank s books in Lebanon from 1998 to cannot be presently determined. 126

129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 45. RISK MANAGEMENT The Bank manages its business activities within risk management guidelines as set by the Group s Risk Management Policy approved by the Board of Directors. The Group recognizes the role of the board of directors and executive management in the risk management process as set out in the Banking Control Commission circular 242. In particular, it is recognized that ultimate responsibility for establishment of effective risk management practices and culture lies with the Board of Directors as does the establishing of the Bank s risk appetite and tolerance levels. The Board of Directors delegates through its Risk Management Committee the day to day responsibility for establishment and monitoring of risk management process across the Bank s group to the Chief Risk Officer, who is directly appointed by the Board of Directors, in coordination with executive management at BLOM Bank SAL. The Group is mainly exposed to credit risk, liquidity risk, market risk and operational risk. The Board s Risk Management Committee has the mission to periodically (1) review and assess the risk management function of the Group, (2) review the adequacy of the Bank s capital and its allocation within the Group, and (3) review risk limits and reports and make recommendations to the Board. The Chief Risk Officer undertakes his responsibilities through the Risk Management Department in Beirut which also acts as Group Risk Management, overseeing and monitoring risk management activities throughout the Group. The Chief Risk Officer is responsible for establishing the function of Risk Management and its employees across the Group. BLOM Bank s Group Risk Management aids executive management in monitoring, controlling and actively managing and mitigating the Group s overall risk. The department mainly ensures that: Risk policies and methodologies are consistent with the Group s risk appetite. Limits and risk across banking activities are monitored throughout the Group. Through a comprehensive risk management framework, transactions and outstanding risk exposures are quantified and compared against authorized limits, whereas nonquantifiable risks are monitored against policy guidelines as set by the Group s Risk Management Policy. Any discrepancies, breaches or deviations are escalated to executive senior management in a timely manner for appropriate action. In addition to the Group s Risk Management in Lebanon, risk managers and / or risk officers were assigned within the Group s foreign subsidiaries or branches to report to Group Risk Management and executive senior management in a manner that ensures: Standardization of risk management functions and systems developed across the Group. Regional consistency of conducted business in line with the board s approved risk appetite. The major objective of risk management is the implementation of sound risk management practices and the Basel II frame work as well as all related regulatory requirements within the group. Pillar I capital adequacy calculations have been generated since December 2004, while preparations for moving on to the more advanced approaches of pillar I have been initiated. Group Risk Management is progressively complying with the requirements of pillars II and III of the Basel framework. 451 Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counter parties, and continuously assessing the creditworthiness of counter parties. The Group manages credit risk in line with the guidelines set by the Basel Framework and regulatory guidance. The Group has set a credit risk policy which lays down norms for credit risk governance, methodologies and procedures for credit risk management and measurement. It consists of the following: The permissible activities, segments, programs and services that the Group intends to deliver and the acceptable limits; The mechanism of the approval on creditfacilities; The mechanism for managing and following up creditfacilities; and The required actions for analyzing and organizing credit files. The debt securities included in investments are mainly sovereign risk and standard grade securities. Analysis of investments by counterparty is provided in notes 17, 18 and 22. For details of the composition of the loans and advances refer to note 19. Information on credit risk relating to derivative instruments is provided in note 17 and for commitments and contingencies in note 40. The information on the Group s net maximum exposure by economic sectors is given in note (A) below. 127

130 The Group s Risk Management is designed to identify and to set appropriate risk limits and to monitor the risk adherence to limits. Actual exposures against limits are monitored daily, monthly and periodically. Group Risk Management is responsible for monitoring the risk profile of the Group s loan portfolio by producing internal reports highlighting any exposure of concern in corporate, commercial and consumer lending. The Group examines the level of concentration whether by credit quality, client groupings or economic sector and collateral coverage. Further, the Group monitors nonperforming loans and takes the required provisions for these loans. The Group in the ordinary course of lending activities holds collaterals and guarantees as security to mitigate credit risk in the loans and advances. Collaterals and guarantees are continuously monitored and revaluated. These collaterals mostly include cash collateral, quoted shares and debt securities, real estate mortgages, personal guarantees and others. In addition, the Recovery Unit in the Group dynamically manages and takes remedial actions for nonperforming loans. The Group uses an internal classification system based on risk ratings for its corporate and middle market customers. The risk rating system, which is managed by an independent unit, provides a rating based on client and transaction level. The classification system includes six grades, of which three grades relate to the performing portfolio (regular credit facilities: risk ratings 1 and 2 and special mention watch list: risk rating 3 ), one grade relates to substandard loans (risk rating 4 ) and two grades relate to nonperforming loans (risk ratings 5 and 6 ). Credit cards, personal loans, car loans, housing loans and other loans related to these loans are classified as regular as they are performing and have timely repayment with no past dues; except for those loans that have unsettled payments due for more than 90 days. Each individual borrower is rated based on an internally developed debt rating model that evaluates risk based on financial as well as qualitative inputs. The associated loss estimate norms for each grade have been calculated based on the Group s historical default rates for each rating. These risk ratings are reviewed on a regular basis. Introduction of the Moody s Risk Analyst credit analysis and internal ratings system in the domestic market has provided the Bank with an additional tool to enhance risk measurement and assessment of the corporate and commercial loan portfolios. This system will be gradually extended to all group entities over time. At the same time, implementation of consumer loan application and behavioral scorecards will aid significantly in meeting Basel II requirements for the retail portfolio as well as making available new quality management resources. Nonperforming loans are closely monitored and well provisioned as required with remedial actions taken and managed proactively by a dedicated Recovery Unit. In line with Basel II, the Group considers payments that are past due for more than 90 days as being nonperforming. The Group uses the above internal grading system for the classification of all financial assets portfolio. A Risk concentrations: maximum exposure to credit risk without taking account of any collateral and other credit enhancements The Group concentrations of risk are managed by client/counterparty, by geographical region. The maximum credit exposure to any client or counterparty as of 31 December was LL 306,123 million (:LL 188,440 million) before taking account of collateral or other credit enhancements and LL 125,029 million (: LL 52,655 million) net of such protection. The following table shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives, by geography before the effect of mitigation through the use of master netting and collateral agreements. Where financial instruments are recorded at fair value, the amounts shown represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. 128

131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Domestic International Total Financial assets Balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity 2,922, ,292 9,909 13, ,402 3,074,309 3,879 97,545 3,921,152 7,607,132 1,603,033 5,201,825 23,635 11,039 2,972,292 7, , , , ,997 4,525,643 5,787,117 33,544 24, ,402 6,046,601 11, ,637 4,694,221 8,200, ,997 Total credit exposure 18,374,954 12,060,740 30,435,694 Domestic International Total Financial assets Balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity 2,544, ,225 8,906 5,171 40,950 2,465, ,124 4,091,391 5,522,542 4, ,387 5,211,157 30,961 9,093 41,005 2,765,401 6,429 89, , , ,636 3,423,210 5,817,382 39,867 14,264 81,955 5,230,447 6, ,211 4,691,986 6,094, ,306 Total credit exposure 15,403,345 10,833,441 26,236,786 Collateral and other credit enhancements The amount, type and valuation of collateral is based on guidelines specified in the risk management framework. The main types of collateral obtained include real estate, quoted shares, cash collateral and bank guarantees. The revaluation and custody of collaterals are performed independent of the business units. Guarantees received from customers are detailed as follows: Personal guarantees received from customers Real estate guarantees received Cash collateral received 4,565,176 4,020, ,269 9,561,921 4,283,013 3,506, ,640 8,625,

132 130 B Credit quality per class of financial assets The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group s internal credit rating system and the relationship with external credit rating. The amounts presented are gross of impairment allowances. Balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Financial investments availableforsale Quoted: Debt securities Certificates of deposit Unquoted: Debt securities Certificates of deposit Financial assets classified as loans and receivables Financial investmentsheldtomaturity Total Moody s equivalent Neither past due nor impaired 4,525,643 5,785,747 33,544 24, ,402 5,953,599 11, , ,279 4,327,769 72,460 8,200, ,997 30,137,321 AaaB2* (*) The regular grade includes derivative financial instruments, loans and advances to customers, loans and advances to related parties which are not rated by Moody s. Balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Financial investments availableforsale Quoted: Debt securities Certificates of deposit Unquoted: Debt securities Certificates of deposit Financial assets classified as loans and receivables Financial investmentsheldtomaturity Total Moody s equivalent Regular and special mention Neither past due nor impaired Regular and special mention 3,423,210 5,816,005 39,867 14,264 81,955 5,183,343 6,926 67, ,547,781 70,083 6,094, ,306 25,979,678 AaaB3* Past due but not impaired Regular and special mention (*) The regular grade include derivative financial instruments, loans and advances to customers, loans and advance to related parties which are not rated by Moody s. 62,625 62,625 Not rated Past due but not impaired Regular and special mention 23,479 23,479 Not rated Individually Impaired Substandard 31,302 31,302 Not rated 27,655 27,655 Not rated Non performing 5, , ,250 Not rated Individually Impaired Substandard Non performing 5, , ,191 Not rated Total 4,525,643 5,790,944 33,544 24, ,402 6,263,579 11, , ,279 4,327,769 72,460 8,200, ,997 30,452,498 Total 3,423,210 5,821,147 39,867 14,264 81,955 5,448,526 6,926 67, ,547,781 70,083 6,094, ,306 26,250,003

