Vision & Mission 4 Shareholding Structure 5 Financial Highlights 6 Chairman Forward 8

Transcription

1 Annual Report 2014

2 Index Housing and Development Bank Vision & Mission 4 Shareholding Structure 5 Financial Highlights 6 Chairman Forward 8 Management of the Bank Board of Directors 12 Division Heads and Zones 13 Bank s Committees 14 Board Statement 16 Separate Financial Reports Auditors Report 28 Separate Balance Sheet 30 Separate Income Statement 31 Separate Cash Flows Statement 32 Separate Changes in Shareholders Equity Statement 34 Profit Dividends Statement 35 Notes to the separate financial statements Notes to the separate financial statements 38 Head Office and Branches 98 Housing and Development Bank Group Auditors Report 108 Consolidated Balance Sheet 110 Consolidated Income Statement 111 Consolidated Cash Flows Statement 112 Consolidated Changes in Shareholders Equity Statement 114 Notes to consolidated financial statements Notes to consolidated financial statements 116 1

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4 3 Housing and Development Bank

5 Vision & Mission Vision To be within the five top ranked banks in Egypt, with direct involvement in the real estate business to both boost our financial performance and continue profitably to asset-back our banking business. Mission Through the continuous upgrade of our human capital we strive to excel in providing our clients, both in banking and real estate, with an outstanding level of services. Our Strategy Capitalize on our reputation and experience in providing superior housing and property development services to attract new customers into our banking services. Enhance customer satisfaction through the launch of new products. Increasing our customer base by targeting a wider pool of clients on both the corporate and retail levels through our improved range of services. Expand our marketing efforts to include regional and international clients within our banking business. Continued marketing of our new and existing services to achieve steady growth rates. Providing real estate services in an integrated and professional manner. Upgrading the core banking and risk management systems to achieve higher efficiency rates Remain an active responsible corporate citizen in Egypt. 4

6 Shareholding Structure As at 31/12/2014 Share per unit Total share Non Financial Institutions 48.65% New Urban Communities 29.81% Egyptian Awkaf Organization 11.43% Houses Finance Fund 7.41% Financial Institutions 16 % Misr Insurance Company 8.24% Misr Company for Life Insurance 7.76% Individuals (more than 5% of shares) 9.74% Abd El-MoneimRashedAbd El-Rahman El-Rashed 9.74% Free Float Shares 22.68% 22.68% Staff 2.93% 2.93% Total 100% Individuals (more than 5% of shares) 22.68% 9.74% 2.93% Staff 16% 48.65% Non Financial Institutions Financial Institutions Free Float Shares 5

7 Financial Highlights Return Analysis Return on Assets (ROA) % Return on Equity (ROE) % Earnings per Share (EPS) EGP Price Earnings (P/E) Assets Allocation Strategy % Total Investments/Total Assets Net Loans/Total Assets Total Cash /Total Assets Income Structure Analysis % Loans Interest Income/Total Income Investment Revenues/Total Income Banking Revenues/Total Income Liquidity Analysis % Cash/Total Deposits Investments/Total Deposits Net Loans/Total Deposits Interest Rate Risk Analysis % Loans Interest/Total Loans Interest Paid/Total Deposits Net Interest/Total Assets Capital Adequacy Analysis % Shareholders Equity/Total Assets Deposits/Total Assets Balance Sheet (000 EGP) Cash and Due from Banks Treasury Bills and Governmental Papers Loans and Overdrafts (net) Fixed Assets (net) Total Assets=Liabilities & Shareholders Equity Customers Deposits Total Liabilities Paid up Capital Shareholders Equity Income (000 EGP) Interest Paid Net Interest Earned Stock Dividends Activities Gains (Losses) Other Gains (Losses) (15 909) (20 637) Net Profit Before Taxes Taxes Net Profit After Taxes Dividend per share

8 7 Chairman Forward

9 Chairman Forward Chairman's Forward It is my pleasure to congratulate you on the occasion of the beginning of a new year. A new year that is full of hope and optimism with the continuous efforts & generosity by our bank in the service of our customers. I d like to begin with displaying the results and the performance of the Housing & Development Bank for the past year, year 2014, which was significantly an important year due to crucial political and economic developments, on the local, Regional and International spheres. On the International Level, the decrease in oil prices is considered the most important and significant matter, due to its impact &influence on the oil producing countries, and in particular the Arab Gulf Countries. That was accompanied by the slow recovery rates at the Euro Area and the economic fluctuation of some European Countries, the Continuation of the economic shrinkage status of East Asia Countries and the slow-growing economies of the new markets. Plus the relative and modest recovery of the US economy, and the Chinese economy maintained a growth rate not exceeding 7%. Such international economic and financial problems, which the World has witnessed lately, have had a great influence, whether in terms of the decrease of financial flows of capital, or of banks loans across border. In addition to the new modifications that have occurred to the international principles and standards of Commercial banking & doing business. In addition to the increase of the Arab Countries needs for finance, and particularly those countries currently witnessing political transformations, since consolidating economic stability through providing, adopting & implementing economic policies that are appropriate for handling market fluctuations and improving the efficiency of the financial and monetary policies that are the cornerstone of stability of any country. On the domestic sphere, the year 2014 witnessed the adoption of several Governmental decisions targeting the subsidy scheme including energy, as all the international & local studies prepared by the official authorities in the government and the relative international organizations proved that 80% of the subsidy is not received by the targeted people or groups. Undoubtedly, rectifying the direction of subsidy shall contribute to the achievement of the social justice aimed at, so that subsidy shall reach the deserving people. Moreover, this shall decrease the subsidy costs and burdens on the country s general budget, leading to surplus that will support the social security network, known as the encompassing growth which concentrates on development and reduces the poverty rate, helping to increase government expenditure on health, education, scientific research and the State public utilities. In addition, 2014 has also witnessed the offering of the Suez Canal Investment Certificates, revealing the capability of the Egyptian banks to act with high professionalism, as EGP 64 billion were collected in eight working days only, exceeding the amount aimed at for financing the New Suez Canal Project. 8

10 The Fund raising initiative and the Banks were capable to attract new customers of about EGP 27 billion were attracted & collected from outside the banking sector. The state of political stability, represented in acknowledging and ratifying the constitution, electing the Country s President and the formation of the Government. More and above, the preparation for holding the parliamentary elections during 2015 helped to upgrade Egypt s credit rating by international rating agencies, after four years of continuous down grading. As Moody s Corporation for Credit rating has upgraded Egypt future status from negative to stable, attributing that to the initiatives launched by the Egyptian Government, aiming at realizing financial discipline and the appearance of indicators for increasing the rate of growth and improving the stability degree of the economy as a whole. Likewise, Fitch Corporation for Credit Rating upgraded Egypt to the (B) Grade for long-term loans in both foreign and local currencies, with keeping the future status of the Egyptian Economy at the grade of stable. Later, Standard & Poor Corporation maintained Egypt rating at (B/B) Grade, with a stable future view. Undoubtedly, the upgrading of Egypt s status by these Credit Rating Corporations will help in marketing the international debentures intended to be offered in the international market during 2015 in addition to reaching a better price fixation for them than expected. That year also witnessed the initiative of the Central Bank of Egypt to offer real estate finance via the Mortgage Finance Initiative for intermediate and low-income customers. The Central Bank of Egypt allocated 10 billion Egyptian pounds for financing customers at a 7% interest rate (for the low-income customers) and 8% (for the intermediate-income customers). Moreover, the US Dollar recorded its highest exchange rate for two years at the Parallel market to be 7.82 USD/LE, due to the decrease of foreign currencies reserves as a result of the decrease of tourism level and FDI s at the same time. In addition, to the Government s commitment to settle the loans installments and the deposits having fallen due to international & regional organizations. Definitely there are positive indicators due to the procedures adopted by the Government, as it succeeded to restore financial equilibrium and economic growth, which reached (6.8% growth rate) in the third quarter of the year 2014, compared to (3.8%) in the previous year. It is expected that the growth rates shall increase in future in the light of improving confidence in the Egyptian economy as a result of the success of the Egypt Economic Development Conference (EEDC) and the increase of the volume of Arab and International investments coming into Egypt. In spite of the accumulated economic hard and tough circumstances which the Country undergoes, taking into consideration the regional and international developments, directly affecting the Egyptian Economy, as well as the neighboring countries the Housing & Development Bank maintained its year on year growth and improved performance specially profitability in addition to the decrease of the non-performing loans and increase theliquidity levels. 9

11 The Bank s performance during 2014 was an outstanding one and even surpassed the levels achieved in the preceding years, attesting the soundness of the strategic vision of the Bank Management and the effectiveness of the policies it has adopted for achieving its laid-down strategic targets. This led to a group of results, the most significant of which was maintaining a high liquidity percentage of 30%, after excluding the land and housing units reservation deposits. Bank Total Assets increased from EGP11,527Billions in 2013 to EGP 17,755 Billions in 2014 with an increase of 54%. The Bank Total Deposits increased by 70.24% reaching EGP 15,100 Billions compared to 2013 Figures. The Bank net interest income amounted to EGP 501 millions, with an Increase of 8% in comparison to the 2013 figures. The net income of fees and commissions amounted to EGP120 millions in 2014, while in 2013 it amounted to EGP 83 millions, achieving a growth rate of 45.7%. The trading net income amounted to EGP 201 millions, with an increase of 103.8% more than 2013 figures, while expenses increased at the percentage of 24.4%, as the Bank started the development and the re-designing of its branches, and worked on their spread all over the governorates for serving all customers and the various categories of the Egyptian Society. It also implemented a new data systems and programs all over the Bank, according to the Strategic Plan laid-down for expansion. In General, the Bank managed in maintaining its distinguished performance, as ascertained by the main financial performance indicators. The revenue on share holders equity increased to record a percentage of 15.8%, against 13.2% in The net profit after taxation amounted to EGP millions, against EGP millions in 2013, achieving a growth rate of 24.1%. The Bank is committed to abide by all banking criteria and decrees decided by the supervisory agencies, norms & rules, and the most important of which are Basel Conventions and the governance requirements set by the Central Bank of Egypt. Whereas the capital adequacy ratio is the most important and influential supervisory instrument on the bank s activities and proceeds, hence this ratio achieved a percentage of 18.6% by the end of 2014, with an increase of 8.6% to the ratio set by the Central Bank of Egypt. Finally, I d like to express my deep gratitude and appreciation to all who contributed to the achievement of such good results and the success realized by our Bank, and everyone having participated with his thoughts, efforts, support and assistance to provide hope and a promising future for this country, each in his position, through the (Housing& Development Bank). In particular, I submit my deep gratitude to the members of the Board of Directors, The Vice-Chairman& Managing Director, the Managing Director for Engineering Affairs & Investment, his subordinates and all the bank personnel, for their efforts, endeavor and actual effective participation in achieving outcomes & advanced work, updating the work system, overcoming difficulties and problems and operating with a team-work spirit. I am also honored to submit my sincere greetings and appreciation to each of The Governor of the Central Bank of Egypt and H.E Doctor -Engineer/the Minister of Housing, Utilities and Urban Development for their continuous assistance and support. Looking forward and hoping that our beloved Country and its citizens will witness more stability, security & prosperity. Our deep gratitude & appreciation to our political leadership for its ever-lasting commitment and efforts for the prosperity of this Country and its citizens. Chairman of the Board & Managing Director Fathy El Sebai Mansour 10

12 11 Management of the Bank

13 Board of Directors Fathy El-Sebai Essam Mohamed Abou Hamed Mohamed Saied El Alfi Wagdy Youssef Bassily Rebat Amr Abd El-Rahman Nabil Shetta Eng. Khaled Mahmoud Abbas Gamal El-Din Mohamed Nour Eng. Mohamed Ismael Khalifa Eng. Randa Ali El-Menshawy May Abdel Hamid Ahmed El-Sayed Kassem Mohamed Mostafa Nassar Eng. Assem Abdel Hamid El Gazzar Eng. Kamal El Sayed Fahmy Eng. Samir Mohamed Mostafa El Shal Chairman and Managing Director Deputy Chairman and Managing Director. Representative of Housing and Development Colleagues Insurance Fund Shareholder Shareholder Shareholder Representative of New Urban Communities Organization Representative of Egyptian Awkaf Organization Representative of Misr Insurance Company Representative of Houses Financing Fund Representative of New Urban Communities Organization Representative of Misr Life Insurance Company Representative of New Urban Communities Organization Representative of New Urban Communities Organization Representative of Egyptian Awkaf Organization 12

14 Senior Management Samir Soliman Ahmed Nasser Adel Ahmed Talaat Mohamed Managing Director s Assistant for Financial and Planning Managing Director s Assistant for Risk Management Ashraf Mohamed El-Bassiouny Hegazy Managing Director s Assistant for Marketing and Retail Banking Ahmed Mohye El Din Megahed Managing Director s Assistant for Zones and Branches Affairs Heads of Division and Banking Zones Eng. Mohamed Helmy Habib Eng. Magdy Deraz Abd El Rahman Abd El Baset Mahmoud El Saadany Thanaa Mohie El-Din Snosy El-Garhy Mahmoud Abd El-Aziz Al-Moghayer Saeed Al-Zohdany Nawal Mohamed Zahran Ahmed El-Khouly Eng. Sherifa Saad-Allah Madwar Eng. Sief El-Din Farag Yousry Saleh Hesham Abd El-Razik Mo ataz Mamdouh Hosni Ahmed Raafat Badran Hussein Moustafa Kamal El-Gendy Mohamed Mahareek Mona Abdel Monem Shehata Mostafa Abdel Rahman El-Touni Maher Awad Moussa Engineering Affairs Technical Affairs Central Operations Advisor to Chairman Internal Auditing Planning and Finance Financial Affairs Investment and Real Estate Information Technology Treasury Real Estate Advisor to Chairman Real Estate Human Resources Administration First Zone (South Cairo Branches) Second Zone (East Cairo Branches) Third Zone (North Cairo Branches) Forth Zone (West Cairo Branches) Fifth Zone (Lower Egypt Branches) Sixth Zone (Upper Egypt Branches) Seventh Zone (Canal & North Sinai Branches) 13