133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December C Aging analysis of past due but not impaired financial assets, by class Less than 30 days 30 to 60 days 60 to 90 days More than 90 days Total Commercial loans Consumer loans 32,844 12,101 44,945 8,994 4,910 13,904 3, , ,184 17,441 62,625 Less than 30 days 30 to 60 days Less than 90 days More than 90 days Total Commercial loans Consumer loans 10,080 4,919 14,999 5,078 1,544 6,622 1, ,858 16,659 6,820 23,479 See note 19 for more detailed information with respect of the allowance for impairment losses on loans and advances to customers. Impairment allowance For accounting purposes, the Group uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognized when objective evidence of a specific loss event has been observed. This approach differs from the expected loss model used for regulatory capital purposes in accordance with Basel II. The main considerations for the loan impairment assessment include whether any payments of principal or interest are overdue by more than 90 days or whether there are any known difficulties in the cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract. The Group addresses impairment assessment in two areas: individually assessed allowances and collectively assessed allowances. Individually assessed allowances The Group determines the allowances appropriate for each individually significant loan or advance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realisable value of collateral, and the timing of the expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention. Allowances are assessed collectively for losses on loans and advances and for heldtomaturity debt investments that are not individually significant (including credit cards, residential mortgages and unsecured consumer lending) and for individually significant loans and advances that have been assessed individually and found not to be impaired. Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order 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 in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilization, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industryspecific problems). This approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Local management is responsible for deciding the length of this period which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Group s overall policy. Financial guarantees and letters of credit are assessed and provisions are made in a similar manner as for loans. 131

134 Commitments and guarantees To meet the financial needs of customers, the Group enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognized on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group. The table below shows the Group s maximum credit risk exposure for commitments and guarantees. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Group could have to pay if the guarantee is called on. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognized as a liability in the statement of financial position. Financial guarantees Letters of credit Other undrawn commitments to lend Other commitments and guarantees 714, ,516 2,658, ,810 3,895, , ,006 2,347, ,144 3,777,660 Carrying amount of financial assets presented in the statement of financial position whose terms have been renegotiated: The table below shows the carrying amount of renegotiated financial assets, by class Loans and advances to customers 38,517 3, Liquidity risk and funding management Liquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due under normal and stress circumstances. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, manages assets with liquidity in mind, maintaining a healthy balance of cash and cash equivalents and readily marketable securities. The management of liquidity risk is currently governed by the Group s Assets and Liabilities Management policy. The main objectives converge around the following: Set targets and ranges for key financial position or income statement ratios to assure that the needed liquidity capacity of the Group is maintained at all times, while providing sufficient flexibility to enable the Group to address short term fluctuations in liquidity pressures. Provide general guidance on the sequence to be followed in drawing on the Group s funding sources to meet a liquidity drain. Review the current and prospective liquidity positions and monitor alternative funding sources. Develop parameters for the pricing and maturity distributions of deposits, loans and investments. Promulgate a contingency liquidity plan that identifies early indicators of stress conditions and describe actions to be taken in the event of financial difficulties arising from systemic or other crises, while minimizing adverse longterm implications for the Group s business. All assets and liability management issues are subject to review and monitoring by the Asset Liability Committee, which receives regular reports from the group risk management as well as treasury. In accordance with Lebanese banking rules and regulations, the Group is required to maintain 40% of its Tier 1 capital in Lebanese Lira in liquid assets. It is also required to maintain a noninterest bearing balances at the Bank of Lebanon calculated on the basis of 25% of sight commitments and 15% of term commitments in Lebanese Lira. Regarding foreign currencies, the Group maintains interestbearing placements at the Bank of Lebanon at the rate of 15% of total deposits in foreign currencies regardless of nature. Foreign subsidiaries are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are located.

135 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. One of these methods is to maintain limits on the ratio of liquid assets to customers deposits, set to reflect market conditions. Net liquid assets consist of cash, shortterm deposits and liquid debt securities available for immediate sale less deposits for banks and financial institutions due to mature within the next month. The ratio during the year was as follows: % % At 31 December Average during the year Highest Lowest Analysis of financial liabilities by remaining contractual maturities The table below summarizes the maturity profile of the Group s financial liabilities at 31 December based on contractual undiscounted repayment obligations. Trading derivatives are shown at fair value in a separate column. All derivatives used for hedging purposes are shown by maturity, based on their contractual undiscounted repayment obligations. Gross settled, non trading derivatives are shown separately, by contractual maturity at the foot of the note. As the special commission payments up to contractual maturity are included in the table, totals do not match with the statement of financial position. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the statement of financial position date to the contractual maturity date. Repayments which are subject to notice are treated as if notice were being given immediately. However, the group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group s deposit retention history. 31 December On demand Trading derivatives Less than 3 months 3 to 12 months 1 to 5 years Over 5 years Total Financial assets Cash and balances with central banks Due from banks and financial institutions Net settled derivative assets Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Financial investments available for sale Financial assets classified as loans and receivables Financial investments heldtomaturity 2,039, ,720 33, ,328 4,636,376 3,849 1,015 2,263,518 12, , , ,524 88,491 34, ,013 1,743 3,502 2,049, ,033 1,137,038 1,010, ,594 1,828,528 67,226 5, ,894 2,014,458 3,162 3,768,588 6,847, ,668 17, , ,086 2,454, ,285 4,744,524 5,811,335 33,544 28, ,411 6,685,977 12, ,637 5,389,508 10,887, ,038 Total undiscounted financial assets 2,594,037 33,544 8,896,376 4,951,465 14,964,965 3,304,982 34,745,369 Financial liabilities Due to banks and financial institutions Net settled derivatives liabilities Customers deposits Related parties Deposits Engagements by acceptances 305,063 3,665,254 23, ,859 20,867, , ,442 2,963 1,985, ,033 43, ,053 3,162 32,365 28, ,215 23,526 27,050, , ,637 Total undiscounted financial liabilities 3,970,317 23,526 21,574,118 2,040, ,180 60,866 28,219,763 Net undiscounted financial assets / (liabilities) (1,376,280) 10,018 (12,677,742) 2,910,709 14,414,785 3,244,116 6,525,

136 31 December Financial liabilities Due to banks and financial institutions Net settled derivative liabilities Customers deposits Related parties deposits Engagements by acceptances On demand 334,911 2,632,131 Trading derivatives 32,830 Less than 3 months 797,276 18,581, , ,289 3 to 12 months 24,102 1,363,312 46,922 1 to 5 years 90, ,019 Over 5 years 23,499 Total 1,246,649 32,830 22,770, , ,211 Total undiscounted financial liabilities 2,967,042 32,830 19,694,284 1,434, ,379 23,499 24,413,370 The table below shows the contractual expiry by maturity of the Group s contingent liabilities and commitments: On Demand Less than 3 months 3 to 12 months 1 to 5 years Over 5 years Total Commitments issued to financial institutions Commitments issued to customers Guarantees issued to financial institutions Guarantees issued to customers Foreign currencies to receive Other commitment Commitments to lend Commitments on term financial instruments 17, , ,602 2,658, ,711 3,699, ,810 1,110,062 17, , , ,602 3,699, ,810 2,658,602 1,110,062 Total 3,391,049 4,203,588 1,110,062 8,704,699 On Demand Less than 3 months 3 to 12 months 1 to 5 years Over 5 years Total Commitments issued to financial institutions Commitments issued to customers Guarantees issued to financial institutions Guarantees issued to customers Foreign currencies to receive Other commitment Commitments to lend Commitments on term financial instruments 35, , ,271 2,347, ,489 2,064, ,144 7,953 77,325 35, , , ,271 2,072, ,144 2,347,564 77,325 Total 3,169,027 2,673,331 85,278 5,927,636 The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. 134

137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 453 MARKET RISK Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market prices. Market risks arise from open positions in interest rate and currency rate as well as equity position, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates and foreign exchange rates. Risk management is responsible for generating internal reports quantifying the Group s earnings at risk due to extreme movements in interest rates, while daily monitoring the sensitivity of the Group s trading portfolio of fixed income securities to changes in market prices and / or market parameters. Interest rate sensitivity gaps are reported to executive management and to the Banking Control Commission unconsolidated on a monthly basis and consolidated (Group level) on a semi annual basis. The Bank s Asset and Liability Management (ALM) policy assigns authority for its formulation, revision and administration to the Asset / Liability Management Committee (ALCO) of BLOM Bank SAL Group. Risk management will be responsible for monitoring compliance with all limits set in the ALM policy ranging from core foreign currency liquidity to liquidity mismatch limits to interest sensitivity gap limits. The Bank is implementing an Asset and Liability Management system Focus ALM in the process of automating the risk management of the Bank s assets and liabilities from a static and dynamic perspectives including stress testing and extensive scenario analysis INTEREST RATE RISK Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities and offfinancial position items that mature or reprice in a given period. The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies. Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group s income statement or statement of changes in equity. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the net interest income for one year, based on the floating rate nontrading financial assets and financial liabilities held at the year end, including the effect of hedging instruments. The sensitivity of equity is calculated by revaluing the availableforsale investments, based on the assumption that there are parallel shifts in the yield curve. The sensitivity of equity is analyzed by maturity of the assets or cash flow hedge swaps. All the nontrading book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are disclosed in local currency. The sensitivity analysis does not take account of action by the Group that might be taken to mitigate the effect of such changes. Sensitivity of equity Currency Increase in basis points Sensitivity of net interest income 0 to 6 months 6 months to 1 year (15) years More than 5 years Total Lebanese Lira United States Dollar Euro Others +0.50% +0.50% +0.25% +0.25% (16,234) 5,485 1,581 1,660 (7,389) (572) (7) (2,585) (7,047) (436) (2,585) (14,864) (1,612) (10,065) (6) (277) (976) (29,306) (2,897) (7) (16,211) Sensitivity of equity Currency Decrease in basis points Sensitivity of net interest income 0 to 6 months 6 months to 1 year (15) years More than 5 years Total Lebanese Lira United States Dollar Euro Others 0.50% 0.50% 0.25% 0.25% 16,234 (5,485) (1,581) (1,660) 7, ,637 6, ,638 13,756 1,988 10, ,486 3, ,

138 Sensitivity of equity Currency Increase in basis points Sensitivity of net interest income 0 to 6 months 6 months to 1 year (15) years More than 5 years Total Lebanese Lira United States Dollar Euro Others +0.50% +0.50% +0.25% +0.25% (9,677) 3,051 1, (7,814) (229) (154) (6,775) (207) (150) (19,688) (527) (1,117) (115) (296) (34,277) (1,078) (1,717) Sensitivity of equity Currency Decrease in basis points Sensitivity of net interest income 0 to 6 months 6 months to 1 year (15) years More than 5 years Total Lebanese Lira United States Dollar Euro Others 0.50% 0.50% 0.25% 0.25% 9,677 (3,051) (1,378) (947) 8, , , , ,724 1,021 1,894 Interest rate sensitivity gap The table below analyses the Group s interest rate risk exposure on ontrading financial assets and liabilities. The Group s assets and liabilities are included at carrying amount and categorized by the earlier of contractual repricing arrangements or maturity dates. ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Financial investments availableforsale Financial assets classified as loans and receivables Financial investments heldtomaturity Up to 1 month 810,099 4,256,373 1,980,322 11,522 45,575 18,938 58,425 1 to 3 months 37, , , , ,112 90,951 3 months to 1 year 11, ,698 1,322 1,760, , , ,818 (12) years 489,938 81, , ,126 1,745, ,558 3,845 (25) years 1,302,481 3,305 65, ,608 1,541,075 4,317, ,999 More than 5 years 95,199 2, , ,110 1,758, ,127 Non interest sensitive 1,947, ,369 33,544 16, , , , ,098 34,832 Total 4,693,974 5,787,117 33,544 24, ,402 6,046,601 11, ,637 4,694,221 8,200, ,997 TOTAL ASSETS 7,181,254 1,334,480 3,722,687 3,759,941 8,153,068 2,502,292 3,950,303 30,604,025 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Other liabilities 306,644 18,422, ,432 18,964 5,155,646 1,862, ,581 36, ,051 25, ,650 23, ,096 2, , , ,438 23,526 26,859, , , ,522 TOTAL LIABILITIES 18,957,399 5,174,610 1,862, , ,231 25,387 2,012,553 28,507,728 Total interest rate sensitivity gap (11,776,145) (3,840,130) 1,859,720 3,548,360 7,889,837 2,476,905 1,937,750 2,096,

139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Up to 1 month 32,022 4,288,765 3,470 1 to 3 months 637,647 3 months to 1 year 75,375 78, (12) years 180, , (25) years 1,617,546 20,332 1,912 More than 5 years 39 Non interest sensitive 1,674, ,005 39,867 8,507 Total 3,580,467 5,817,382 39,867 14,264 Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Financial investments availableforsale 1,598,365 6,926 3, , ,672 1,395,898 1,025,758 41, , ,376 40, ,540 2,510, , , , ,211 58,597 81,955 5,230,447 6, ,211 4,691,986 Financial assets classified as loans and receivables Financial investments heldtomaturity 59,602 83,040 53, ,070 89,172 1,349, ,818 2,254,738 31,495 2,011, , ,638 4,602 6,094, ,306 TOTAL ASSETS 6,075,898 1,292,268 2,978,437 3,261,093 7,382,390 2,570,453 2,833,504 26,394,043 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Other liabilities 764,536 17,741, ,278 47,586 2,828,639 31,893 1,336,392 80,542 45,225 67,741 21, ,506 56, , , ,211 1,196,746 56,779 22,636, , , ,211 TOTAL LIABILITIES 18,646,416 2,876,225 1,368,285 80, ,966 21,308 1,556,578 24,662,320 Total interest rate sensitivity gap (12,570,518) (1,583,957) 1,610,152 3,180,551 7,269,424 2,549,145 1,276,926 1,731, CURRENCY RISK Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rate. The Bank protects its capital and reserves by holding a foreign currency position in US Dollars representing 60% of its shareholders equity after adjustment according to specific requirements set by the Bank of Lebanon. The Bank is also allowed to hold a net trading position not to exceed 1 percent of its net shareholders equity, as long as the global foreign position does not exceed, at the same time, 40 percent of its net shareholders equity, and that the related banks are abiding in a timely and consistent manner with the required solvency rate (Bank of Lebanon circular number 32). 137

140 The table below indicates the consolidated statement of financial position detailed by currency. The following consolidated statement of financial position as of 31 December, is detailed in Lebanese Lira (LL) and foreign currencies, translated into LL. ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Noncurrent assets held for sale Financial investments available for sale Financial assets classified as loans and receivables Financial investments held to maturity Investment properties Property and equipment Intangible assets Other assets Goodwill 902,039 51,223 9, , (3,258) 3,916,778 3,385, ,216 1,170 45,547 Foreign currencies in Lebanese Lira Other US Dollars in Euro in foreign currencies 2,222,384 2,791,059 20, ,402 3,296,484 3, ,400 7, ,299 4,687, ,675 1, ,046 84,959 1,638, ,755 2,597 23,263 13, , ,745 1,484,592 1,306,259 23,635 4,261 1,915,587 4,733 24,974 25, ,376 6, , ,772 5,359 51,172 63,268 Total foreign currencies 3,791,935 5,735,894 23,635 24, ,402 5,446,826 11, ,637 33, ,443 4,814, , ,634 5,557 83,963 63,268 Total 4,693,974 5,787,117 33,544 24, ,402 6,046,601 11, ,637 29,846 4,694,221 8,200, , ,850 6, ,510 63,268 TOTAL ASSETS 9,098,190 14,140,944 2,124,716 5,844,994 22,110,654 31,208,844 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Current tax liabilities Other liabilities Provisions for risks and charges Retirement obligation benefits 1,525 7,810,887 56,559 30, ,721 15,775 26, ,947 12,986, , , ,803 13,554 2, ,002 1,618,084 3,862 23,263 3,055 28, ,964 23,526 4,443,619 56,073 24,974 14,825 75,457 9,092 10, ,913 23,526 19,048, , ,637 17, ,801 22,646 12, ,438 23,526 26,859, , ,637 48, ,522 38,421 38,558 Total liabilities 8,071,296 13,792,530 1,950,807 4,818,662 20,561,999 28,633,295 NET EXPOSURE 1,026, , ,909 1,026,332 1,548,655 2,575,