15 Bank s Committees Executive Committee Committee Chairperson Members Fathy El-Sebai Mansour Essam Mohamed Abou Hamed Eng. Mohamed Saeed El-Alfy Samir Soliman Ahmed Nasser Adel Ahmed Talaat Ashraf Mohamed El-Bassiouny Ahmed Mohye El-Din Megahed Mohamed Mohamed Gad Audit Committee Committee Chairperson Members Wagdy Youssef Rebat Amr Nabil Shetta Mohamed Ismael Khalifa Risk Management Committee Committee Chairperson Members Amr Nabil Shetta Wagdy Youssef Rebat Salaries & Remunerations Committee Gamal Eldin Mohamed Nour May Abdel Hamid Ahmed El Sayed Committee Chairperson Members Wagdy Youssef Rebat Amr Nabil Shetta Eng. Khaled Mahmoud Abbas May Abdel Hamid Ahmed El Sayed 14

16 Governance & Nominations Committee Committee Chairperson Members Wagdy Youssef Rebat Amr Nabil Shetta Eng. Khaled Mahmoud Abbas Kassem Mohamed Nassar Investments Committee Committee Chairperson Members Amr Nabil Shetta Wagdy Youssef Rebat Eng. Mohamed Saeed El-Alfy Eng. Khaled Mahmoud Abbas Gamal El-Din Mohamed Nour Credit Committee Committee Chairperson Members Essam Mohamed Abou Hamed Ashraf Mohamed El-Bassiouny Ahmed Mohye El-Din Megahed Hussein Mostafa Kamal El Gendy Ahmed Raafat Badran Mona Walley El Din 15

17 Board Statement for The Financial Year Ended December 31, 2014 To the Shareholders, On behalf of the Board of Directors, I d like to submit the annual report of the (Housing & Development Bank), displaying the Bank s work and the achievements realized during 2014, carried out under local, regional and international challenges, as that year witnessed more political, economic and financial changes internationally and locally. Internationally speaking, and according to the most recent report issued by the World Bank about international economic atmospheres, the developing countries could not realize the expected levels of economic stability, since the weakness that prevailed in the first quarter of the year 2014 lead to slowing down the expected flourishing of economic activity. The report referred to the fact that the bad weather circumstances in the United States of America, the crisis in Ukraine, the re-equilibrium achieved in China, the political conflict in several medium-income countries, the slow progress of structural reform and the points of weakness and restrictions hindering potentialities, are all factors that contributed to have a third year successively distinguished by a rate of growth below 5% for the developing countries as a whole. It is expected that the international economy shall flourish all over the year and all forecasts tell that it shall grow at a percentage of 3.5% in 2015 and 3.7% in The economic forecasts of the World Bank about the Middle East & North Africa for 2015 were more optimistic, if compared to those of 2013 & 2014, when the area witnessed a rate of growth of 3% annually. The forecasts expected that this growth rate shall increase to be 5.2% during the current year, in case of the increase of the public and private consumption rates due to the expanded financial policies and the diminishing political troubles in Egypt & Tunisia as well as the reforms carried out in Egypt & Jordan with regard to the system of energy and commodities subsidy. On the domestic sphere, the structural reforms carried out by the government during the lapsing period, represented in the taxation reforms, reducing the energy subsidy, facing the shortage in electricity production, decreasing the delays balances due to the foreign petroleum companies operating in the field of exploration and excavation, in addition to the legislative amendments, all led to a remarkable progress in the economic performance indicators, on top of which is the improvement of the growth rates of the Gross Domestic Product (GDP) during the first quarter of the financial year 2014/2015 to become 6.8%, compared to the same period of the previous year. On top of the sectors motivating growth were five main sectors which pushed the growth rates forward, namely: the Non-Petroleum Transferring Industries Sector, which achieved a growth rate of 9%, the Construction & Building Sector, achieving a growth rate of 5.6%, the Public Governmental Sector, achieving a growth rate of 4.1% & the Wholesale & Retail Trading Sector, achieving a growth rate of 3.4%.The Government s Program for Economic Development & Social Justice comprised three main axes: Adopting several urgent procedures aiming at lowering the cost of living burdens on the citizens. Executing various plans for inciting & activating economy, through increasing general investment expenditure for financing the projects having priority, economically and socially, with increasing current expenditure for inciting demand, operation and production. Issuing a group of legislative and organizational reforms, aiming at achieving social justice and fighting corruption. The above-stated developments were reflected on the evaluation of Moody s Corporation, which modified its future vision about the Country from (Negative) to (Stable), so that Egypt 16

18 could restore its position on the World investments map. Likewise, Fitch Corporation has upgraded the credit rating of Egypt from Negative to B /Stable. This upgrading of the credit rating of the Egyptian Economy is considered the first since the 25th of January Revolution, after Fitch Corporation has downgraded it for five consecutive times since Fitch has grounded its decision on several positive political and economic developments, such as the Government s adoption of a clear strategy for adjusting public finance on medium-term, already being started, leading to the improvement of the balance of payments, the improvement of the industrial production indicator and the decrease of the unemployment rate. Besides, the non-preceded decrease in the international petroleum prices to the lowest level in five years is expected to have a positive effect on the decrease of burden on the public budget and the balance of payments. With regard to the cash developments, the annual growth rate of local liquidity increased during October 2014 to reach 15.7%, recording a figure of billion pounds, in comparison to a growth of 15.6% in September, Several reports and indicators have been issued lately, supporting the recovery of economy, such as the report issued by the World Finance Institute, which admired the improvement of the economic performance indicators in Egypt, as the economic growth rates achieved an increase of 3.7% during the last quarter of the year 2013/2014, in comparison to 1.5% during the previous year, so that the total growth during the year reached 2.2%, consolidated by the improvement of the security status and the investment flourishing, including the Project of the New Suez Canal Development & (Egypt Economic Development Conference) Egypt the Future decided to be held in March, The month of July 2014 witnessed the first raise of the main interest rates by the Central Bank of Egypt, which is the main indicator of the interest rates on the Egyptian pound in the market as a whole during the last 21 months, specifically since March, The Monetary Policy Committee at the Central Bank surprised the market in July 17 by raising the main interest rates at the Central Bank of 1%, so that the deposit and loans interest at the Bank increased from 9.25% to 10.25% successively, while the credit and discount rates as well as the main operations rates increased to 9.75%. The Committee referred to the fact that the decision aims, in the first place, at controlling the inflation expectations and limiting the general increase in prices which has negative consequences on the whole economy on the medium term. In its three following sessions, the Monetary Policy Committee decided to fix the interest rates at the same level reached in July, assuring that this level is appropriate in the light of the surrounding risks, inflation expectation and the growth of the domestic product. The Bank Financial Performance during 2014 With regard to our bank, in spite of the challenges and difficulties that faced the Egyptian Economy, our bank could realize achievements in terms of the volume of activity and spread, with maintaining acceptable limits of risks. The bank could maintain the necessary liquidity for facing the economic challenges, represented in the relative weakness in economic performance, as the percentage of cash liquidity that should be kept for facing withdrawals from deposits or expenditure on banking operations reached (30% of the funds resources), after excluding the reservation deposits of the Authority s land and housing units, something that led to the achievement of a growth of the total assets by the end of 2014 of 45.6%, compared to the year

19 The total of the loans portfolio in 2014 reached 7.1 billion pounds, with an increase rate of 7.9% to the previous year 2013, in the light of the slow economic growth. The total of deposits achieved a growth by the end of 2014, as it increased in the amount of 6.3 billion pounds, to become 15.1 billion pounds by the end of 2014, with an increase rate of 70.24% to the year 2013, due to the increase of the volume of deposits in local currency, and in particular the deposits on demand, the savings deposits and such other deposits represented in the lands and housing units reservation down-payments in favour of the Urban Communities Authority. The net revenue income reached 501 million pounds by the end of 2014, at a rate of increase of 8% to the previous year, This increase is calculated after excluding the revenue of the (Zero Coupon Bonds), amounting to million pounds, inserted in the net trading income. In case they are calculated among the interests on loans and similar revenues, the increase percentage becomes 40.7%. The net income of fees and commissions amounted to 121 million pounds, by the end of 2014, compared to 83 million pounds in 2013, with an increase percentage of 45.7%. The bank s profits of housing projects amounted to million pounds during 2014, against million pounds during 2013, with an increase rate of 31.6%. The profits of financial investments amounted to 27.8 million pounds during 2014, in comparison to 11.4 million pounds during 2013, with an increase rate of 143.8%. The burden of decay of credit losses amounted to 44.6 million pounds by the end of 2014, against 37.8 million pounds in 2013, increased by 18%, as a result of increasing the loans portfolio in the amount of 0.5 billion pounds. The net trading income by the end of 2014 increased so as to reach million pounds, with an increase rate of 103.8% to the year 2013, as a result of inserting the Zero Coupon Bonds revenue in this item, in the amount of million pounds. Expenses also increased at the percentage of 24.4% to the previous year, due to the increase of the Bank s work volume, resulting in the increase of the net revenues at 26.7% to the previous year. The net profit before taxes amounted to million pounds by the end of 2014, against million pounds as at 31/12/2013, at an increase rate of 30.9%. Generally speaking, the bank succeeded in maintaining its performance, as proved by its main financial performance indicators. The revenue on owners equity increased to record a percentage of 15.8% by the end of 2014, against 13.2% in The rate of revenue on assets by the end of 2014 reached 1.4% against 1.7% in 2013, due to the increase in the total of assets in 2014 at the percentage of 45.6% The net profit after taxation by the end of 2014 amounted to million pounds, against million pounds by the end of 2013, at an increase rate of 24.1%. The bank also enjoyed a good percentage of capital sufficiency (In conformity to Basel II 18

20 Accord), at 18.6% by the end of 2014, with an increase of 8.6% to the standard determined by the Central Bank of Egypt, reflecting the bank s strong financial position and the strength of its capital base as well as its future capability of expanding the assets base. Capital Increase In order to consolidate the bank s financial status, it has been approved to increase its capital from 1150 million pounds to 1265 million pounds (with an increase of 115 million pounds, distributed over million shares). This increase has been financed by the legal reserve, according to the Bank s financial statements as at 31/12/2012. Development of the Bank s Image The bank s future vision & its mission, determining the main features of our bank s strategy for the years 2013:2017, have been examined and have been duly reformulated so as to achieve the targets of the phase. That vision is represented in maintaining our position as one of the best five banks in Egypt in terms of the banking performance efficiency and the effective & significant participation in the real estate activity in order to magnify financial performance and increase profitability. As for the Mission, it is represented in the distinction in all submitted banking and real estate services, through continuous development of the human capital and rendering services of distinguished level. Subsidiary & Sister Companies The number of subsidiary and sister companies, to which capitals the bank subscribes, reached 14 companies. The value of the bank s subscription to these companies amounts to 906 million pounds. In general, these companies achieved revenues by the end of 2014 in the amount of 60.4 million pounds, with a growth rate of 29.8%, compared to the year This is due to the fact that such companies are still starting their activities. The bank s subscription to these companies aims at realizing integration with the bank s activities, through an integral system, based on the diversity of products and the increase of competitiveness, consequently leading to the increase of the market share of the bank and its companies, and hence leading to the increase of profitability. Development of Human Capital The development of the human capital is among the bank s priorities, for the aim of qualifying the cadres capable of assuming the bank s leading positions, in the light of the challenges and competition prevailing in the Banking Sector. The number of the bank s personnel as at 31/12/2014 reached (2503) individuals. According to the annual plan of the training activity for the year 2014, a number of 365 training programs have been implemented. Besides, a number of 4367 training opportunities were realized, of a total of hours and a total cost of LE The training programs varied so as to comprise all banking fields, and they were organized by the bank s private training center or through other specialized external quarters. In the Field of Data Systems Further to the evolution policy adopted by the bank management during previous years, and in conformity to the development of the use of data technology after the best international 19

21 standards and specifications, the bank management supported and developed its IT systems, through investment in the infrastructure, the work continuity systems, information security and protection and the comprehensive banking services systems. In 2014, the bank concluded a contract with the greatest world companies, Temenos Group, specialized in upgrading and updating Core Banking. The new core banking system (T24) is currently being applied on two branches during August, The new system shall be transferred to and applied in all the Bank s branches before the end of the current year. A contract was concluded with IBM for the same purpose, for supplying the computers on which the new programs (servers) shall be operated. During 2014, the bank accomplished the technical evaluation of the offers submitted by some international companies for purchasing a new Swift for the bank, allowing it to add new products and services for the customers. This procedure shall also save the expenses paid annually to the company running the system. Expansion & Spreading Policy During 2014, the bank adopted the policy of limiting the investment expansion operations intended to incorporate new companies or increasing the capitals of the existing companies, with the exception of the increase decided to be paid during 2015 for our subscription to two previously incorporated companies (namely the Reconstruction Company for Investment, Development & Real Estate Evolution, in which our remaining share is 55.5 million pounds and the Holding Investment & Development Company, in the amount of 36 million pounds). The bank has been keen on achieving a wider spread in the field of rendering banking services, through the diversity of geographical spheres and extending the bank services to the various locations. The number of the bank s current branches has reached (62) branches by the end of 2014, the most recent of which is its branch at Gisr El Suez. Besides, the bank maintains its policy of upgrading the existing branches (Obour Market Branch New Damietta Branch Heliopolis Branch the Distinguished District Branch). The procedures for the issuance of the Central Bank s approvals for inaugurating five new branches are currently being carried out, namely the branches of (Shoubra Mokatam Mansoura Suez Tanta), during 2015, so that the number of branches shall become 67 branches. The bank s policy for spreading ATM s at various locations has been accomplished so as to facilitate the withdrawal and deposit processes by customers. The total number of machines in service (owned by the bank) by the end of 2014 reached 156 machines (with an increase of 10%) to the machines number by the end of In the field of Developing Banking Products During the year 2014, several banking products have been launched, including the participation in the (Automated Clearing House) ACH Service, one of the best payment systems innovated by the bank, through providing new and rapid means for automated clearing on the customer s accounts in favour of other quarters. Likewise, the service of (Paying tax and customs dues in installments and financing export credits) have been issued, representing an additional service of electronic collection of the State sovereign entitlements, launched by the bank several years ago. 20

22 21 In the field of activating saving accounts, a new kind of variable interest certificates has been offered, namely the (Three-Year Deposit Certificates of Annual Variable Interest). The necessary approval have been obtained for offering new products (during 2015), such as the HDB Corporate Card for the bank s customers from among the Establishments Sector. This is a new card, facilitating the procedures carried out by the bank s customers from among companies and authorities upon dealing on their current accounts through the ATM. A new certificate issued in US Dollars of quarterly periodical variable interest is currently being issued. Such kind of certificates is considered a source for developing the bank resources in foreign currencies, opening several fields for reinvestment through some joint loans. Moreover, preliminary studies have been prepared for innovating a new long-term savings account (Investment accumulative saving), specific for children and youth. This account allows saving a fixed monthly amount for a relatively long period, which may reach ten years. In the Field of Small & Medium Projects The bank s interest in expanding the grant of such kind of finance is due to the economic and social benefit gained upon practicing this activity, including the achievement of the necessary variation of the loans portfolio and reducing the risks ensuing from granting credit through relatively limited-value loans. Moreover, such projects come on top of the priorities of the State plan for the economic and social targets they achieve. As our bank is keen on activating the services rendered to this vital sector, an independent unit has been established for rendering such kind of services, which has started its actual activity since April 1, A new, more-flexible and easier vision has been laid down for granting the finance allocated for the Sector s customers, including the procedures and rules organizing this kind of activities. The Unit s activity has been intensified by means of contacting a number of the quarters competent with this activity (the Egyptian Industries Union/ the Chambers of Commerce/ the Investors Societies). The bank has signed several protocols with the Development Social Fund, with a total cost of 60 million pounds approximately. Such amounts are used in the activity of relending the customers of the small and medium projects sector. A target has been laid down for marketing this kind of loans during 2015 in the amount of 100 million pounds. In the Field of Housing Activity The housing activity represents one of the most important activities yielding profits to the bank, since its main objective is to work on solving the housing problem by means of providing housing services to citizens of all levels and classes. In spite of economic challenges having faced all establishments in the field of real estate investments due to the political events which Egypt has undergone, yet the bank could achieve good indicators in the real estate activity. This is clarified as follows: First: Regarding the Bank Projects The total gross profit of the bank in 2014 out of the sale of the units of these projects (327 units) amounted to 99.2 million pounds, against (454 units) during 2013, of a gross profit of 85.7 million pounds, of a growth rate of the units sale gross profits of 15.8%. The number of units available for sale is (1854 units), which book cost amounts to million pounds. The total of the Item Other Housing Revenues during 2014 amounted to 60.3 million pounds, against 35.6 million pounds during 2013, with a growth rate of 69.6%.