141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December The following consolidated statement of financial position as of 31 December, is detailed in Lebanese Lira (LL) and foreign currencies, translated into LL. Foreign currencies in Lebanese Lira ASSETS Cash and balances with central banks Due from banks and financial institutions Derivative financial instruments Financial assets heldfortrading Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to related parties Bank acceptances Noncurrent assets held for sale Financial investments available for sale Financial assets classified as loans and receivables Financial investments held to maturity Investment properties Property and equipment Intangible assets Other assets Goodwill 646,219 66,234 8, , (2,667) 4,090,268 1,117, , ,450 US Dollars in 2,103,557 2,996,367 10,683 81,955 2,872,684 4, ,138 10, ,305 4,811, ,586 9, ,596 Euro in 85,323 1,610,988 1, ,594 1,890 38,775 7, , ,029 Other foreign currencies 745,368 1,143,793 29,607 3,470 1,681, ,298 19, ,599 14, , ,425 3,671 93,525 63,145 Total foreign currencies 2,934,248 5,751,148 30,960 14,264 81,955 4,796,558 6, ,211 30, ,718 4,976, , ,526 4, ,150 63,145 Total 3,580,467 5,817,382 39,867 14,264 81,955 5,230,447 6, ,211 27,561 4,691,986 6,094, , ,576 5, ,600 63,145 TOTAL ASSETS 6,562,949 13,630,084 2,144,382 4,643,398 20,417,864 26,980,813 LIABILITIES Due to banks and financial institutions Derivative financial instruments Customers' deposits Related parties` deposits Engagements by acceptances Current tax liabilities Other liabilities Provisions for risks and charges Retirement obligation benefits 12,819 27,399 5,557,359 36,457 33,302 85,880 23,232 24, ,065 12,278,646 58, ,138 1, , , ,893 1,464,325 18,082 38,775 1,322 21, ,969 29,380 3,335,765 26,949 24,298 16, ,486 7,844 8,294 1,183,927 29,380 17,078, , ,211 19, ,331 8,249 10,335 1,196,746 56,779 22,636, , ,211 53, ,211 31,481 34,534 Total liabilities 5,800,647 12,949,321 2,251,597 3,779,929 18,980,847 24,781,494 NET EXPOSURE 762, ,763 (107,215) 863,469 1,437,017 2,199,

142 The table below indicates the extent to which the Group was exposed to currency risk at 31 December on its foreign currency positions. The analysis calculates the effects of a reasonably possible movement of the currency rate against the Lebanese Lira, with all other variables held constant, including the effect of hedging instruments, on the consolidated income statement (due to the fair value of currency sensitive nontrading monetary assets and liabilities) and equity (due to the change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). The effect on equity is not significant. A negative amount in the table reflects a potential net reduction in consolidated income statement or equity, while a positive amount reflects a net potential increase. Currency Change in currency rate % Effect on profit before tax Change in currency rate % Effect on profit before tax USD EUR ± 1% ± 3% ± 174 ± 14,187 ± 1% ± 3% ± 6,068 ± PREPAYMENT RISK Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay or request repayment earlier than expected, such as fixed rate housing loans when interest rate falls. The fixed rate assets of the Group are not significant compared to the total assets. Moreover, other market conditions causing prepayment is not significant in the markets in which the Group operates. Therefore, the Group considers the effect of prepayment on net interest income is not material after taking into account the effect of any prepayment penalties OPERATIONAL RISK Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, including the use of internal audit. 46. CAPITAL MANAGEMENT The Bank maintains an actively managed capital base to cover risks, inherent in the business. The adequacy of the Bank s capital is monitored using, among other measures, the rules and ratios established by the Bank of Lebanon and the Banking Control Commission. The primary objectives of the Bank s capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Bank maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value. Banks should maintain a required capital adequacy ratio (not less than 8%) based on their capital funds over the total risk weighted assets. The Bank complies in full with all its externally imposed capital requirements (: the same). The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years; however, it is under constant scrutiny of the Board. 140

143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December Regulatory capital At 31 December and, the capital consists of the following: Tier 1 capital Tier 2 capital Total capital Risk weighted assets Credit risk Market risk Operational risk Total risk weighted assets 2,156,828 43,591 2,200,419 14,139, ,026 1,298,738 15,760,657 1,901,875 (7,782) 1,894,093 13,552, ,936 1,120,450 14,887,272 The capital adequacy ratio as of 31 December (including profit for the year less proposed dividends) is as follows: Tier 1 capital ratio Total capital ratio 13.68% 13.96% 12.78% 12.72% 47. COMPARATIVE INFORMATION Insurance premiums commissions were reclassified from other operating income and other operating expenses to fee and commission income. Comparative figures amounting to LL 57,069 million and LL 39,511 million were reclassified accordingly. 141

144

145 CORRESPONDENT BANKS BLOM BANK GROUP MANAGEMENT BLOM BANK GROUP DIRECTORY

146 BLOM BANK Worldwide Correspondent Banks COUNTRY Australia, Sydney Bahrain, Manam Canada, Toronto Denmark, Copenhagen France, Paris Germany, Frankfurt am Main Germany, Frankfurt am Main Italy, Milan Italy, Milan Italy, Rome Japan, Tokyo Japan, Tokyo KSA, Jeddah KSA, Riyadh Kuwait, Kuwait Norway, Oslo Qatar, Doha Spain, Madrid Sweden, Stockholm Switzerland, Geneva Switzerland, Zurich Switzerland, Zurich Turkey, Istanbul U.A.E, Dubai U.K, London U.K, London U.S.A, New York U.S.A, New York AUD BHD CAD DKK EUR EUR EUR EUR EUR EUR JPY JPY SAR SAR KWD NOK QAR EUR EUR CHF EUR EUR TRY AED GBP GBP USD USD CORRESPONDENT BANK Commonwealth Bank of Australia National Bank of Bahrain Canadian Imperial Bank of Commerce (The) Danske Bank A/S BLOM BANK France SA Commerzbank AG Deutsche Bank AG Intesa San Paolo SPA Unicredit SPA Banca Nazionale Del Lavoro SPA Bank of TokyoMitsubishi Ltd JP Morgan Chase Bank N.A. The National Commercial Bank Riyad Bank Gulf Bank KSC Dnb NOR Bank ASA Commercial Bank of Qatar (The) (QSC) Banco Bilbao Vizcaya Argentaria S.A. (BBVA) Skandinaviska Enskilda Banken AB BLOM BANK Switzerland SA Credit Suisse AG UBS AG Yapi Ve Kredi Bankasi A.S. BLOM BANK France SA BLOM BANK France SA NATIONAL WESTMINSTER BANK PLC Bank of New York Mellon (The) JP Morgan Chase Bank N.A. 144

147 BLOM BANK Group Managemnet and Directory

148 LEBANON BOARD OF DIRECTORS & GENERAL MANAGEMENT Refer to page 21 until 31 of this report JORDAN Regional Management Dr. Adnan AL ARAJ Mr. Adnan SALLAKH Mr. Moder KURDI HEADS OF DEPARTMENTS AND UNITS Dr. Mohamed AMRO Mr. Mohanad BALBISSI (AL) Mr. Omar ABDULLAH Mr. Wa' el HASSOUNEH Mr. Hani DIRANI Mr. Said OBEIDALLAH Mr. Muhannad ABYAD Mr. Nabil OBALI Mr. Maan ZOABI Mr. Eyad ADI Ms. Mona KHOUZAI CYPRUS MANAGEMENT Ziad EL MURR ABU DHABI Representative Office Mr. Ramzi AKKARI SYRIA Free Zone Mr. Joseph HAYEK BRANCH NETWORK General Manager Jordan Consultant for General Management in Lebanon Assistant Regional Manager / Credit Treasury & Investment Manager Financial Controller Retail Manager Corporate Manager Legal Consultant Internal Audit Manager IT Manager Risk Manager Compliance Manager Central Operations Manager Personnel Branch Manager Chief Representative Branch Manager 146 LEBANON Headquarters Verdun Rachid Karami St, BLOM BANK bldg P.O. Box: Riad ElSolh, Beirut , Lebanon Phone: (9611) Fax: (9611) blommail@blom.com.lb MOHAFAZAT BEIRUT BRANCHES Main Branch Verdun, Rachid Karami St, BLOM BANK bldg Phone: (9611) Fax: (9611) Senior Manager / Branches: Mr. Walid ARISS Ashrafieh Sassine Square Phone: (9611) /8. Fax: (9611) Branch Manager: Mr. Ara BOGHOSSIAN Ain ElMreisseh Ibn Sina St Mashkhas bldg Phone: (9611) Fax: (9611) Branch Manager: Mr. Mahmoud MARRACH Badaro Badaro Main St Damascus Road intersection Buick Khoury bldg Phone: (9611) /19/20/ Fax: (9611) Branch Manager: Mr. Raoul CHERFAN Bliss Bliss St, opposite Hobeish Police Station Ras Beirut Al Rayess Bldg Phone: (9611) /34/42. Fax: (9611) Branch Manager: Mr. Ziad SROUGI

149 Burj Abi Haidar Burj Abi Haidar St, Salam Tower Phone: (9611) /8/ Fax: (9611) Branch Manager: Mr. Samer DAYYA Hamra Abdel Aziz St, Daher bldg Phone: (9611) /1/2/ Fax: (961 1) Senior Manager / Branches: Mr. Sami FARHAT Hamra Retail Abdel Aziz St, Daher bldg Phone: (9611) /59 /60. Fax: (9611) Branch Manager: Mr. Abbas TANNIR Istiklal Istiklal St, Karakol ElDruze Area, next to Kettaneh Palace, Salhab bldg Phone: (9611) / Fax: (9611) Branch Manager: Mr. Mohamad Masri SIDANI Jnah Bir Hassan Area, United Nations St, next to Beirut Hospital, Jaber bldg Phone: (9611) /4/5. Fax: (9611) Branch Manager: Mr. Abbas KALOT Maarad Emir Bechir St, Hibat el Maarad bldg Downtown Phone: (9611) /1/2/3/4. Fax: (9611) Branch Manager: Mr. Amer KAMAL Mar Elias Corniche El Mazraa opposite Helou s barracks, Zantout bldg. Phone: (9611) /7/9. Fax: (9611) Branch Manager: Mr. Mohamad Abd el wahab Al TABSH Mazraa Corniche El Mazraa, Barbir Square Phone: (9611) /1/ Fax: (9611) Branch Manager: Mr. Marwan MOHTAR Mina El Hosn Beirut Tower building, Adnan El Hakim street to the south & Fawzi Al Daouk North Phone: (9611) Fax: (9611) Branch Manager: Mr. Samer BOHSALI Noueiri Al Noueiri Station Hamada bldg Phone: (9611) Fax: (9611) Branch Manager: Mr. Yehya ORFALI Raouché Raouche Blvd Al Rayess & Bou Dagher Bldg Phone: (9611) /4/5/6. Fax: (9611) Branch Manager: Mr. Mohamad Khodor MARRACH Rmeil Ashrafieh, Orthodox Hospital St, Medical Center Phone: (9611) Fax: (9611) Branch Manager: Mrs. Salma Rbeiz ACHKOUTY Saifi Al Arz Street Akar bldg. Phone: (9611) Fax: (9611) Branch Manager: Dr. Ousama CHAHINE Sanayeh Chamber of Commerce & Industry bldg. Phone: (9611) / Fax: (9611) Branch Manager: Mrs. Nahida Mehdi WEHBE Sodeco Retail Branch Sodeco Square, Damascus Road Phone: (9611) /1. Fax: (9611) Branch Manager: Mrs. Souraya Bshouty KANDIL Tabaris Gebran Tueini Square Sursock Tower Phone: (9611) /3/4. Fax: (9611) Senior Manager/Branches: Ms. Claire ABOU MRAD Tariq AlJedideh Al Malaab Al Baladi Square Salim bldg. Phone: (9611) Fax: (9611) Branch Manager: Mr. Khodor MNEIMNEH Verdun Verdun St, opposite F.S.I. Barracks, Abdo bldg. Phone: (9611) / Fax: (9611) Branch Manager: Mr. Hani BAWAB Verdun Retail Branch Verdun, Rachid Karami St, BLOM BANK bldg. Phone: (9611) /1/2/3. Branch Manager: Mr. Marwan PHARAON 147

150 148 MOHAFAZAT MOUNT LEBANON BRANCHES Ain ElRemaneh Chiyah District, Lamaa St, Next to Kasarjian Barracks Phone: (9611) /1/2/3. Fax: (9611) Branch Manager: Mr. Johnny SALIBI Aley Al Balakine, Property of Faysal Sultane Wahab Phone: (9615) /13. Fax: (9615) Branch Manager: Mrs. May BOU ALWAN Antelias Next to the Armenian Patriarchate Kheirallah bldg Phone: (9614) Fax: (9614) Branch Manager: Mr. Laurent CHEBLI Aramoun Choueifat Al Koba, Aramoun Road, Zaynab Center Phone: (9615) /2/3/4. Fax: (9615) Branch Manager: Mrs. Nawal Merhi ABOU DIAB Burj AlBarajneh Ain El Sekka St Rahal bldg Phone: (9611) /2/3/ Fax: (9611) Branch Manager: Dr. Hassan JABAK Burj Hammoud Harboyan Center Phone: (9611) / / Fax: (9611) Branch Manager: Mr. Youssef HOMSI Chiyah Chiyah Blvd, Round About Mar Mekhayel, Orient Center Bldg. Phone: (9611) /3/ Fax: (9611) Senior Manager / Branches: Mr. Abbas TLAIS Choueifat AL Omaraa, Main Road, Al Tiro s Junction Phone: (9615) /6. Fax: (9615) Branch Manager: Mr. Kamal SLIM Dekwaneh Main street, Mohana Center, Phone: (9611) / Fax: (9611) Branch Manager: Mr. Farid ZOGHBI Dora Bawchrieh, Tripoli Road, Banking Center bldg Phone: (9611) /28/32/37/38/39/41. Fax: (9611) Senior Manager/ Branches: Mrs. Marlène Tranjane DOUMIT Elissar Beit El Kiko, Antelias Bickfaya Road Phone: (9614) /2/3/4. Fax: (9614) Branch Manager: Mr. Joseph Francois GHOUSOUB Furn el Chebbak Retail Branch Furn el Chebbak, Abraj Center, Main Str., Beirut Phone: (9611) /13. Fax: (9611) Branch Manager: Mrs. Alice Haddad AHMARANI Ghobeyri Corniche El Ghobeyri Chiah Blvd Tohme & Jaber & Kalot bldg Phone: (9611) Fax: (9611) Branch Manager: Mrs. Majida Alameh MIKATI Hadath Hadath, Sfeir district, Phone: (9615) Fax: (9615) Branch Manager: Mr. Jules HAIDAR Haret Hreik Al Abiad Area, Sayyed Hadi Nasrallah Highway, Abou Taam & Hoteit bldg Phone: (9611) Fax: (9611) Branch Manager: Mr. Ali CHREIF Hazmieh Damascus Road, Joseph Chahine Center Phone: (9615) /1/2/3/4. Fax: (9615) Branch Manager: Mr. Ziad KAREH Jbeil Voie 13 Near Mar Charbel Junction Phone: (9619) /3 /4. Fax: (9619) Branch Manager: Mr. Zakhia SARKIS

151 Jounieh Facing Palais de Justice Next to Fouad Chehab Playground Phone: (9619) /12/13/14. Fax: (9619) Branch Manager: Mr. Rachad YAGHI Kaslik Kaslik Main St, Debs Center Phone: (9619) / Fax: (9619) Branch Manager: Mr. Charles Nasrallah AOUDE Mansourieh Mansourieh el Maten, Dar El Ain Plaza New Highway Phone: (9614) /7/8. Fax: (9614) Branch Manager: Mr. Walid LABBAN Sin ElFil Far Vision Center Fouad Chehab Avenue Phone: (9611) /1/2. Fax: (9611) Branch Manager: Mr. Fadi EL MIR Sin ElFil Retail Horsh Tabet, Charles De Gaulle St, Tayar Center Phone: (9611) Branch Manager: Mrs. Zeina KHATTAB Zalka Zalka St, BLOM BANK bldg, Interior Road Phone: (9614) /5. Fax: (9614) Branch Manager: Mrs. Denise Nasr Abi Raad JALKH Zouk Mosbeh Zouk Mosbeh,Main St, Le Paradis Centre, Jeita s cave junction Phone: (9619) /2/3/4/5. Fax: (9619) Branch Manager: Mrs. Marlène Mazraany ABOU NAJM MOHAFAZAT NORTH LEBANON BRANCHES Tripoli Abi Samra AlDinnawi Square, Khaled Darwiche bldg Phone: (9616) /6/7/8/9. Fax: (9616) Branch Manager: Mrs. Salwa Ajaj MERHI Tripoli Azmi Azmi St, Fattal bldg Phone: (9616) /1/2. Fax: (9616) Branch Manager: Mr. Fouad AL HAJJ Tripoli Al Tell Abdel Hamid Karameh Square, Ghandour bldg Phone: (9616) / Fax: (9616) Branch Manager: Mr. Chaina ASSI Tripoli Zahrieh Al Tall St, Alam AL Din & Bissar bldg Phone: (9616) / Fax: (9616) Branch Manager: Mr. Wassim BAGHDADI MOHAFAZAT BEKAA BRANCHES Chtaura Main St, Najim El Din bldg Phone: (9618) / Fax: (9618) Branch Manager: Mr. Elie FREIJI Zahleh Manara Center, Fakhoury & Kfoury bldg Phone: (9618) /1/2/3/ Fax: (9618) Branch Manager: Mr. Marwan CHAKRA (AL) MOHAFAZAT NABATIYEH BRANCH Nabatiyeh Nabatieh Tahta, Hassan Kamel Al Sabbah St, Office 2000 bldg Phone: (9617) /5/6. Fax: (9617) Branch Manager: Mr. Hani HAMMOUD 149