23 Second: The Housing National Project The balance of the units financed by our bank during 2014 reached units, against a number of units for the year The value of bank finance of the units of these projects amounted to billion pounds. Likewise, the balance of what has been financed of the subsidy up to 2014 amounted to million pounds and the balance financed by the down-payments amounted to million pounds. Third: Services Rendered to Third Party In the light of the special care given by the Ministry of Housing to the bank, being one of the influential parties in the system providing housing & real estate services to citizens of all levels and classes, the bank has been assigned to supervise the lot of the lands, medium housing units and social housing units allocated by the State. This comprises receiving the reservation down-payments from customers, which balance as at 31/12/2014 amounted to 5.5 billion pounds. Likewise, the bank grants distinguished interest rates on the accounts opened for receiving these down-payments the distinguished current account, ranging from 6.5%: 7% annually. The account shall be opened free of charge in order to encourage customers to keep their money. The account also allows them to apply for reservation in the following lot in the same city or any other area, provided that the applying terms for this city should be fulfilled. In the Field of Real Estate Finance The real estate activity is included in the bank s real estate and housing system, aiming in the first place at providing the appropriate housing to all the Society s categories. During the year 2014, the bank established an independent specialized unit for granting real estate finance, aiming at rendering all technical and legal services related to the activity of granting real estate finance. Since its establishments, the Unit s efforts fruited in signing several protocols with individuals and companies for financing the units purchasers (of a total of customers) according to the real estate finance system. The bank also contributed positively to the Central Bank initiative for subsidizing the real estate finance system (launched during February 2014). Two billion Egyptian pounds of the initiative total value (amounting to 10 billion Egyptian pounds) have been allocated, as this initiative comprised a package of facilities for those desiring to obtain a finance for purchasing housing units, from among the low & medium income citizens, whether regarding the payment period or interest rate, in addition to increasing the value of the unit benefiting from the initiative to be 500 thousand pounds in order to enlarge the beneficiaries category and motivate demand on financing the units purchase. The total value of the granted finances (whether within the initiative framework or outside it) during 2014 amounted to million pounds approximately, comprising the low, medium and distinguished income customers. In the Field of the Treasury Sector Activity The revenue on the Treasury Notes during 2014 amounted to million pounds, against million pounds during 2013, with a decrease of 17.6%, as the Ministry of Finance has offered the (Zero Coupon Bonds) for 18 months, to be treated as if treasury notes, with increasing their interest rates if compared to the treasury notes, as there is a tendency to invest in the Zero Coupon treasury notes. The interest on the Zero Coupon treasury notes during 2014 amounted to

24 million pounds, against million pounds during 2013, at a percentage of 1268%. The interest on the treasury bonds during 2014 decreased to be million pounds, against 95.7 million pounds during 2013, with a decrease percentage of 3.3%, due to the maturity of treasury bonds of a total value of million pounds. This amount was invested in the Zero Coupon Treasury Notes The Securities Portfolio achieved revenue during 2014 in the amount of 8.8 million pounds, against 29 million pounds during 2013, due to the severe decrease in the Gulf financial markets due to the decrease in the oil prices during the last quarter of 2014, which influenced the Egyptian Stock Exchange. At the same period, the revenues of the Investment Funds established in the bank s name during 2014 increased to be million pounds, against million pounds during 2013, with a rate of increase of 66.7%. The Fixed Interest Portfolios achieved revenues in the amount of 29.2 million pounds against 28.2 million pounds during 2013, with an increase of 3.5%, which are the instruments in which the funds of the fixed interest portfolios are invested. In the Field of Governance & Compliance 1. Governance It is a group of rules and practices governing the relationship between the Board of Directors, the Higher Management, the Shareholders and the related interested parties, with clear and definite determination of the powers and responsibilities of each of them. It provides the structure or the method adopted by the Board of Directors & Higher Management of the bank, through which the following is carried out: Laying down the bank s strategies and determining its objectives. Determining the acceptable risk levels Achieving equilibrium between the commitment towards the shareholders and the protection of the depositors interests, taking the interests of the related parties into consideration. Ensuring that the bank carries out its activity safely & soundly, within the framework of commitment to the laws and regulations in force. Adopting effective policies of disclosure and transparency. In this regard, the bank complies to all the instructions issued by the Central Bank of Egypt, concerning the governance systems, in conformity to the requirements of transparency, disclosure and discipline, guaranteeing the protection of the depositors funds, following up utilization and ascertaining the good progress of work at all the bank s units, in a way guaranteeing rendering good banking services to customers. All this is realized through the Board of Directors assumption of its responsibilities, supported by a number of branching committees, namely the Audit Committee, the Risk Committee, the Governance and Nominations Committee, the Salaries and remunerations Committee, the Investment & Subscriptions Committee and the Information Technology Committee, which are considered the link between the Board and the Bank Management for the purpose of assisting the Board in assuming supervision on all the bank s activity. 23

25 24 2. Compliance Compliance is aimed at protecting the bank from the risks of violating laws and the supervisory regulations in force, locally and internationally, and hence it helps in managing the risks ensuing from the non-commitment to internal and external regulations and laws facing the bank, which can be identified as the legal and reputation risks. For the purpose of achieving this role, the Compliance Department studies, generalizes and follows up the implementation of the internal and external supervisory quarters instructions to ascertain the commitment thereto, through the following work axes: Determining, evaluating and following up the compliance risks related to the bank s various activities and transactions. Participating with the competent quarters in studying the new banking products and ascertaining their fulfillment of all the instructions of the supervisory quarters. Preparing the necessary periodic reports for the Higher Management, the Board of Directors and the competent supervisory quarters on the compliance of all the bank s activities and the work units to the supervisory instructions and internal policies. Following up the Bank s commitment to implementing the governance rules, concerning the disclosure and transparency requirements and the commitment to the work charter and the ethical behavior rules, and reporting the illegal and non-ethical practices and protecting the reporter. Ascertaining the application and following up the instructions, policy and procedures of fighting money laundry and financing terrorism adopted by the bank. Registration at the IRS (the Internal Revenue Service) to fulfill the requirements of the FATCA (The Foreign Account Tax Compliance Act), within the required time schedule. Finally cooperation and coordination with the Training & Development Center at the bank for laying down the necessary training plans for the personnel of the Department of Fighting Money Laundry and Financing Terrorism. In the Field of Risk Management The bank manages the various banking risks through a comprehensive policy for determining and managing risks. Through this policy, the roles of each of the parties competent with its application are determined. Such parties are the Board of Directors and the committees branching thereof such as the Risk Committee, the Audit Committee, the Investments & Subscriptions Committee, in addition to the Executive Management and the committees branching thereof such as the Assets & Liabilities Committee, the Work System & Procedures Development Committee, the Credit Facilities Committees as well as the Specialized Sectors & Departments such as the Credit Risks Sector, the Follow-Up Sector, the Risk Sector, the Internal Audit Sector, the General Department for Compliance & Anti-Money Laundry. However, all the bank s departments and branches are considered responsible for determining the risks pertaining to the banking operations and the commitment to the appropriate supervisory rules and for watching the continuity of their enforceability, in conformity to the Internal Control System.

26 The Risk Sector lays down the policies and procedures for each of the main risks (Credit/ Operation/ Market), appropriate to the nature and volume of the bank s activity and strategies, supervise the application and implementation thereof and submit the appropriate reports to the Bank s Board of Directors and Executive Management. In this regard, the Risks Sector has given special care to the following aspects: Checking periodically when necessary the creditworthiness of all the credit facilities customers of companies, individually, for the purpose of detecting any negative indicators or any drawback necessitating carrying out precautionary or preventive procedures. The kind and quality of the credit portfolio is analyzed according to certain performance indicators, concentrating on the diversity that is considered the cornerstone for lessening and diversifying risks, on individuals and sectors basis. Benefiting from the historical database of operation losses in order to determine the sources of such losses and classify them according to the kind of risk and adopting the appropriate rectifying procedures. Self-estimation of the supervision and risks and laying down the risk main indicators. Examining the work environment and checking procedures in order to expect the risks liable to occur at some work centers. Applying the method of the value exposed to risk of the trading portfolio, in order to estimate the market risk of the existing centers and the maximum limit of expected loss. In the Field of Social Liability: The bank has always been keen on assuring its social and developmental role towards several categories and classes of the society, in a way allowing the diversity of the categories benefiting of the financial subsidy. For instance, the bank directed the periodic revenue due on one of the savings accounts issued by the bank (Current Charity Certificate) for the care and subsidy of several sectors of society (The orphans of special needs treatment and education purposes etc.). The bank also participated in supporting and providing the appropriate housing for all categories with prices and payment systems suiting all levels and incomes, through its huge subscription to the housing projects intended for the low-income persons. The lapsed year witnessed an increase to this social role, through starting new fields, including the programs of material and moral care & support for the distinguished students, in the fields of education and sports. The total value of the donations by the bank for developmental and charity purposes (during 2014) amounted to million pounds, of which 10 million pounds are directed to (Long-Live Egypt) (Tahia Masr) Fund, and the amount of five million pounds for developing the slums, in addition to million pounds as donations in favour of the various societies and charity organizations. 25

27 The bank also participated in the leading initiative of the Banking Institute, affiliated to the Central Bank of Egypt, for subsidizing the financial and banking culture of the children & youth and developing the banking products submitted to this category. The bank also participated in the events of the Global Money Week, under the sponsorship of the Banking Institute, through organizing a program for the school children visits to the bank branches to acquaint them with the bank services. Finally, I d like to submit my sincere thanks to all who contributed to the success achieved by our bank during 2014, and in particular the members of the Board of Directors for their efforts and effective participation to the bank s work. I also submit my thanks to the Bank Auditors and the members of the Central Audit Office for their continuous support to the bank. I d like to express my gratitude and appreciation to the Governor of the Central Bank of Egypt and Engineer/the Minister of Housing, Utilities and Urban Development. My deep appreciation to all the bank s employees of their various positions, for their earnest efforts and devotion to the bank s service with entire professionalism, assuring to everybody our keenness on realizing the best results and achievements. Best Regards Fathy El Sebai Mansour Chairman of the Board of Directors and Managing Director Date: March 8,

28 27 Separate Financial Reports

29 Auditors Report To The Shareholders of Housing and Development Bank (Egyptian Joint Stock Company) Report on the Separate financial statements We have audited the accompanying separate financial statements of Housing and Development Bank (Egyptian Joint Stock Company) which comprise the separate balance sheet as at December 31, 2014, and the separate statements of income, cash flows and changes in shareholders equity statement for the financial year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Separate Financial Statements These separate financial statements are the responsibility of the Bank s management. Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with the rules of preparation and presentation of the Bank s financial statements issued by the Central Bank of Egypt on December 16, 2008 and with the requirements of applicable Egyptian laws and regulations. This responsibility includes, designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the separate financial statements that are free from material misstatement, whether due to fraud or error, management responsibility also includes selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Egyptian Standards on Auditing and in the light of the prevailing Egyptian laws. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditors considers internal control relevant to the Bank s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a bases for our audit opinion on the separate financial statements. 28

30 Opinion In our opinion, the accompanying separate financial statements referred to above present fairly, in all material respects, the separate financial position of Housing & Development as of December 31, 2014, and of its financial performance and its cash flows for the year then ended in accordance with rules of preparation and presentation of Bank s financial statements issued by the Central Bank of Egypt on December 16, 2008 and with the requirements of applicable Egyptian laws and regulations relating the preparation of these financial statements. Report on other legal and regulatory requirements During the financial year ended December 31, 2014 no contravention of the central bank, Banking and monetary institution law No. 88 of 2003 noted. The Bank maintains proper books of account, which include all that is required by law and by the statutes of the Bank, the separate financial statements are in agreement thereto. The financial information included in the Board of Directors report, prepared in accordance with Law No. 159 of 1981 and its executive regulations, is in agreement with the Bank s books of account. Auditors Alaa El-Din Abd EL-Azeem Mohamed Yehia Ahmed W. Eraqi Mostafa Shawki (MAZARS) (KPMG Hazem Hassan) Accountability Public Accountants Public Accountants State Authority & Consultants & Consultants Cairo: March 9,

31 Separate Balance Sheet For the financial year ended 31/12/2014 Note Assets Cash and balances at The Central Bank of Egypt Balances at banks Treasury bills Financial assets for trading purpose Loans and facilities to customers Financial investments: Available for sale Held till maturity Investments in Associated & subsidiaries companies Housing Projects Real Estate Investments Other assets Deferred tax assets Fixed assets Total Assets Liabilities and Equity Liabilities Due to banks Customers deposits Other loans Dividends Payable Other Liabilities Provisions Current income taxes obligations Retirement benefit obligations Total Liabilities Equity Paid-up capital Reserves Retained earnings (Net profit of the year included) Total Equity Total Liabilities and Equity The accompanying notes from (1) to (42) form an integral part of the financial statements. 30

32 Separate Income Statement For the financial year ended 31/12/2014 Note Interest from loans & similar income Interest on deposits & similar expenses 6 ( ) ( ) Net interest income Fees and commissions income Fees and commissions expenses 7 ( ) ( ) Net fees and commissions income Dividends income Net Trading income Housing projects profits Profit from financial investments Impairment of loan losses 13 ( ) ( ) Administrative expenses 11 ( ) ( ) Other operating (expenses) Revenues 12 ( ) Net profit for the Year before taxes Income Tax Expenses 14 ( ) ( ) Net profit for the Year Earnings Per Share

33 Separate Cash Flows Statement For the financial year ended 31/12/2014 Cash flows from operations activities Net Profits for the year before taxes Adjustments to reconcile net profit to net cash provided by 0perating activities: Depreciation and amortization 26, Provisions 12, Revaluation differences of trading financial investments 9 ( ) ( ) Impairment losses of financial investment available for sale Impairment losses of equity in associates & subsidiaries companies Amortization of premium of held to maturity Gain on sale of investment associates and subsidiaries companies 21 ( ) ( ) Other provisions 31 ( ) ( ) Provisions no longer required 12 ( ) ( ) Profit from selling fixed assets 12 ( ) ( ) Operating income before changes in assets and liabilities from operating activities Net decrease (increase) in assets Due from banks ( ) Treasury bills ( ) Trading financial assets ( ) ( ) Loans and facilities to customers ( ) ( ) Housing projects & Real estate investments ( ) ( ) Other assets ( ) Net increase (decrease) in liabilities: Due to banks Customers deposits Other liabilities Paid income Tax ( ) ( ) Net cash flows provided from operating activities Cash flows from investing activities Payments for purchase of fixed assets ( ) ( ) Proceeds from sale of fixed assets Payments for Purchase financial investments rather than trading investments ( ) ( ) Proceeds of financial investments rather than trading investments Proceeds from disposals of associates and subsidiaries companies Net cash flows (used in) provided from investing activities ( ) Cash flows from financing activities Long term loans ( ) ( ) 32

34 Profit dividends ( ) ( ) Net cash flows used in financing activities ( ) ( ) Net increase (decrease) in cash and cash equivalents ( ) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year Cash and cash equivalents are represented in: Cash and balances with Central Bank of Egypt Due from banks Treasury bills Obligatory reserve balance with CBE ( ) ( ) Bank deposits ( ) ( ) Treasury bills with maturity more than three-month ( ) ( ) Cash and cash equivalents at the end of the year

35 34 Balance on 31/12/ Transferred to banking risks reserves ( ) Capital Increase ( ) Net profit for the year ended (31/12/2014) Balance on 1/1/2014 after dividends Transferred to reserves ( ) -- Profit dividends ( ) ( ) Balance on 31/12/ Transferred to banking risks reserves ( ) Net profit for the year ended (31/12/2013) Balance on 1/1/2013 after dividends Transferred to reserves ( ) -- Profit dividends ( ) ( ) Balance on 31/12/ Transferred to banking risks reserve ( ) Net profit for the year ended (31/12/2012) Premium issuance for shares Balance on 1/1/2012 after dividends Transferred to reserves ( ) -- Profit dividends ( ) ( ) Balance on 31/12/ Paid up capital Legal Reserve General Reserve Special Reserve Other Reserves Banking Risks Reserves Retained Earnings Total Separate Changes in Shareholders Equity Statement For the Financial Year ended 31/12/2014

36 Profit Dividends Statement For the financial year ended 31/12/2014 Net profit for the year Less: Fixed assets selling profits transferred to capital reserve according to the law ( ) ( ) General banking risks reserve Net Retained earnings at the beginning of the year Net profit available for dividends Distributed as follows: Legal reserve General reserve Shareholders dividends Employees profit share Board of directors remuneration Transferred profits Total

37 36

38 Notes to the separate financial statements for the financial year ended December 31,

39 Notes to the separate financial statements For the Year ended December 31, Background Housing and Development bank provides Banking Services for Corporate rather than Investments and retail Banking Services in the Arab republic of Egypt through 62 branches and hires 2503 employees at a date of the financial position. Housing and Development bank is an Egyptian Joint Stock company established as Investments and Business Bank on 30 June 1979 by virtue ministerial Decree No.147 for a year 1979 and it handles its activity through the head office in Giza governorate and the bank is registered in the Egyptian Stock Market for Securities. 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A. Basis of Preparation The financial statements are prepared in accordance with Central bank of Egypt instructions approved by its board of directors on December16, 2008 in addition to the historical cost basis, modified by the revaluation of assets and liabilities held for trading, financial assets and liabilities originally valued with fair value through profits and losses, and available for sale investments, and all financial derivatives contracts. These separate financial statement were prepared in accordance with relevant local laws, investment in associates are presented in bank s separate financial statement and valued according to cost less impairment loss method. The financial statements have been prepared until December 31, 2009 applying the Central Bank of Egypt regulations prevailing until that date which differ in some aspects from Central Bank of Egypt instructions approved by its board of directors on December 16, 2008.While preparing the financial statements for the year ended December 31, 2010 the management changed some accounting policies, and measurement basis to be in conformity with Central Bank of Egypt requirements for the preparation and presentation of the banks financial statements and measurements and recognition basis as issued by Central Bank of Egypt s board of directors on December 16, B. Subsidiaries & Associates B.1. Subsidiaries Subsidiaries companies are the entities over which the bank owns directly or indirectly the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting right. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the bank has the ability to control the entity. 38

40 B.2. Associates Associates are the entities over which the bank owns directly or indirectly significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The purchase method of accounting is used to account for the acquisition of subsidiaries by the bank. The cost of an acquisition is measured as the fair value of the assets given and/or, equity instruments issued and/or liabilities incurred and/or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the bank s share of the identifiable net assets acquired is recorded as goodwill in the consolidated financial statements, and if the cost of acquisition is less than the fair value of the net assets of the acquired subsidiaries, the difference is recognized directly in the consolidated income statement. Accounting for subsidiaries and associates in the separate financial statements are recorded by cost method, according to this method, investments are recorded at cost of acquisition including any good- will after deducting any impairment losses in value, and the dividends in the income statement are recorded in the adoption of the distribution of these profits and evidence of the bank s right to collect it. C. Translation of Foreign Currencies C.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank s functional and presentation currency. C.2. Functions and balances in foreign currencies The bank maintains its accounts in Egyptian pound and transactions are recorded in foreign currencies during the financial year on the basis of prevailing exchange rates at the date of the transaction, monetary assets and liabilities denominated in foreign currencies are retranslated at the end of the financial year on the basis of prevailing exchange rates at that date. Foreign exchange gains and losses resulting from the settlement and translation of such transactions and balances are recognized in the income statement and reported under the following items: Net income from held for trading/or net income from classified financial instruments at the date of inception valued by fair value through profit and loss of the assets/liabilities held for trading or those classified at the date of inception with its fair value through profits and losses according to type. Shareholders equities of financial derivatives as a coverage for cash flow/net investment or as a coverage for net investment. Other operating income (expenses) for the other items. 39

41 Changes in fair value of financial instruments denominated in foreign currency classified as available for sale investments (debt instruments) is analysed between valuation differences resulting from changes in amortized cost of the instrument, differences resulted from changes in the prevailing exchange rates, and differences resulted from changes in the fair value of the instrument. Those changes are recognized in the income statement as income on loans and similar items regarding changes in amortised cost and differences related to changes in the exchange rate are recognised as other operating income (expense), and changes in fair value of available-for-sale investments are recognized in equity (fair value reserve / available for sale investments). C.2. Functions and balances in foreign currencies- Continued Evaluation differences resulting from non-monetary items include profit and loss resulting from changes in fair value such as equity instruments held at fair value through profit and loss, While evaluation differences resulting from equity instruments classified as financial investments available for sale are recognized as fair value reserve available for sale investments under the equity caption. D. Financial Assets The Bank classifies its financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. Management determines the classification of its investments at initial recognition. D.1. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired or incurred and carrying its cost principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Also the derivative is classified as held for trading unless it has been recognized as it s a recovarage tool. Financial assets are designated at fair value through profit or loss in the following cases: When doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated as held for trading and underlying financial instruments were carried at amortized cost for loans and facilities to customers or banks and debt securities in issue. When managing certain investments, such as equity investments, at a fair value basis in accordance with a documented risk management or investment strategy and reporting to key management personnel on that basis, these investments are classified at fair value through profits and losses. Financial instruments, such as debt securities held-to-maturity, containing one or more embedded derivatives which significantly modify the cash flows, are designated at fair value through profit and loss. The profit and loss resulted from the change in the fair value of the financial derivatives that are managed in relation to assets and liabilities classified with fair value through profit and loss in the income statement under item (net income of financial instruments recorded with fair value) 40

42 41 Any financial derivatives of (a valued financial instruments at fair value) are not reclassified through profit and loss during the retention year or force. It also has not re-classified any financial instrument, quoting from a range of financial instruments at fair value through profit and loss if this tool has been customized by the bank at initial recognition as assessed at fair value through profit and loss. D.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that: The bank intends to sell immediately or in the short term, which are classified as held for trading, or those that the bank upon initial recognition designates at fair value through profit or loss. The bank upon initial recognition designates at available for sale. The bank may not recover substantially all of its initial investment, for other than deterioration in credit worthiness of the issuer. D.3. Held-to-maturity financial investments Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the bank has positive intent and ability to hold to maturity. Reclassification will be made to Available-for sale category in case the bank has, during the current financial year sold or reclassified more than an insignificant amount of held to maturity investments before maturity other than those allowed in specific circumstances. As specified by the Central Bank of Egypt. D.4. Financial Investments Available for Sale Available for sale financial assets are those non-derivative financial assets intended to be held for an indefinite year of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The following applies to financial assets: Regular-way purchases and sales of financial assets classified at fair value through profit and loss, held to maturity financial investments and available for sale investments are recognized using the settlement date which is the date that an assets is delivered to or by the entity. All financial assets, other than those classified as at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Financial assets classified as at fair value through profit or loss are initially recognized at fair value. Transaction costs associated with those assets are expensed and reported in the income statement in net trading income. The bank derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. Financial liabilities are excluded when they are extinguished; that is when the obligation is discharged, canceled or expires. Available for sale financial investments and financial assets classified at fair value through profit and loss are subsequently measured at fair value. Held to maturity financial investments are subsequently measured at amortized cost.

43 Gain and losses arising from changes in the fair value of financial assets classified at fair value through profit and loss are recognized in the income statement during the year in which they arise. Profits and Losses arising from changes in the fair value of available for sale financial investments are directly recognized in equity until the asset is disposed of or impaired. At this time the cumulative profits and losses previously recognized in equity is recognized in the income statement. Interest calculated based on the amortized cost method and foreign exchange gains or losses on monetary financial assets classified as available for sale are recognized in the income statement. Dividends on available for sale financial assets in equity instruments are recognized in the income statement when the bank s right to receive payments is established. The fair value of quoted investments in an active market is based on current bid price. If there is no active market for financial assets, or quoted prices are available, the fair value is determined by the bank using valuation techniques including discounted cash flows analysis, recent neutral transactions, option pricing models, or other valuation methods commonly used by the market dealers. If the bank is unable to assess the fair value of equity instruments classified as available for sale, the value thereof is measured at cost less of any impairment losses. The bank reclassifies the financial asset previously classified as available for sale to which the definition of loans- debts (debentures or loans) applies by means of transferring it from the category of available for sale to the category of loans and debts or the financial assets held to maturity, once the bank has the intention and ability to hold such financial assets in the near future or up to the maturity date, such reclassification is made at fair value as of that date. Any gains or losses related to such assets which have been previously recognized within equity shall be treated as follows: 1- In case of reclassified financial asset which has a fixed maturity, gains or losses are amortized over the remaining life of the investment until the maturity date using the effective yield method and any difference between the value on the basis of amortized cost and maturity value is amortized over the remaining life of the financial asset using the effective yield method, and in the case of the subsequent impairment in the value of the financial asset any previously gain or loss previously recognized directly in equity in the profits and losses. 2- In the case of financial asset which has no fixed maturity, profit or loss will remain in equity until the sale of the asset or its disposal of at that time it will be transferred to the income statement. In case of subsequent impairment any gain or loss previously recognized in equity will be transferred to the income statement. If the Bank adjusts its estimates of payments or receipts, the carrying amount of the financial asset (or group of financial assets) will be adjusted to reflect the adjusted estimates of cash flows and recalculates the present value of estimated future cash flows at the effective yield of the financial instrument and the difference is recognized as income or expense in the profit and loss. In all cases, if the bank reclassifies a financial asset and the bank increased its estimate of the proceeds of future cash flows, this increase will be recognized as adjustment to the effective interest rate effective from the date of change in the estimate and not as adjustment to the book value of the asset at the date of the change in estimate. 42

44 E. Offsetting Between Financial Instruments Financial assets and liabilities are offset when the bank has a legally enforceable right to offset the recognized amounts and it tends to settle this amount on a net basis, or realize the asset and settle the liability simultaneously. Repos and reverse repos agreements related to treasury bills are netted on the balance sheet and disclosed under treasury bills and other governmental notes caption of the balance sheet. F. Financial Derivatives Instruments and hedging accounting Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Embedded derivatives in other financial instruments such as conversion option in a convertible bond are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract provided that the host contract is not classified as at fair value through profit and loss and these embedded derivatives are recognized at fair value and changes in these fair values are recognized in the income statement under net trading income item. The embedded derivatives are not separated if the bank decides to classify the entire compound contract by the fair value through profits and losses. Recognizing the profits and losses resulted from the fair value depends on whether the derivative is a covering instrument provision and according to the nature of the covered item, the bank classifies some of the derivatives as one of the following: Hedging of the fair value of recognized assets and liabilities or confirmed commitments (fair value hedging) Risk hedging of future highly expected cash flows related to a recognizes asset or liability or related to an expected transaction (cash flows hedging) Hedging accounting is used for provision derivative for that purpose if the needed conditions are available. At the beginning of the transaction the bank documents the relations between the covered items and hedging instruments, also the objectives of risk management and the strategy of having different hedging transactions. At the beginning of hedging and consciously, the bank documents the estimation of whether the derivative used in hedging transactions are effective in facing the changes in the fair value or cash flows of the covered items. 43