152 MOHAFAZAT SOUTH LEBANON BRANCHES Saida Riad Solh St, Al Zaatari & Fakhoury & Bizri bldg Phone: (9617) Fax: (9617) Branch Manager: Mr. Moufid NAJJAR Tyr Abbassieh Tyr, Abbasia, Jabal El Baher, Jabal Amel Hospital's Junction Phone: (9613) , (96171) , (96170) Branch Manager: Mr. Ali SROUR Tyr Main St, Chehade bldg. Phone: (9617) Fax: (9617) Branch Manager: Mrs. Maysaa Arab RAHAL STAND BY BRANCH MANAGERS Mr. Ziad CHANOUHA Mr. Wassim FAHS Mr. Edmond HAMATI Ms. Nelly HARFOUCHE Mr. Joseph KILAJIAN Mr. Antoine MATAR Mr. Ahmad Jamal SINNO Mr. Ahmad Koussai SINNO Mr. Adel THAMINE JORDAN BLOM BANK Regional Management Amman 18 Al Sharif Abdel Hamid Sharaf St., P.O. Box Shmeisani, Amman , Jordan Phone: (9626) Fax: (9626) , Abdoun Princess Sumaiiah St., Essam AlKhateeb Complex Phone: (9626) Fax: (9626) Branch Manager: Mr. Marwan SALAH Irbid AlQubba CircleIrbid King Abdallah the second St. Phone: (9622) Fax: (9622) Branch Manager: Mr. Ahmad DABAAN Jubeiha 20 Yajouz St. Phone: (9626) Fax: (9626) Branch Manager: Mr. Omar ABU ASSAF Mecca Street 152 Mecca St. Al Husseine Complex Phone: (9626) Fax: (9626) Branch Manager: Mr. Mohannad YOUNES Shmeisani 18 Al Sharif Abdel Hamid Sharaf St Phone: (9626) Fax: (9626) Branch Manager: Mr. Abdeljawad AL OWAISI Sweifieh 67 Abed Al Rahim Al Hajj Mohammad St Phone: (9626) Fax: (9626) Branch Manager: Mr. Baker HADDADEEN Wihdat 453 Al Amir Hassan St, Oum Heiran Phone: (9626) Fax: (9626) Branch Manager: Mr. Iyad GHEITH CYPRUS 150 Victory House, 205Z Archbishop Makarios Ave, 3030 Limassol P.O.Box: 53243, 3301 Limassol, Cyprus Phone: (35725) /4/5. Fax: (37525) , Branch Manager: Mr. Ziad EL MURR ABU DHABI Representative Office Al Bateen Towers Tower C 6 Suite C 907 9th floor, Al Bateen Bainuna Street Abu Dhabi U.A.E. P.O. Box: Al Bateen Abu Dhabi U.A.E. Phone: (9712) Fax: (9712) , blombank@blombankad.ae Chief Representative: Mr. Ramzi AKARI

153 SYRIA Free Zone Damascus Free Zone, AlBaramkeh Phone: (96311) /1. Fax: (96311) , Branch Manager: Mr. Joseph HAYEK Board of Directors Mr. Samer AZHARI Chairman & General Manager Dr. Naaman AZHARI Honorary President and Permanent Representative of BLOM BANK S.A.L HE Sheikh Ghassan Ibrahim SHAKER (Grand Officier de la Légion d Honneur) Member Mr. Christian DE LONGEVIALLE Member Mr. JeanPaul DESSERTINE Member Mr. Marwan JAROUDI Member General Management Mr. Samer AZHARI Mr. Michel ADWAN Mr. Gilbert MOINE Mr. Iskandar ARAMAN Mr. Amr EL TURK Mr. Bassem ARISS Mr. JeanPierre BAAKLINI Mr. Christian ARLOT Mr. Hany BAZ BRANCH NETWORK FRANCE Headquarters France 3840 avenue des ChampsElysées, Paris France Phone: (331) Fax: (331) blomfrance@blomfrance.fr Branch Manager: Mr. Iskandar ARAMAN UNITED ARAB EMIRATES Chairman & General Manager Deputy General Manager Senior Manager Manager Head Office Senior Manager London Regional Manager UAE General Manager Romania Risk Manager Audit Manager Dubai Deira, Al Maktoum St, Sheikh Ahmad Ben Rached al Maktoum bldg Phone: (9714) Fax: (9714) Branch Manager: Mr. Samir HOBEIKA Sharjah Khaled Lagoon, Corniche al Buhairah, Sheikh Nasser Bin Hamad al Thani bldg Phone: (9716) Fax: (9716) Branch Manager: Mr. Mokhtar KASSEM UNITED KINGDOM London Brompton Road, London SW3 1LZ England Phone: (4420) Fax: (4420) Senior Manager: Mr. Amr TURK 151

154 ROMANIA Blom Bank France S.A. Paris, Romania Branch Headquarter Unirii Bldv. No. 66, Bloc K3, mezanin, Sector 3, Bucharest, P.O. Box 1850 Phone: (40213) (06) Fax: (40213) (03) Headquarter Bucharest Unirii Customer Desk Unirii Bldv. No. 66, Bloc K3, mezanin, Sector 3, Bucharest Phone: (40213) (06). Fax: (40213) (03) Head of Operations: Mrs. Florentina DELA Victoria Buzesti Street, No. 72, Sector 1, Bucharest Phone: (40213) (06/07). Fax: (40213) (09) Agency Manager: Mr. Marius VOICULE Brasov Mihail Kogalniceanu Street, No. 23, Bloc C7, Brasov Phone: (40268) Fax:(40268) Agency Manager: Mr. Marius Constantin VATAVU Constanta Mamaia Blvd., No. 25 Bis, C.P. 289, Constanta Phone: (40341) (89) Fax: (40341) Agency Manager: Mr. Mihai BUTCARU Voluntari Voluntari Blvd., No. 9395, Judetul Ilfov Phone: (40212) (83). Fax: (40212) Agency Manager: Mr. Hesham SALEH BOARD OF DIRECTORS Dr. Rateb SHALLAH Mr. Amr AZHARI Mr. Georges SAYEGH Dr. Ihsan BAALBAKI Mr. Ibrahim SHEIKH DIB BLOM BANK SAL Mr. Mehran KHWANDA Mr. Habib BETINJANEH Mr. Samer AZHARI Mr. Saad AZHARI Mr. Mohamed Adib JOUD HEAD OF DEPARTMENTS Mr. Mohamed KHALED Mr. Bachir YAKZAN Mr. Georges EL HADDAD Ms. Inaya SOUBRA Mr. Mazen ALIEH Ms. Rima Jawad ZEIN Mr. Salem MAHMOUD Mr. Jihad EL KHOURY Mr. Samir ASMAR Mr. Elias ANZ Mr. Ziad KAMAL EL DEEN Mr. Mhd. Feras SANNOUFA Chairman Vice Chairman Board Secretary General Manager Member Member Member Member Member Member Member Board Advisor Retail Banking Credit Internal Audit International Financial Control & Accounting Human Resources Information Technology Operations Administration Trade Services Compliance Retail Sales 152