45 F.1. Fair value hedging The changes in the fair value of qualified derivatives provisions for hedging of the fair value are recognized in the income statement, this with any change in the fair value related to the risk of the covered asset or liability. The effective changes in the fair value of return transfers contracts and the related covered items are added to the net return and effective changes in the fair value of the future currency contracts are added to net trading income. Inefficiency in all of the contracts and the related covered items mentioned in the previous paragraph are added to the net trading income. If the hedging is no longer following the hedging accounting procedures, the modification added to the book value of the covered items recorded by the amortized cost method, this is through charging it against the profits and losses along the year till its maturity. Amendments in covered equity instrument s book value remain within the owners equity till it has been excluded. F.2. Cash flows hedging The effective part in the changes in the fair value of the qualified derivative provision to cover the cash flows is recognized as owners equity, while the profit and losses related to the ineffective part are recognized immediately as (net trading income) in the income statement. The amounts accumulated in the owners equity are transferred to the income statement in the same year that the covered item has an effect on profits and losses, profits and losses related to the effective part of the currency transfers and options are added to the net trading item. When the hedging instrument is being due or sold, or when the hedging is no longer following the hedging accounting procedures, the profits and losses accumulated in the owners equity in that time remain within the owners equity item and it is recognized in the income statement when the expected transaction is finally recognized. But if the expected transaction is no longer expected to occur then the profits and losses accumulated in the owners equity are immediately transferred to the income statement. F.3. Unqualified derivative of hedging accounting Changes in the fair value of the unqualified derivatives of hedging accounting are being recognized in the (net trading income) item. In the income statement, the profits and losses resulted from the changes in the fair value is recognized as (net income of classified financial instruments valued by the fair value of profits and losses), this is through the profits and losses resulted from the changed in the fair value of derivatives managed in relation to the classified assets and liabilities at fair value through profits and losses. G. Recognizing first day s deferred profits and losses Considering the tools that evaluate the fair value, the transaction price is considered to be the best instrument to evaluate the fair value on the transaction date(fair value of delivered or received return) unless the fair value of the instrument on that date is indicated depending in the transaction s price in published market or using evaluation modules. 44

46 When the bank has a long term transaction, its fair value is specified using evaluation modules that their inputs may not all be from the published market rates or prices, those financial instruments are recognized according to transaction price which is the best indication of the fair value. Although the value calculated from evaluation modules may be different, and the difference between the transaction price and the amount resulted from the module is not immediately recognized as first day s profits and losses and it is listed as other assets in the case of loss, and as other liabilities in the case of profit. The timing of recognizing the deferred profit and loss is specified separately for each case through its amortization on the transaction or when it is possible to identify the instrument s fair value using published market s inputs or by approving it when adjusting the transactions, the instruments is measured by the fair value, the subsequent changes in the fair value are immediately recognized in the income statement. H. Interest Income and Expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognized within interest income and interest expense in the income statement using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant year. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter year to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Interest income on loans is recognized on accrual basis except for the interest income on non-performing loans, which ceases to be recognized as revenue when the recovery of interest or principle is in doubt and are rather recorded off balance sheet as follows: When it is collected and this is after redeeming all dues of consumer loans and personnel mortgages also small loans for economic activities. For corporate loans, interest income is recognized on a cash-basis after the bank collects 25 % of the rescheduled instalments and when these instalments continue to be paid for at least one year. If a loan continues to be performing thereafter, interest accrued on the principal then outstanding starts to be recognized in revenues. Interest that is marginalized prior to the date when the loan becomes performing is not recognized in profit or loss except when the total balance of loan, prior to that date, is paid in full. I. Fees and Commissions Fees charged for servicing a loan or facility that is measured at amortized cost, are recognized as revenue as the service is provided. Fees and commissions on non-performing or impaired loans or receivables cease to be recognized as income and are rather recorded off balance sheet. These are recognized as revenue - on the cash basis only when interest income on those loans is recognized in profit or loss, at which time, fees and commissions that are an integral part of the effective interest rate of a financial asset are treated as adjustment to the effective interest rate of that financial asset. 45

47 Commitment fees received by the bank to originate a loan are deferred if it is probable that the bank will enter into a specific lending arrangement and are regarded as a compensation for an ongoing involvement with the acquisition of the financial instrument and recognized as an adjustment to the effective interest rate. If the commitment expires without the bank making the loan, the fees are recognized as revenue on expiry. Fees related to debt instruments which are measured at fair value are recognized under revenue at initial recognition. The fees for promotion of joint loans are recognized within revenues upon completing the promotion process without retaining any part of the loan by the bank, or if the bank maintains a part thereof with the actual interest rate available to other participants. Fees and commissions that are earned on negotiating or participating in the negotiation of a transaction in favour of another entity, such as arrangements for the allotment of shares or another financial instrument or acquisition or sale of an enterprise on behalf of a client, are recognized as revenue when the transaction has been completed. Administrative consultations and other service fees are usually recognized as revenue on a straight-line basis over the year in which the service is rendered. Fees from financial planning management and custodian services provided to clients over long year are usually recognized as revenue on a straight-line basis over the year in which these services are rendered. J. Dividends Dividends are recognized in the income statement when the bank s right to receive payment is established. K. Sales and repurchase agreements Financial instruments sold under repurchase agreements, are not derecognized from the books. These are shown in the assets side as an addition to the treasury bills and other governmental notes line item in the balance sheet. On the other hand, the bank s obligation arising from financial instruments acquired under resale agreements, is shown as a deduction from the treasury bills and other governmental notes line item in the balance sheet. Differences between the selling and repurchase price or between the purchase and resale price is recognized as interest expense or income throughout the year of agreements using the effective interest rate method. L. Impairment of financial Assets L.1. Financial Assets Measured at Amortized Cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 46

48 The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: Significant financial difficulty of the issuer or obligor. A breach of contract, such as a default or delinquency in interest or principal payments. It becoming probable that the borrower will enter bankruptcy or financial re-organization. Deterioration of the competitive position of the borrower. The lender, for economic or legal reasons relating to the borrower s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider. Impairment in the value of collaterals.or Deterioration in the creditworthiness of the borrower. An objective evidence for impairment loss of the financial asset includes observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, such as the increase of default cases with respect to a banking product. The estimated year between the date in which the loss occurred and the date on which the impairment loss has been identified for each specific portfolio is 12 months The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. In this respect the following should be consider If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment based on the historical loss rates. 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 no impairment losses result from the previous assessment of impairment in this case the asset included in a collective assessment of impairment. Provision amount of impairment loss is measured by the difference between the asset s book value and the present value of the expected future cash flows excluding the future credit losses that have not been incurred yet, deducted from the use of actual return rate of the financial asset. The book value of the asset is decreased by the provision of impairment loss. The impairment loss is recognized as credit losses in the income statement. If the loan or investment held to maturity has a variable interest rate, the discount rate used to measure any impairment losses is the original effective contractual interest rate. Where practicable, the bank measures the impairment losses based on the fair value of the instrument using declared market prices. In the case of collateralized financial assets, the addition of the present value of the expected future cash flows that may originate from the execution of and sale of the collateral after deducting the related expenses must be observed. 47

49 For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the Group s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being. Indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. For the purposes of evaluation of impairment for a group of a financial assets according to historical default ratios future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and 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 year on which the historical loss experience is based and to remove the effects of conditions in the historical year that do not currently exist. Estimates of changes in future cash flows for groups of financial assets should reflect and be directionally consistent with changes in related observable data from year to year (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The bank reviews the method and assumptions used to estimate future cash flows. L.2. Available for Sale Financial Investments At each balance sheet date, the bank assesses whether there is objective evidence that any financial assets or a group of financial assets classified as available for sale or held to maturity has been impaired. A significant or prolonged decline in the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is an objective evidence that the assets is impaired. During years start from First of January 2009, The Decrease Consider significant cause it become 10% From cost of book value and the decrease consider to be extended if it continue for year more than 9 months, and if the mentioned evidences become available then the accumulated loss to be post from the equity and disclosed at the income statement, impairment losses recognized in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent year, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. M. Evaluation of housing projects The cost of works under implementation includes the cost of allocated lands for housing projects, the cost of the constructions therein, the borrowing expenses that are capitalized during the borrowing year until related work is finished and all related expenses as works under implementation are considered one of the qualified assets to be charged with the borrowing costs which should be no more capitalized for the projects that its core activities needed to make it ready for its identified purposes or for selling it to other. 48

50 Finished housing units are evaluated at the cost or fair value whichever less; the fair value is evaluated in the light of detailed studies. In case the fair value is less than the cost value, the difference is charged to reduce profits of housing projects item in the income statement. In case of an increase in the fair value, such increment shall be credited to the income statement within the limits previously charged to the income statement. The cost and selling price of housing units in some distinguished projects are calculated according to the privileges in location and area for each unit with no effect on the project s total cost. Real-estate investment Real-estate investment is requested in land & Buildings owned by the bank for gain rental revenues or capital appreciation. Therefore it doesn t include real-estate assets used in the bank s operations or which was received in settlement of the bank s liability. Investment is accounted by the same method applied for fixed assets in which investments are recorded at historical cost and depreciated using straight line method using appropriate depreciation rate and recognizing impairment loss if needed. N. Intangible assets N.1. Computer programs Expenses related to improvement & maintenance of computer programs are recognized as expenses in income statement when incurred. Recognized as an intangible asset expenses related directly with definite programs and under the bank control & expected to generate economical benefits which exceed its cost for more than one year. Direct expenses includes labour cost in the program improvement team in addition to appropriate average of related general expenses and it is recognized as an improvement cost in the expenses that leads to an increased expansion or performance of the computer program more than its original standards, it is added to the program cost. Computer programs cost which are recognized as an asset are depreciated over its life time within a year of not more than 3 years. N.2. Other intangible assets Represented in the intangible assets other than goodwill and computer programs for example (trademarks, license, and rental contracts benefits). Intangible assets are recorded by acquisition cost and is amortized by straight line method or the economic benefits expected, along its estimated useful life. Considering assets with no definite useful life, they are not amortized but its impairment loss is yearly examined and recorded (if found) in the income statement. O. Fixed Assets Land and buildings comprise mainly branches and offices. All fixed assets are carried at historical cost net of accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the items. 49

51 Subsequent costs are included in the asset s carrying amount or recognized separately, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance expenses are recognized in profit or loss within other operating expenses during the financial year in which they are incurred. Depreciation is charged so as to write off the cost of assets, other than land which is not depreciated, over their estimated useful lives, using the straight-line method to the extent of their estimated residual values based on the following annual rates: 50 Asset Annual Depreciation Rate Buildings & constructions 5% Machinery & equipment 25% Furniture 10% Transportation vehicles 25% Re-establishing expenses related to the rented branches are amortized through the estimated production life or the year of the rent contract whichever less. Facilities and instalments are depreciated over 3 years year. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and value in use. The recoverable amount of an asset is the higher of the asset s net realizable value or value in use. Gains and losses on disposals are determined by comparing proceeds with relevant carrying amount. These are included in profit or loss in other operating income (expenses) in the income statement. P. Non-financial asset impairment Assets without definite useful life are not depreciated & it is being tested annually for impairment. Assets are tested for impairment of events or circumstances indicated that the book value may not be recoverable. Then the impairment is recognized & decreasing the assets value by the amount of the asset s book value exceeding the recoverable value. The recoverable values represent the net asset s sale value or the assets usable value whichever is higher. In order to estimate the impairment, asset is joined to smallest possible generating-cash unit. Non-financial assets with impairment are being audited to check if there is any impairment to be credited to the income statement at the date of preparing the financial statement.

52 Q. Rental Payments are recorded in operating rent account after deducting any discounts received from the lesser in the expenses in the income statement according to straight line method within the contract year. R. Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition; they include cash and balances due from central bank of Egypt-other than those within the mandatory reserve, current accounts with banks and treasury bills and other government notes. S. Other Provisions Provisions for restructuring costs and legal claims are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small provisions which negated the purpose of wholly or partly repaid within the item other operating income (expense). An appropriate interest rate is used to measure the present value of liabilities payments that are determined to be settled after one year from balance sheet date. This interest rate is not affected by the taxes rates which reflect the cash time value and if it s due in less than a year estimated value of the liability is calculated and if it has an important effect, it s recognized by the present value. T. Financial collateral contracts Financial collateral contract is the contract issued by the bank to collateral loans or debit current accounts presented to its customers from other parties and it is required from the bank to pay certain payments to compensate the beneficiaries of carried loss because debit payment in the due date according to the debt instrument s conditions. These financial collaterals are presented to banks, financial institutions and other parties on behalf of the bank s customers. Initial recognition in the financial statements is recorded by the fair value at the date of granting the collateral which may reflect the collateral fees. Later on, the bank s liability is measured by the virtue of the collateral on the basis of the initial recognition amount less the amortization to recognize the collateral fees in the income statement by the straight line method over the collateral lifetime, or the best estimation of the needed payments to adjust any financial liability resulted from the financial collaterals on the balance sheet date which is higher. These estimations are specified according to the experience in similar transactions and historical losses and also by the management s judgment. Any increase in the liabilities resulted from financial collaterals, is recognized in the income statement as other operating revenues (expenses). 51