155 BRANCH NETWORK Headquarters Al Harika Bab Barid Near the Chamber of Commerce Damascus P.O. Box: 3103 Damascus Syria. Phone: Fax: DAMASCUS Al Harika Al Harika Bab Barid Near the Chamber of Commerce Phone: (96311) Fax: (96311) Branch Manager: Mr. Samir BASSOUS Al Nejmeh Square Al Nejmeh Square Parliament Street Opposite Dar El Salam School Phone: (96311) Fax: (96311) Branch Manager: Mr. Fadi ISTWANI Al Kassaa Al Kassaa Burj El Rous Facing National Park Phone: (96311) Fax: (96311) Branch Manager: Mr. Omar HAMMOUD AL Mezzeh Mezzeh Highway Next to Al Razi Hospital Phone: (96311) Fax: (96311) Branch Manager: Mr. Tarek SHIHAB Kafarsusseh Damascus Kafarsusseh Mall Phone: (96311) Fax: (96311) Branch Manager: Ms. Hadil DIB Al Mazraa Al Malek Al Adel Street Phone: (96311) Fax: (96311) Branch Manager: Mr. Eyad AL SATI Al Midan Al Midan Corniche Al Ghowas Behind Al Hassan Mosque Phone: (96311) Fax: (96311) Branch Manager: Mr. Bassem MERHEJ ALEPPO Al Azizieh Majd El Dine Al Jabiri Street Phone: (96321) Fax: (96321) Branch Manager: Mr. Eddy BECHARA Al Azizieh Al Azizieh Majd El Dine Al Jabiri Street Phone: (96321) Fax: (96321) Branch Manager: Mr. Eddy BECHARA Al Madina Saba Bahrat Street Phone: (96321) Fax: (96321) Branch Manager: Mr. Amr KAYAL Al Muhafaza Cairo Street Phone: (963 21) Fax: (963 21) Branch Manager: Mr. Waleed SAAD Al Sulaimanieh Aleppo Al Sulaimanieh Street Phone: (96321) Fax: (96321) Branch Manager: Mrs. Mona JARJOUR Town Mall A zaz Street Aleppo Syria Phone: (96321) Fax: (96321) Branch Manager: Mr. Eddy BCHARA Al Sheikh Najjar Industrial city of Aleppo Syria Phone: (96321) Fax: (96321) Branch Manager: Mr. Eddy BCHARA LATTAKIA Al Kamilia, March 8th Street Phone: (96341) Fax: (96341) Branch Manager: Mr. Zafer WAZZAN HAMA Al Kouatli Street Phone: (96333) Fax: (963 33) Branch Manager: Mr. Morhaf AL SHAKAKI TARTOUS Al Thawra Street Phone: (96343) Fax: (96343) Branch Manager: Mr. Chamel EL MAKARI HOMS City Center Bldg. Phone: (96331) Fax: (96331) Branch Manager: Ms. Anna DIBE Hassia Homs Industrial city Phone: (96331) Fax: (96331) Branch Manager: Ms. Anna DIBE Mahata Homs Al Mahata area Phone: (96331) Fax: (96331) Branch Manager: Ms. Anna DIBE Al SWEIDA A Tishreen Street Phone: (963 16) Fax: (96316) Branch Manager: Mr. Toufic BAZ RADWAN DARA A Al Kouatli Street PPhone: (96315) 9960 Fax: (96315) Branch Manager: Mr. Anwar AL HARES ADRAA Damascus country side Industrial city of Adraaa Phone: (96311) Fax: (96311) Branch Manager: Mr. Hussein OBEID BRANCHES UNDER ESTABLISHMENT Dummar Project Damascus SYRIA AND OVERSEAS FOR FINANCIAL SERVICES Mazraa Al Malek El Adel Street Damascus Syria Phone: (96311) Fax: (96311)

156 BOARD OF DIRECTORS Mr. Saad AZHARI Mr. Mohammed OZALP Dr. Fadi OSSEIRAN Mr. Shaker ABDULLAH Mr. Samir KASSIS Mr. Elias ARACTINGI Chairman Managing Director & Chief Executive Officer Member Member Member Member GENERAL MANAGEMENT Mr. Mohammed OZALP Mr. Talal IBRAHIM Mrs. Maya EL KADY Mr. Tarek METWALLY Mr. Hani DANA Managing Director & Chief Executive Officer AMD Total Quality Management AMD Retail Banking AMD Institutional Banking Chairman s Advisor & Chief Credit Officer HEAD OF DEPARTMENTS Mr. Abdel Aziz ALY Mr. Belal FAROUK Mr. Gamal DIAA Mrs. Hala EL SAWAF Mr. Emad EL GUINDY Mr. Khaled YOUSRY Mr. Maher ANWAR Mr. Mohamed RASHWAN Mr. Talaat EL OMDA Mr. Yehia RASHED Mrs. Brigitte ABOU FARAHAT Mr. Mustapha EZZAT Mr. Ali ABDELAZIM Governmental Affairs Compliance Medium Size Finance Head of Retail Banking Central Operations Financial Institutions Legal Affairs Internal Audit Human Resources Risk Management Acting Administration Group Head Financial Control Remedial Loans BRANCH NETWORK Headquarters 64 Mohey Al Din Abo El Ezz, Dokki, Egypt Phone: (202) Fax: (202) Abbasia 109 Abbasia St. Phone: (202) Fax: (202) Branch Manager: Mr. Tarek TALAAT Cairo 15 Abu El Feda St. Zamalek Cairo Phone: (202) Fax: (202) Branch Manager: Mrs. Hanaa FOUAD Heliopolis 31 El Hegaz St. Heliopolis, In front of Merryland Cairo Phone: (202) Fax: (202) Acting Branch Manager: Mr. Hisham ABOU SHAHBA Al Hurghada 7 El Mena Holiday Inn Center St. AL Saquala Square Hurghada Phone: (2065) Fax: (2065) Branch Manager: Mr. Hussein EL SWAIFY Ismalia 15 Street 144 Teraat Al Ismalia next to El Rai Bridge Ismalia Phone: (2064) Fax: (2064) Branch Manager: Mr. Ahmed ABDEL AAL 154

157 Khalifa El Maamoun 20 Al Khalifa El Maamoun St. Manshiet El Bakry Cairo Phone: (202) Fax: (202) Branch Manager: Mrs. Heba SAAD Maadi 4 Street 269 from Nasr St. Albasateen Maadi Cairo Phone: (202) Fax: (202) Branch Manager: Mr. Charif MOUHASSEB Al Mansoura 35 Tanzem Zaghloul Basha St. Mansoura Phone: (2050) Fax: (2050) Acting Branch Manager: Mr. Abdel Ghany BAKR Mohandessen 54 Lebanon St. Mohandessen Cairo Phone: (202) Fax: (202) Branch Manager: Mr. Ahmed SABRY Mohie Eldin Aboul Ezz 64 Mohie Eldin Aboul Ezz St. Dokki Cairo Phone: (202) Fax: (202) Branch Manager: Mrs. Wafaa EZZAT Nasr City El Akkad Mall El Nasr Road Nasr City Cairo Phone: (202) Fax: (202) Branch Manager: Mr. Hesham FOUAD New Cairo 101 City Commercial Center El Tagamoa El Khames New Cairo Phone: (202) Acting Branch Deputy Manager: Mr. Moataz EL TOHAMY New Maadi 17/5 El Laselky Nasr St. New Maadi Cairo Phone: (202) Fax: (202) Branch Manager: Mrs. Hanem FAHMY Opera 17, Gumhuria Street Cairo Phone: (202) Fax: (202) Branch Manager: Mr. Ali Ezzat KHAFAGY Orouba 1 Cleopatra St. El Orouba Heliopolis Cairo Phone: (202) Fax: (202) Branch Manager: Mrs. Nayera LABIB Shoubra 232 Shoubra St. EL Khalafawy Square Cairo Phone: (202) Fax: (202) Branch Manager: Mr. Sherif TAHER 6 th October Central Axis El Madiena Commercial Center Area No.4 1st District 6th October city Phone: (202) Fax: (202) Branch Manager: Mr. Mamdouh ZAYED ALEXANDRIA Montaza 414 Gamal Abd El Naser El Mandara Alexandria Phone: (203) Fax: (203) Branch Manager: Mr. Magdi SAMAHA El Shatby 17 Port Said St. El Shatby Alexandria Phone: (203) Fax: (203) Branch Manager: Mr. Ashraf TAHIO Sporting 273 El Horria Road Sporting Alexandria Phone: (203) Fax: (203) Branch Manager: Mrs. Magda FAYED Stadium 1 Soliman Yousri St. ( Loumomba ) in front of stadium Alexandria Phone: (203) Fax: (203) Branch Manager: Mr. Ayman TALAAT Manshya 9 Oraby Square in front of Elguindy El Maghol Alexandria Phone: (203) Fax: (203) Branch Manager: Mr. Sheriff OUF Sharm El Sheikh Naama Bay El Amir Abdouallah St. Murray Mall Sharm El Sheik Phone: (2069) Fax: (2069) Branch Manager: Mr. Alaa METWALLY Damietta 1 Cornish El Nil St. El Shorta Tower Damietta Phone: (2057) Fax: (2057) Branch Manager: Mr. Mohamed EL BERGISY Port Said 37 Al Joumhouria Street Central Bank Roundabout Phone: (202) Acting Branch Manager: Mr. Wassin GALAL 155

158 BOARD OF DIRECTORS Dr. Naaman AZHARI Mr. Saad AZHARI Mr. André CATTIN Dr. Werner FREY Me Peter de la GANDARA Mr. Ahmad G. SHAKER Honorary Chairman of the Board Chairman Vice Chairman Member Member Member MANAGEMENT COMMITTEE Mr. Antoine MAZLOUM Mr. Thierry OTT Mrs. Eléonore DAESCHER Mr. Salim DIAB General Manager Manager Deputy Manager Deputy Manager HEADQUARTERS 1, Rue de la Rôtisserie, Geneva, Switzerland P.O. Box: 3040 CH 1211 Geneva 3 Switzerland Phone: (4122) Fax: (4122) dir.administr@blombank.ch LEBANON BOARD OF DIRECTORS Mr. Saad AZHARI Messrs. BLOM BANK SAL Mr. Joseph Emile KHARRAT Mr. Marwan JAROUDI Mr. Samer AZHARI Mr. Habib RAHAL Chairman & General Manager Member Member Member Member Member GENERAL MANAGEMENT Mr. Saad AZHARI Dr. Fadi OSSEIRAN HEADS OF DEPARTMENTS Mr. Georges TABET Mr. Michel CHIKHANI Mr. Elie CHALHOUB Mr. Nicolas PHOTIADES Mr. Walid KADRI Mr. Ramzi TOHME Mr. Marwan MIKHAEL Mr. Marwan ABOU KHALIL Dr. Ali BOLBOL Chairman & General Manager General Manager Assistant General Manager Head of Private Banking Assistant General Manager Head of Asset Management Senior Manager, Head of Administration Head of Investment Banking Head of Planning and Organization Head of Operations Head of Research Head of Capital Markets Economic Advisor 156