53 U. Labour benefits U.1. Pension liabilities The bank is committed to pay the contributions to the Social Insurance Public Authority, with no other liabilities after paying these contributions. Those contributions are recorded yearly in the income statement in its maturity year and are listed as labour benefits. The bank has insurance fund for the employees of the bank, which was founded in 1987 Working according to law no. 54 for year 1975 and its executive regulations, in the purpose of granting compensation and insurance benefits for the members, this pension fund and its amendments are implemented on all of the employees of the bank s head office and its branches. The bank is committed to pay the annual and monthly subscription to the fund according to the funds regulation and its amendments. No other liabilities on the bank after the payment of the subscription. Those subscriptions are recognized as administrative expenses when they come due. The prepaid subscriptions are recognized as assets to the limit that the deposit leads to reduce the future payments or to a refund. U.2. Retirement liabilities The bank has applied a specified medical system for its employees and the retired ones. According to the above mentioned system, the bank s liabilities are represented in the difference between both the present value of liabilities in the balance sheet date and the present value of its assets including settlements resulted from actuarial profit/loss and also the cost of previous service. Those liabilities are determined annually by independent actuarial expert using the estimated added unit approach and are determined through estimated future out cash flow applying interest rates on bonds with maturities similar to that of the liabilities in other liabilities item. Actuarial profit/loss resulted from settlements together with amendments in the medical system are charged to the income statement if it s not more than 10% of the value of the asset or 10% of the defined benefits liabilities, whichever is higher and in case profits (losses) is more than the percentage, the increment is added (deducted) to the income statement over what s left from the working years. The cost of the previously mentioned service is charged directly to the income statement as (general & administrative expense) unless changes that have been made on the policies state that worker should stay for a specified year, in this case the cost of the service is amortized using straight-line method. U.3. Share based payments The bank operates an equity-settled, share-based compensation plan. The fair value of the employees services received in exchange for the grant of the options is recognized as an expense. 52

54 The total amount to be expensed over the vesting year is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimated number of options that are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting year. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. V. Income Taxes Income tax expense on the year s profit or loss includes the sum of the tax currently payable and deferred tax and is recognized in the income statement, except when they relate to items that are recognized directly in equity, in which case the tax is also recognized in equity. Income tax is recognized based on net taxable profit using the tax rates applicable at the date of the budget in addition to tax adjustments for previous years. Deferred taxes is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting year. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. However, when it is expected that the tax benefit will increase, the carrying amount of deferred tax assets shall increase to the extent of previous reduction. W. Borrowing Loans obtained by the bank are initially recognized at fair value net of transaction costs incurred in connection with obtaining the loan. Borrowings are subsequently measured at amortized cost, with the difference between net proceeds and the value to be paid over the borrowing year, recognized in profit or loss using the effective interest rate method. 53

55 X. Capital X.1. Cost of capital The issuance expenses that are related directly with issuing new shares or shares of acquiring entity or issuance options, are presented as a deduction from owners equity and the net revenues after tax. X.2. Dividends Dividends are recognized when the general assembly of shareholders approves them. Dividends include the employees profit share and the board of directors remuneration as prescribed by the bank s articles of association and the corporate law. Y. Trust Activities Trust activities are the assets opposition and managing for individuals and funds. Its values and profits are not recognized in the bank s financial statements because they are not owned by the bank. Z. Comparative Figures Comparative figures are reclassified, where necessary, to conform with changes in the current year s presentation. 3. Management of Financial Risks The bank, as a result of conducting its activities, is exposed to various financial risks. Since financial activities are based on the concept of accepting risks and analysing and managing individual risks or group of risks altogether, the bank aims at achieving a well-balanced risks and relevant rewards, as appropriate and to reduce the probable adverse effects on the bank s financial performance. The most important types of risks are credit risk, market risk, liquidity risk and other operating risks. The market risk comprises foreign currency risk, interest rate risk and other pricing risks. The risk management policies have been laid down to determine and analyse the risks, set limits to the risks and control them through reliable methods and up to date systems. The bank regularly reviews the risk management policies and systems and amendments thereto, so that they reflect the changes in markets, products and services and the best up-to date applications. Risks are managed in accordance with preapproved policies by the board of directors. The risk management department identifies, evaluates and covers financial risks, in close collaboration with the bank s various operating units. The board of directors provides written rules which cover certain risk areas, such as credit risk, foreign exchange risk, interest rate risk and the use of derivative and non-derivative financial instruments. Moreover, the risk department is responsible for the year review of risk management and the control environment independently. 54

56 A. Credit Risk The bank is exposed to the credit risk which is the risk resulting from failure of the client to meet its contractual obligations towards the Bank. The credit risk is considered to be the most significant risk for the bank, therefore requiring careful management. The credit risk manifests itself in the lending activities and debt instruments in bank s assets as well as off balance sheet financial instruments, such as letters of credit and letters of collateral. The credit risk management and control are centralized in a credit risk management team in Bank Risk management department and reported to the Board of Directors and head of each business unit regularly. A.1. Measuring the Credit Risk Loans and facilities to banks and clients In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank s rating system is based on three key pillars: The probability of default by the client or counter-party on its contractual obligations; Current exposures to the counter-party and its likely future development, from which the bank derive the (exposure at default) These credit risk measurements, which reflect expected loss.the operational measurements can be contrasted with impairment allowances required under EAS and in accordance with the Central Bank of Egypt s instructions approved by the board of directors on December 16, 2008, which are based on losses that have been incurred at the balance sheet data (the incurred loss model ) rather than expected losses. The bank assesses the probability of default of individual counter-parties using internal rating tools tailored to the various categories of counter party. They have been developed internally and combine statistical analysis with credit officer judgment to reach the relevant credit rating basis. Clients of the Bank are segmented into four rating classes. The bank s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank s internal ratings scale Bank s Rating Description of the grade 1 Good debts 2 Normal watch-list 3 Special watch-list 4 Nonperforming loans 55

57 And the loans expose to default depend on the banks expectation for the outstanding amounts when default occur. Loss given default or loss severity represents the Bank expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counter-party, type and seniority of claim and availability of collateral or other credit mitigation. Debt Instruments, Treasury Bills and Others For debt securities and other bills, external rating or their equivalents are used by bank Risk department for managing of the credit risk exposures, and if this rating is not available, then other ways similar to those used with the credit customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time. A.2. Risk limit control and mitigation policies The bank manages, limits and controls concentrations of credit risk wherever they are identified in particular, to individual counter-parties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counter parties, product, and industry sector and by country are approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below: Collaterals The bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: Mortgages over residential properties; Mortgage business assets such as premises, inventory and accounts receivable; Mortgage financial instruments such as debt securities and equities Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimize the credit loss the bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. 56

58 Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other governmental securities are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments. Derivatives The bank maintains strict control limits on net open derivative positions (i.e., the difference between purchase and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the bank (i.e., assets where their fair value is positive), which in relation to derivatives is only a small fraction of the contract, or negotiable values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the bank requires margin deposits from counterparties. Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each counter-party to cover the aggregate of all settlement risk arising from the Bank market transactions on any single day. Commitments Related to Credit The primary purpose of these instruments is to ensure that funds are available to a customer as required. Collaterals and standby letter of credit carry the same credit risk as loans. Documentary and commercial letters of credit which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, collaterals or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments The internal rating systems previously described focus more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognized for financial reporting purposes only for losses that have been incurred at the balance sheet date based on objective evidence of impairment Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and Central Bank of Egypt s regulation purposes. 57

59 The impairment provision shown in the balance sheet at the year-end is derived from each of the four internal rating grades. However, the majority of the impairment provision comes from the bottom two grads. The table below shows the percentage of the Bank s in balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank s internal rating categories: Bank s rating Loans & facilities % Impairment losses provision % Loans & facilities % Impairment losses provision % Performing loans Regular watching Watch-list *Non-performing loans Performing loans includes EGP 543 million balances of loans for economic authorities guaranteed by the ministry of finance including EGP 168 million past due instalments that will be collected in subsequent to maturity dates according to the actual re-payments of its clients Non-performing loans includes 3.08% watch list and substandard loans (but not subject to impairment) 7.01% bad debts (subject to impairment). The internal rating tools assists management to determine whether objective evidence of impairment according to the basis of preparing and previewing the financial statements of banks, assurance and measurements basis held by the board of director of central bank of Egypt at 16th of December 2008,and based on the following criteria set out by the Bank: Cash flow difficulties experienced by the borrower Breach of loan covenants or conditions Initiation of bankruptcy proceedings Deterioration of the borrower s competitive position Bank granted concessions may not be approved under normal circumstances, for economic, legal reasons, or financial difficulties facing the borrower. Deterioration in the value of collateral Deterioration in the credit situation The Bank s policy requires the review of all financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Impairment loss provision is formed based on homogeneous assets using the historical experience of loan losses, available personal judgment of bank management and statistical methods. 58

60 A.4. Bank Risks Measurement General Model In addition to the four categories of measuring credit worthiness the management makes small groups more detailed according to the Central Bank of Egypt s rules. Assets facing credit risk are classified to detailed conditions relying greatly on customer s information, activities, financial position and his regular payments to his debts. The bank calculates the provisions needed for assets impairment in addition to credit regulations according to special percentages determined by Central Bank of Egypt. In the case of increase of impairment loss provision needed according to Central Bank of Egypt for purpose of making the financial statements according to the Financial Reporting Standards and in accordance with the instructions of the Central Bank of Egypt approved by the Board of Directors as on December 16, 2008, the general banking risk reserve is included in owners equity deducted from the retained earning with this increase, this reserve is modified with year basis with the increase and decrease, which equals the increase in provisions and this reserve is not distributed. And this are categories of institutional worthiness according to internal ratings compared with Central Bank of Egypt s ratings and rates of provisions needed for assets impairment related to credit risk: Classification of the Central Bank of Egypt Classification Significance Required provision rate Internal classification Internal classification Significance 1 Low risks Zero 1 Performing loans 2 Average Risk 1% 1 Performing loans 3 Satisfactory risks 1% 1 Performing loans 4 Reasonable Risk 2% 1 Performing loans 5 Acceptable Risk 2% 1 Performing loans 6 Marginally Acceptable risk 3% 2 Regular watching 7 Watch list 5% 3 Watch List 8 Substandard 20% 4 Non-performing loans 9 Doubtful 50% 4 Non-performing loans 10 Bad Debt 100% 4 Non-performing loans 59

61 A.5. Maximum limits for Credit risk before Collateral. Items Exposed to Credit Risks in balance sheet Treasury Bills Trading Financial Assets Debt Instruments Loans and Advances to Customer Retail Loans Overdrafts Credit cards Personal Loans Real Estate Loans Corporate Loans: Overdrafts Direct Loans Syndicated Loans Specialized Loans: Direct Loans Financial Investments: Debt Instruments Other assets Total Items Exposed to Credit Risks (off Balance Sheet) Letters of Guarantee Letters of Credit Less: Cash collateral ( ) ( ) Total The management controls the minimal exposure for credit risk of both loans portfolio and debt instruments according to the following: 89.79% of the loans and facilities portfolio is classified in the first two internal evaluation categories (88.62% at the end of 2013) % of the loans and facilities portfolio is free of due payments or impairment indications (88.64% at the end of 2013). Real estate loans are fully covered with real estate guarantees. Loans and facilities that evaluated with individual basis reached EGP compared to EGP in

62 A.6. Loans and Facilities Following is the position of loans and facilities balances to the Clients and Banks in terms of credit solvency: Loans and facilities to customers Loans and facilities to customers Neither past due nor impaired Past due but not impaired Subject to impairment Total Less: Provision for impairment losses ( ) ( ) Interest In Suspense ( ) ( ) Reduction of subordinated loans for its present value - ( ) Net Loans and facilities impairment reached EGP compared to EGP in the comparative year. Item No. (20) Includes additional information about provision for impairment losses on Loans and facilities to banks and customers. Loans and advances without unpaid balances and are not impaired: The credit quality of the portfolio of loans and advances without unpaid balances and are not impaired is evaluated by referring to the internal evaluation used by the bank 61

63 December 31, 2014 Valuation Good Regular Watching Watch list Total Retail Overdrafts Credit Cards Personal Loans Real Estate Loans Total Retail Corporate Overdrafts Direct Loans Syndicated Loans Total Corporate Specialized Loans Direct Loans Total Loans and Advances to Clients Guaranteed loans are excluded from impairment with regard to the irregular category taking into consideration possibility of collecting the collateral value. December 31, 2013 Valuation Good Regular Watching Watch list Total Retail Overdrafts Credit Cards Personal Loans Real Estate Loans Total Retail Corporate Overdrafts Direct Loans Syndicated Loans Total Corporate Specialized Loans Direct Loans Total Loans and Advances to Clients

64 Loans and advances past due but not subject to impairment Loans and advances with dues up to 90 days but are not considered impaired, unless other information is available to indicate the contrary. Clients loans and advances with neither past due nor impaired. The fair values of the collateral related thereto are represented as follows: December 31, 2014 Retail Overdrafts Credit Cards Personal Loans Real Estate Loans Total Past due more than 30 days up to 60 days Past due more than 60 days up to 90 days Total Fair value of collaterals Corporate Overdrafts Direct Loans Total Dues more than 30 days up to 60 days Dues more than 60 days up to 90 days Total Fair value of collaterals At the time of initial recording loans and advances, fair value of collateral is assessed based on the valuation techniques usually used with similar assets. In subsequent year, the fair value is updated at the market prices or similar assets prices. December 31, 2013 Retail Overdrafts Credit Cards Personal Loans Real Estate Loans Total Past due more than 30 days up to 60 days Past due more than 60 days up to 90 days Total Fair value of collaterals Corporate Overdrafts Direct Loans Total Dues more than 30 days up to 60 days Dues more than 60 days up to 90 days Total Fair value of collaterals

65 Loans and advances subject to impairment Clients loans and advances Loans and advances assessed on an individual basis before cash flows from collaterals are amounted EGP compared to EGP at the end of Following is an analysis of the total value of the loans and advances individually subject to impairment including the fair value of the collaterals that the bank received in return for such loans: Valuations Retail د 2014 December 31, Loans and advance on 31/12/2014 Collaterals on ط 31/12/2014 Loans & Advance on 31/12/2013 Collaterals on 31/12/2013 Overdrafts Credit Cards Personal Loans Real Estate Loans Total Retail Corporate Overdrafts Direct Loans Syndicated Loans Total Corporate Total Loans and advances subject to impairment Restructuring Loans and Facilities: Restructuring activities include extended payment arrangements; execute obligatory management programs, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to long term loans; in particular customer finance loans Renegotiated loans that would otherwise be past due or impaired totalled at the of the financial year, especially customers funded loans. Loans that were being renegotiated amounted EGP loans and facilities to customers Corporate: Syndicated loans Individuals Personal loans Real Estate loans Total

66 A.7. Acquisition of collaterals: Assets owned through possession are classified among other assets in the balance sheet Those assets are sold whenever practical according to The Central Bank of Egypt regulations to dispose those assets in a specified year. A.8. The concentration of financial assets exposed to credit risks: Geographical segments The following table represents the analysis of the most important bank s credit risks measured at the book value, allocated according to the geographical segment at December 31, 2014 While preparing this table, risks were allocated to the geographical segments according to the areas related to the bank s customers. Arab Republic of Egypt Cairo Alexandria and the Delta and Sinai Upper Egypt Treasury Bills Financial Assets Held for Trading Debt Instruments Loans and Advance to Customers Retail Overdrafts loans Credit cards loans Personal loans Real Estate loans Corporate Overdrafts Direct loans Syndicated loans Specialized Other loans Financial Investments Debt Instruments Other Assets Total as of 31/12/ Total as of 31/12/ Total 65

67 66 Total as of 31/12/ Total as of 31/12/ Other Assets Debt Instruments Financial Investments Direct Specialized Loans Syndicated Direct Overdraft Corporate Real Estate Personal Credit Cards Overdrafts Retail Loans &Facilities Debt Instruments Financial assets held for trading Treasury bills Financial Institutions Agricultural Industrial Institutions Commercial Services Real Estate Governmental Activity Sector Other Activities Individuals Total The following table represents the analysis of the most important bank s credit risk in book value, allocated according to the customers activity: Activity segments

68 B. Market Risk The bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices. B.1. Market Risk Measurement Techniques: Value at risk The bank applies a value at risk methodology (VAR) to its trading portfolios, to estimate the market risk of its positions held and it s been monitoring daily. VAR is a statistically based estimate of the potential loss on the current portfolio resulting from adverse market movements. It expresses the maximum amount the bank might lose, but using certain level of confidence (98%). There is therefore a specified statistical probability (2%) that actual loss could be greater than the VAR estimate. The VAR model assumes a certain holding year until positions can be closed (10 days) before closing the opining quarters, and it is assumed that the movement of the market during the retention year will follow the same movement pattern that occurred during the previous ten days. The bank is assessing the historical movements in the market prices based on volatilities and correlations data for the past two years while collecting the historical data for the past five years and the bank applies these historical changes in rates, prices and indicators directly to the current positions, and this way is known as a simulated historical method and the actual outputs are monitored on regular basis to measure the appropriate assumptions and factors used to measure VAR. The use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Stress Testing Stress tests provide an indication of the potential size of losses that could arise under extreme market conditions. Therefore, bank designs stress tests according to its activities by using typical analysis to specific scenarios. B.2. Foreign exchange risk The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table below summarizes the Bank s exposure to foreign currency exchange rate risk and Bank s financial instruments at carrying amounts, categorized by currency. 67

69 Foreign currency risk on the financial instruments December 31, 2014 US Dollar Euro Financial Assets: Sterling Pound Other Currencies Cash and due from Central Bank Due from banks Treasury bills Loans & facilities to customers Other fv inancial assets Total financial assets Financial liabilities: Balances due to banks Customer s deposits Other Financial liabilities Total financial liabilities Net financial position of the balance sheet as of 31/12/ /12/2013 Total financial assets Total financial liabilities Net financial position of the balance sheet as of 31/12/ B.3. Interest rate Risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may profit decrease in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate reprising that may be undertaken, which is monitored daily by Risk Dept. The following table summarizes the risk that the bank faces the change in the return value including the book value of financial instruments allocated based on the re-pricing dates or due dates price whichever is sooner: 68

70 69 December 31, 2014 Financial Assets: More than Up to 1 1 month to month 3 months More than 3 months to 1 year More than 1 year to 5 years Without return Cash and due from Central Bank Due from banks Treasury Bills Financial assets held for trading Loans & facilities to customers Financial investments: Available for sale Held to maturity Other assets Total financial assets Financial liabilities Balances due to banks Customer s deposits Other loans Other financial liabilities Total financial liabilities Re-pricing gap ( ) ( ) - C Liquidity Risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend. Liquidity Risk Management (Thousands Egyptian Pounds) The Bank s liquidity management process, as carried out within the Bank and monitored by Risk Management Department, includes: Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or is borrowed by customers. The Bank maintains an active presence in global money markets to enable this to happen. Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow. Monitoring balance sheet liquidity ratios against internal and requirements of central bank of Egypt Managing the concentration and profile of debt maturities. Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month respectively, as these are key years for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets. Total

71 Risk Management Department also monitors unmatched medium-term assets, the level and type of un-drawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees. Funding approach Sources of liquidity are regularly reviewed by a separate team in the Risk Management (Assets & liabilities), to maintain a wide diversification by currency, provider, product and term. The available assets to cover all the liabilities and the loan s obligations include cash, balances at Central bank, dues from banks, treasury bills, other governmental securities and loans and advances to customers and banks, customers loans that are due within a year are extended partially for the ordinary activity of the bank. In addition, some of debt instruments, treasury bills and governmental securities are mortgaged to guarantee the liabilities, the bank has the ability to cover the net unexpected cash flows through the sale of financial securities and finding other funding resources. Due from banks The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity. Loans and overdrafts to banks Loans and banking facilities represented in loans not from deposits at banks. The expected fair value of the loans and facilities represents the discounted value of future cash flows expected to be collected. Cash flows are discounted using the current market rate to determine fair value. Loans and Facilities to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity; assets classified as available for sale are measured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. 70

72 Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. D. Capital Management The Bank s objectives when managing capital, which consists of another items in addition of owner s equity stated in balance sheet are: To comply with the legal requirements in Egypt and the countries where the bank s branches exist. To safeguard the Bank s ability to continue as ongoing concern so that it can continue to provide returns for Shareholders and stakeholders and other parties that deal with the bank. To maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored daily by the Bank s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the Central bank Of Egypt, for supervisory purposes. The required information is filed with the Authority on a quarterly basis. Central bank of Egypt requires the following: Holding the minimum level of the issued and paid up capital of EGP 500 million. Maintaining a ratio of total regulatory capital to the risk weighted asset or above the agreed minimum of 10%. The bank s branches are working under the regulations of the banking sector in Egypt The nominator of capital adequacy standard consists of two tiers: Tier One: Tier one, consisting of paid-in capital (after deducting the book value of treasury shares), and retained earnings and reserves resulting from the distribution of profits with the exception of banking risk reserve and deducting there from previously recognized goodwill and any transferred loss Tier Two: Qualifying subordinated loan capital, which consists of the equivalent of the risk allocation according to the principles of credit issued by the Central Bank of Egypt for not more than 1.25% of total assets and liabilities weighted with risk, loans / deposits support in excess of the schedule of five years (with consumption of 20% of their value in each year of the last five years of the schedule) and 45% of the increase between the fair value and book value for each of the financial investments available for sale and held to maturity in subsidiaries. When calculating the total dominator of capital adequacy, it shall not exceed the capital cushions (Qualifying subordinated loan capital) for share capital and loans not to increase (deposits) support for half of the share capital. 71

73 Assets are risk weighted ranging from zero to 100% classified by the relation of the debtor to all each asset to reflect the credit risk associated with it, taking the cash collateral account. These are used for the treatment of off balance sheet items after adjustments to reflect the nature of contingency and the potential loss of those amounts. The bank had complied with all the local capital requirements. The following table summarizes the Tier 1 and Tier 2 capital components and the capital adequacy ratio at the end of the current year and the previous year. First : According to Basel I requirements Capital (Tier 1 capital) basic capital Paid-up capital General Reserve Legal Reserve Other reserves Retained earnings Total basic capital (Tier 2 capital) syndicated capital Equivalent of General Risk Provision Total syndicated capital Total paid up capital Risk-weighted assets & contingent liabilities: In-balance sheet Contingent liabilities Total risk-weighted assets & contingent liabilities Capital Adequacy ratio (%)

74 73 Second : According to Basel II requirements Capital (Tier 1 capital) basic capital Paid-up capital Reserves Retained earnings Total deduction from basic capital ( ) ( ) 50% of Total deduction from tire one and tire two ( ) ( ) Total basic capital (Tier 2 capital) syndicated capital, 45% of Special Reserve % of the increase in fair value to book value for financial investment Impairment provisions for loans facilities and regular contingent % of Total deduction from tire one and tire two ( ) ( ) Total Syndicated Capital Total capital Risk-weighted assets and contingent liabilities: Total Credit Risk Total Market Risk Total Operational Risk Total Capital Adequacy ratio (%) *Based on the bank s consolidated financial statement according to the Central Bank of Egypt regulations on December18, Critical Accounting Estimates and Judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances and available info. A. Impairment losses on loans and facilities Based on personal basis The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis in determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio.this evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or national or local economic conditions that correlate with defaults

75 74 on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. B. Impairment of available for-sale equity investments The Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial performance of the invested operational and financing cash flows, industry and sector performance, and changes in technology. C. Fair value of derivatives The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and year reviewed. D. Financial Investments Held to Maturity The non-derivative financial assets with fixed or determinable payments and fixed maturity are being classified held to maturity. This classification requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circumstances for example, selling an insignificant amount close to maturity it will be required to reclassify the entire category as available for sale. The investments would therefore be measured at fair value not amortized cost and the classification of any such investments will be suspended. E. Income taxes The bank is subject to income tax in a number of tax circles for its branches which requires the use of significant estimates to determine the total income tax provision. There s a number of operations and accounts that are difficult to determine its final tax expense accurately. The bank created provisions for the expected results of the tax inspection that is being conducted and to account for probable additional tax. When there is a difference between the final results of the tax and the pre-recorded amounts, these differences will be adjusted against the income tax and the deferred income tax provision. 5. Segment Analysis A. Segment Analysis of activities Segment activity includes operational procedures and the assets that are used in providing banking services and managing the risk related to it and the return relevant to that activity that may differ from any other activities and the segment analysis of operations according to banking operations includes the following:

76 Corporate, medium &small sized enterprise This includes current accounts (debit/credit), deposits, loans & facilities and financial derivatives. Investments Includes merging of companies, financing companies restructuring & financial tools. Individuals Includes current, saving & deposit accounts, credit cards, and personal & real estate loans. Other activities Includes other banking activities. Transactions between business segments are on normal commercial terms and conditions and it includes operational assets and liabilities as presented in the Bank s balance sheet Revenues and Expenses according to segment activity December 31, 2014 Corporate Investment Individuals Other activities Total Segment activity revenues Segment activity expenses Segment operation results Unclassified expenses ( ) Net income for the year before taxes Taxes ( ) Net income of the year December 31, 2013 Corporate Investment Individuals Other activities Total Segment activity revenues Segment activity expenses Segment operation results Unclassified expenses ( ) Net income for the year before taxes Taxes ( ) Net income of the year

77 December 31, 2014 Cairo Alexandria, Delta& Sinai Upper Egypt Total Revenues & Expenses in accordance with geographical segment Geographical segment revenues Geographical segment expenses Sector s profit results Net income for the year before taxes Taxes ( ) Net income for the year Assets and liabilities in accordance with geographical segment Assets of geographic segment Unclassified assets Total assets Liabilities of geographic segment Other items of the Geographical Segment Depreciations ( ) ( ) ( ) ( ) Impairment ( ) - - ( ) Decembr 31, 2013 طCairo Alexandria, Delta& Sinai Upper Egypt Total Revenues &expenses in accordance with geographical segment Geographical segment revenues Geographical segment expenses Sector s profit results Net income for the year before taxes Taxes ( ) Net income for the year Assets and liabilities in accordance with geographical segment Assets of geographic segment Unclassified assets Total assets Liabilities of geographic segment Other items of the Geographical Segment Depreciations ( ) ( ) ( ) ( ) 76 Impairment ( ) - - ( )

78 6. Net interest income Interest from loans & similar income Loans & advances to customers Treasury bills Deposits and current accounts Investments in debt instruments held to maturity and available for sale Total Interest on deposits & similar expenses Deposits and current accounts Banks Customers Other financial institutions loans Total Net Net Fees and commissions income Fees and commissions income: Fees and commissions related to credit Financing institutions services fees Other Fees Fees and commissions expenses: Other Fees Total Dividends Income Investments held for trading Investments available for sale Associated & subsidiary companies

79 9. Net Trading Income Profits from dealing in foreign currency Debt instrument held for trading Equity instruments held for trading Housing Projects Profits Sales of housing units Cost of housing units sold ( ) ( ) Gross profit Other housing revenues Administrative Expenses Staff cost Wages and salaries Social insurances Retirement cost Operation expense Other administrative expenses Social and athletics activity share Donations According to the outstanding efforts and results achieved through 2013, the administrative expenses include the payments to the executive on the board of directors which amounted about EGP 7 million under the board of directors decision dated February 5,

80 12. Other operating revenues Gains from revaluation of monetary assets & liabilities determined in foreign currency other than those classified for trading Profits of selling premises and equipment Provision no longer required Provision expense ( ) ( ) Rents Others Total ( ) Impairment loan losses Loans & facilities to customers ( ) ( ) ( ) ( ) 14 Income tax expenses Current income taxes ( ) ( ) Deferred taxes ( ) ( ) Taxes on the bank s profit differs from that resulted due to applying current tax rates: Profit before taxes Income tax for the year Additional tax 5% Revenues not subject to taxation ( ) ( ) Expenses not deducted for tax purposes Adjusted profit (taxable) Income tax expense Shares dividend Current Income tax expense

81 15. Earnings per share The earnings per share is calculated by dividing the profit of shareholder equity by weighted average of common stock issued during the year. Net profit for the year Weighted average for shares issued during the year Earnings per share Cash and balances with Central Bank Cash Due from Central Bank within the required reserve percentage Balances with no return Due from banks Current accounts Deposits Central Bank(excluding obligatory reserve) Local Banks Foreign Banks Balances with no return Balances with fixed return Current balances

82 18. Treasury bills Treasury bills, maturity 91 days Treasury bills, maturity 182 days Treasury bills, maturity 272 days Treasury bills, maturity 364 days Unearned interest ( ) ( ) Total Trading Financial Investment Debt instrument Bonds Total debt instrument Equity instrument listed in stock market Local companies shares Total equity instrument Equity instrument not listed in stock market Mutual funds investment certificates Total equity instrument not listed in stock market Financial investment portfolio managed by others Total financial assets held for trading