159 HEADQUARTERS Verdun, Rachid Karami St, BLOM BANK bldg 2nd floor P.O. Box: , Riad El Solh, Beirut Lebanon Phone: (9611) Fax: (9611) EGYPT BOARD OF DIRECTORS Mr. Mohammed OZALP Mr. Hani MAHMOUD Mr. Mohammed RASHWAN Mr. Tarek Ibrahim METWALY Mrs. Maya Tawfek AL KADY Mr. Talal IBRAHIM Mr. Michel CHIKHANI Chairman ViceChairman and Managing Director Member Member Member Member Member GENERAL MANAGEMENT Mr. Hani MAHMOUD Mrs. Ola EL MAMDOUH Mr. Emam WAKED Mrs. Sandy MORCOS Mr. Khaled EL ANSARY Mrs. Mayada SAYED HEADQUARTERS 8 Geziat el Arab st. Mohandeseen Phone: (202) Fax: (202) agemei@blomsecurities.com Managing Director Deputy Managing Director Head of Institutional Sales Local Head of Institutional Sales MENA Head of Retail Head of Retail Business BOARD OF DIRECTORS Mr. Amr AZHARI Mr. Saad AZHARI Mr. Marwan JAROUDI Mr. Habib RAHAL Dr. Fadi OSSEIRAN GENERAL MANAGEMENT Mr. Amr AZHARI Mr. Mouataz NATAFGI Mr. Ghassan CHAMMAS HEAD OF DEPARTMENTS Mr. Tarek HOUSSAMI Mr. Mustapha SIBAI Mr. Kamil KASSIR Chairman & General Manager Member Member Representing BLOM BANK S.A.L. Representing BLOMINVEST BANK S.A.L. Chairman & General Manager General Manager Advisor to the Board of Directors and the Management Main Branch Manager Financial Control & Investment Manager Tripoli Branch Manager 157

160 BRANCH NETWORK Abdel Aziz St, Daher bldg. Beirut, Lebanon Phone: (9611) /1/2/3. Fax: (9611) Tripoli Al Mina Road Al Ahli Bldg. Phone: (9616) , (9616) Branch Manager: Mr. Kamil KASSIR BOARD OF DIRECTORS Mr. Abdullah A. AL FOZAN Mr. Saad Naaman AZHARI Mr. Mohammad Abdulaziz ALAGEEL Mr. Waleed Abdulaziz AL SAGHYIR Mr. Fahim Mohamed MO'DAD Dr. Fadi Toufic OSSEIRAN Mr. Marwan Mohamed Toufic AL JAROUDI Chairman Member Member Member Member Member Member GENERAL MANAGEMENT Mr. Khaled Farouk SALHAB Mr. Nicolas PHOTIADES Mr. Michel CHIKHANI Mr. Moataz AL KURDI Mr. Wael ELTURK Mr. Tarek ABDEL REDA Chief Executive Officer Head of Corporate Finance Head of Asset Management Chief Operating Officer Chief Financial Officer HEADQUARTERS Al Oula Building, 3rd Floor, King Fahd Road, Riyadh, Kingdom of Saudi Arabia P.O.BOX: 8151 Riyadh Phone: (9661) Fax: (9661)

161 BOARD OF DIRECTORS Mr. Saad AZHARI Mr. Fahim MO DAD Mr. Marwan AL JAROUDI Mr. Nicolas SAADE Mr. Fares EL KADI Chairman Member Vice Chairman Member Member GENERAL MANAGEMENT Mr. Saad AZHARI Mr. Fares EL KADI Mr. Abbas BOU DIAB Mr. Bassam RIZK Mr. Gladson DOGHLASS Chairman Chief Executive Officer Head of Compliance & AML Risk Manager Head of Private Banking HEADQUARTERS NBK (Amwal) Tower, 11th floor, Office 1110, Al Wadha Street, West Bay Area P.O.BOX Doha, Qatar Phone: (9744) Fax: (9744) BOARD OF DIRECTORS Mr. Habib RAHAL Mr. Fateh BEKDACHE Mr. Samer AZHARI Mr. Victor PEIGNET SCOR SE (Represented by Mr. Patrick LOISY) Mr. Serge OSOUF Mr. Rami HOURIE Mr. Marwan JAROUDY Chairman & General Manager ViceChairman & General Manager Member Member Member Member Member Member GENERAL MANAGEMENT Mr. Habib RAHAL Mr. Fateh BEKDACHE Ms. Faten DOUGLAS Chairman & General Manager ViceChairman & General Manager Deputy General Manager 159

162 BRANCH NETWORK Headquarters Verdun Rachid Karami St, BLOM BANK bldg, Arope Plaza P.O. Box: Beirut Lebanon Phone: (9611) Fax: (9611) Dora Main Road, Cebaco Center Phone / Fax: (961 1) Hadath Saint Therese Str. BLOM Bank Branch. Phone: (961 5) Fax: (961 5) Jounieh Jounieh Highway, Damaa Bldg, 1st Floor Phone: (961 9) Saida Riad el Solh Street, Fakhoury Bldg. Phone / Fax: (961 7) Tripoli Al Tall Street, Byssar & Alamuddine Bldg. Phone / Fax: (961 6) Tyr Main Road, BLOM Bank Branch Phone: (961 7) Fax: (961 7) Zahle Zahle's Entrance, Manara Center Phone / Fax: (961 8) BOARD OF DIRECTORS Mr. Amr AZHARI Mr. Fateh BEKDACHE Mr. Marwan JAROUDI Mr. Hassan BAALBAKI Mr. Samer AZHARI Mr. Habib BATENJANI Mr. Ibrahim EL SHEIKH DIB Chairman ViceChairman Member Member Member Member Member GENERAL MANAGEMENT Mr. Amr AZHARI Mr. Bachar AL HALABI Chairman General Manager BRANCH NETWORK Headquarters Damascus Al Rawda, Zuhair Ben Abi Salma St., Malki Bldg N18 P.O. Box: Phone: (96311) Fax: (96311) info@aropesyria.com Aleppo Azizia, Majduldin Al Jabiri Street, P. O. Box: 1293 Phone: (96321) Fax: (96321) Hama Al Alamayn Street, Al Ashek Building Phone: (96333) Fax: (96333) Homs 6 th District, City Mall, 1 st floor Phone: (96331) 9279 Latakia Al Kamliah 8 March Street, Above Bank of Syria and Overseas Phone: (96341) Fax: (96341)

163 BOARD OF DIRECTORS Mr. Hany EL DANA Mr. Fateh BEKDACHE Mr. Habib RAHAL Mrs. Maya ALKADY Mr. Tarek METWALLY GENERAL MANAGEMENT Mr. Michael KELADA HEADQUARTERS 8 Gezirat El Arab, Mohandeseen, Egypt Phone: (202) (100 lines). Fax: (202) (202) Short No.: (202) arope@arope.com.eg Chairman Chairman ViceChairman and Managing Director Member Member Member Assistant Managing Director & CEO BOARD OF DIRECTORS Mr. Hany EL DANA Mr. Fateh BEKDACHE Mr. Habib RAHAL Ms. Faten DOUGLAS Mrs. Maya ALKADY Mr. Tarek METWALLY GENERAL MANAGEMENT Mr. Michael KELADA HEADQUARTERS Chairman Chairman ViceChairman Member Member Member Member Assistant Managing Director & CEO 8 Gezirat El Arab, Mohandeseen, Egypt Phone: (202) (100 lines). Fax: (202) (202) Short No.: (202) arope@arope.com.eg BRANCH NETWORK Opera 17 Gomhoria St., In front of Abdeen Court Cairo Phone: (202) Fax: (202) Khalifa El Ma moun 20 Khalifa El Ma moun St., Heliopolis Cairo Phone: (202) Fax: (202) Dokki 64 Mohie El Din Abou El Azz St., Dokki Cairo Phone: (202) Fax: (202) New Maadi 5, 17 taksim El Laselki, New Maadi Cairo Phone: (202) Fax: (202) Stadium 1 Soliman Yousry St., In front of the Stadium Alexandria Phone: (203) Fax: (203) New Branches Soon Abbaseya Shobra Ouroba 161

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