83 20. Loans & facilities to customers Retail Overdrafts Credit cards Personal loans Real Estate loans Total Institutions including small loans for economic activities Overdrafts Direct loans Syndicated loans Other loans Total Total Loans& facilities to customers Less: Impairment of loan loss provision ( ) ( ) Interest in suspense ( ) ( ) *Reduction of subordinated loans for its present value - ( ) Current Balances Non-Current Balances Impairment loss provision The movement of impairment loss provision of loans and facilities to customers Balance at the beginning of the year Impairment loss during the year Amounts written off during the year ( ) ( ) Collections during the year Foreign currency valuation difference Transferred from (to) contingent liabilities provision Balance at the end of the year

84 21. Available for Sale & Held to maturity Financial Investments available for sale Equity instruments at cost Equity instrument unlisted Total Financial Investments Available for sale Financial Investments Held to Maturity Debt instruments at amortized cost Debit instrument listed Debit instrument unlisted Mutual fund s instrument established according to the issued rates Total Financial Investments Held to Maturity Total Financial Investments Current Balances Non Current Balances Debt Instruments - with fixed return Financial Investments Available for sale Financial Investments Total Held to Maturity Balance as of 01/1/ Additions Amortization of premium issuance for investment held to maturity - (5 796) (5 796) Disposals (Sales/Redemption) ( ) ( ) ( ) Impairment loss ( ) - ( ) Balance as of December 31/12/ Balance as of 01/1/ Additions Amortization of premium issuance for investment held to maturity - ( ) ( ) Disposals (Sales/Redemption) - ( ) ( ) Impairment loss (44 000) - (44 000) Balance as of 31/12/

85 Profits from financial investments Impairment loss in equity instruments available for sale ( ) (44 000) Profit sale shares in subsidiary and associated companies Impairment loss of equity instruments in subsidiary and associated companies ( ) ( ) Investments in Associated & Subsidiaries Companies Amount % Amount % Subsidiary companies Holding for Investments and Real Estate Company % % Housing and Development for Real Estate Investment Company % % Associated companies Housing and Development Company for Utilities % % El-Tameer for Mortgage Finance Company % % El-Tameer for Assets Management Company % % El-Tameer for Security and Cleaning Services Company % % El-Tameer for Real Estate Investment Funds Company % % El-Tameer for Financial and Real Estate Marketing Company % % Development for Technological Services (DTS) Company % % Sakan for Finance and Real Estate Investments Company % % El-Tameer for Real Estate Investment and Development Company % % Hyde Park for Real Estate Development Company % % Oblesk Asset Management Company % % Egyptian Emirates for Assets Management Company % % Total The principal operational system of the Hyde Park for Real Estate Development Company has been changed and the company s board of directors has been restructured, and according to the bank s desire to apply the recent administrative decisions and laws related to the board of directors, also under the bank s desire to apply the governance and independence requirements of administrative decisions taken. The bank s current role is limited to participating on the company s operating and financial decisions without control on it. So the bank s board of directors has decided to apply equity method while evaluating its investments in Hyde Park for Real Estate Development Company. 84

86 23. Housing projects Lands allocated for housing projects Under construction projects Finished projects Housing projects provision ( ) ( ) Total Projects under construction include EGP 26.3 Million stands for the loan s cost which are charged on these projects with interest rate of 9.75% during the year. 24. Real estate investments Net book value at the beginning of the year Additions Disposal - ( ) Depreciation of the year ( ) ( ) Net book value at the end of the year Real Estate investments reached EGP 60.8 Million represented in Real Estate in El-Gomhorya street, 43 units and shops rented for the bank s companies and others with yearly renewal contracts, and these investments are recorded in our books as Real Estate investments and with depreciation calculated for the rented units and charged to the income statement on December 31, Other Assets Accrued revenues Prepaid expenses Down payments for purchasing fixed assets Down payments for contracts and others Insurance and consignment Debit accounts under settlement Assets reverted to banks in settlement of debts Other Total

87 86 Net book value as of 31/12/ Accumulated Depreciation Cost Balance as of 31/12/2014 Net book value as of 31/12/ Depreciation expense Disposal from accumulated depreciation Disposal Additions Net book value as of 01/1/ Balance as of 31/12/2014 Net book value as of 01/1/ Accumulated Depreciation Cost Balance as of 01/1/2014 Net book value as of 31/12/ Depreciation expense Disposal from accumulated depreciation Disposals Additions Net book value as of 01/1/ Accumulated Depreciation Cost Balance as of 01/1/2013 Lands Buildings & Constructions Transportation vehicle Machinery & Equipment Furniture Facilities & installments Total 26. Fixed Assets

88 27. Due to banks Current accounts Deposits local banks Foreign banks Balances with no return Fixed return balances Net current balances Customers Deposits Demand deposit Time & call deposits Savings Saving deposits Other deposits Institutions deposits Individual deposits Balances with no return Variable return balances Fixed return balances Current balances Non-current balances

89 29. Other Loans Long term loans Loans Granted from the Central Bank of Egypt: Interest rate % Activity loans 9.75% New Urban Communities Authority 9.75% Construction & Housing Organization Cooperation Authority 9.75% Mutual Fund 9.75% Mortgage low-income fund 7.00% Mortgage middle- income fund 8.00% Total loans granted from the Central Bank of Egypt Loans granted from the Social Fund for development 10% The Egyptian Company for Real Estate refinance loan 9.75% Total Current balances Non-current balances The bank fulfilled its commitments regarding those loans in terms of the principal amount & interest amount or any other conditions during the current financial year and its comparative. 30.Other Liabilities Accrued interest Deferred revenue Accrued expense Creditors Advanced for unit reservations Advanced for lands on behalf of new urban communities authority Down payments under settlement Checks under collection & credit accounts under settlement Other credit balance

90 31. Provisions Balance at the beginning of the year Transferred to income statement Transferred from (to) impairment loss provision on loans ( ) ( ) Used during the year ( ) ( ) Balance at the end of the year There is a provision for EGP on December 31, 2014 against EGP in the comparative financial year to face contingent liabilities. 32. Deferred Income Tax Deferred income taxes have been totally calculated on the difference of the deferred taxes under the liabilities method using a tax rate of 25% in the current financial year. Deferred income taxes resulted from previous years tax loss is not recognized unless there is expected profit taxes can be used to decrease the previous years tax loss. Deferred Tax Assets Balances and transactions of the deferred tax assets as follows: Fixed assets Total Deferred Tax Assets Transactions Beginning balances of the year Additions Ending balance of the year

91 Unrecognized Deferred Tax Assets The deferred tax assets were unrecognized for the following items: Loans impairment provision excluding the 80% during the year Other items The deferred tax assets related to items previously mentioned were not recognized, and this is due to that there is not a reasonable assurance to the benefits from it, or the existence of an appropriate level to ensure the existence of sufficient future tax returns through which it is possible to benefit from these assets. 33. Retirement Benefit Obligations Retirement benefit obligation as recorded in balance sheet Medical benefit after retirement Transactions of liabilities during the year represented as follows Balance at the beginning of the year Provided amounts during the year Current service cost ( ) ( ) Balance at the end of the year Main actuarial assumption used represented in the following: Current year % Comparison year % Discount rate 10 % 10 % Expected interest rate on assets 8.5 % 8.5 % Future salary increase rate 10 % 10% Future pension increase rate 20 % 20 % Death rates (A52-49) (A52-49) British schedule The assumptions related to the death rate are based on the announced recommendations, statistics, and experience in Egypt. 90

92 34. Capital A. Authorized Capital The authorized capital is EGP 3000 million, the issued and paid up capital is EGP 1265 million totaling million share each share par value is EGP 10. The Bank extraordinary general assembly is approved on 05/11/2007 to increase the authorized capital to EGP 3000 million, and the issued and paid up capital from EGP 550 million to EGP 1150 million with an increase amounted to EGP 600 million. The newsletter subscription had been announced on 16/01/2008 for the first fees with an increase amounted to EGP 120 million at the face value for the initial shareholders, and it was completely accomplished and marked on the bank s register of commerce. The second phase had been announced from 23/03/2010 till 29/04/2010 and open subscription for the initial shareholders and till 13/5/2010 for the new shareholders for 45 million shares at par value EGP 20 in addition to 25 piasters (issuance fee), and 3 million shares have been distributed to the employees at par value EGP 10 in addition to 25 piasters (issuance fee) and it was completely accomplished and marked on the bank s register of commerce on 29/09/2010. So the issued and paid-up capital now is EGP 1150 million. The Bank s extraordinary general assembly approved on 10/04/2014 to increase the issued and paid up capital from EGP 1150 million to EGP 1265 million by contribute EGP 115 million from the Legal reserve of year 2012 by one share for every ten share and marked on the bank s register of commerce on 14/12/2014 so the issued and paid up capital now is EGP 1265 million. B. Shares option Share option is available for directors, executives and employees depending on the working year standards, total annual income and the employer performance all options are conditioned with employees should complete a term of years of service scheme in the bank. 35. Reserves Reserves Banking Risks Reserve Legal Reserve General Reserve Special Reserve Other Reserves Total Reserves at the end of the year

93 Movements in Reserves are presented as follows: A. Banking Risks Reserve Beginning balance of the year Transferred from retained earning ( ) ( ) Ending balance of the year B. Legal Reserve Beginning balance of the year Transferred to capital ( ) -- Ending balance of the year C. General Reserve Beginning balance of the year Transferred from retained earnings Ending balance of the year D. Special Reserve Beginning balance of the year Ending balance of the year E. Other Reserves Beginning balance of the year Transferred from retained earnings Ending balance of the year

94 F. Retained earnings Beginning balance Net profit of the year Distributions of cash dividends of the previous year profit ( ) ( ) Employees share in profit ( ) ( ) Board of directors remunerations ( ) ( ) Transferred from general banking risks reserve Transferred to general risks reserve ( ) ( ) Transferred to other reserve ( ) ( ) Ending balance of the year Dividends Distributions Are not recorded until they are approved by the shareholders general assembly. 37. Cash and Cash Equivalents For presenting cash flow statement, cash and cash equivalents include the following balances that they do not mature within 3 months from the acquisition date: Due from Central Bank Due from banks Treasury bills Contingent liabilities and commitments A. Legal obligations There are a number of existing cases filed against the bank without providing provisions as it s not expected to make any losses from it. B. Capital obligations The bank contracts reached EGP on 31/12/2014 compared to EGP in the comparative financial year resembled in purchasing equipment and fitting out branches and the top management are confidence in generating net profits and in the existence of available liquidity to cover those obligations. 93

95 C. Loans, collateral & advances Are represented in EGP Transactions with Related Parties The bank has dealt with related parties through the banks normal activity which include loans, deposits and transactions in foreign currencies. The transactions and balances of related parties at the end of the fiscal year are represented in the following: Loans Deposits Investments Under the Central Bank of Egypt instructions on August 23, 2011 and March 1, 2012, The average monthly net salaries and rewards that paid to the largest twenty employees on the bank and its associate and subsidiaries companies are EGP Trust activities The value of customers securities deposited for custody at the bank amounted to EGP 68.1 million on December 31, Mutual Funds Al-Taamir Mutual Fund The board of directors has agreed on 10/09/2007 to establish accumulated fund with regular dividends distribution called Al-Taamir Mutual Fund for EGP (100) million, managed by Prime Company for Financial Investments. The Central Bank of Egypt has agreed on 30/1/2008 to establish the fund under the license no. 449 approved by the Egyptian financial supervisory authority on March 18,2008. The newsletter subscription for the fund has been announced on April 14,2008, the subscription begun at May 4,2008 and ended on June 5,2008 the subscription reached EGP million. The bank s portion is 5% represented in (50000) ICs amounted to EGP (5) million with face value EGP 100/share. Mawared Fund The board of directors has agreed on April 27, 2009 to establish daily accumulated mutual Fund (Mawared) managed by Prime Company for Financial Investments. The Central Bank of Egypt has agreed on July 9, 2009 to establish the fund under the license no. 544 approved by the Egyptian financial supervisory authority on November 16,2009 the banks portion is EGP 5 million and the total amount for the fund is EGP 200 millions 94

96 42. Tax Status Capital Companies profit tax : the bank has been examined and paid for these years. Tax on Legal Corporate Companies : Taxes have been examined and internal committee is in process : The bank s has applied its tax return according to tax income law no. (91) year 2005 and its amendment. On June 04, 2014 a new law No.44/2014 has imposed a 5% temporary additional annual tax on amounts exceed EGP 1 million from the tax base on the income of natural persons or the profits of Corporate Buddies in accordance with income tax law, and it has been proven and collected in accordance with this provisions. This law will start working from June 05, On June 30, 2014 Presidential Decree has issued with Law No. 53/2014 for the year 2014, this law has amended some articles of the Law on income Tax. Promulgated by Law 91/2005, the most important of these amended rules are: Impose a tax on profit dividend. Impose a tax on capital gains resulting from selling of shares and securities. Due to non-issuance of the executive regulations of law and what may result from a dispute in the interpretation of the articles, the company s management determined the results and values of those amendments in the light of its interpretation of the law enforcement materials, such results and values might differ upon the issuance of the executive regulations of law. Salary tax From beginning of the activity -2004: The Bank s salary tax has been examined, paid and settled : The Bank s salary tax under examination for this years, the bank are paid it monthly and prepare the tax adjustments on the time under rule law no. (91) year Stamp duty tax The bank s stamp duty tax has been examined, paid and settled for the banks branches till the end of following rule no.(111) year From August 1, 2006 the Rule no.(143) year 2006 that adjusted by rule no. (115) year 2008 has been applied, the bank paid this taxes quarterly and this period are under inspection. Translation These financial statements are a translation into English from original Arabic statements. The original Arabic statements are the official financial statements. 95

97 96

98 Head Office and Branches of Housing and Development Bank 97

99 Head Office and Branches Housing and Development Bank Head Office Address : 12, Syria St., Mohandeseen, Giza Telephone : P.O.Box : 234 Mohamed Farid, Cairo Postal Code : Mohamed Farid, Cairo SWIFT : HDBKEGCA hdbank@hdb-egy.com ATM Division Telephone Fax Central Operations Group hdbank@hdb-egy.com Card@hdb-egy.com Treasury treas@hdb-egy.com corres@hdb-egy.com Marketing Marketing@hdb-egy.com Risk Management Internal Audit and Contral Planning and Finance planning@hdb-egy.com Chairman sechair@hdb-egy.com Legal Affairs Juristic@hdb-egy.com Information Technology it@hdb-egy.com Engineering Affairs engexec@hdb-egy.com Administration Affairs administ@hdb-egy.com Human capital sector Technical Affairs Sector Investment and Housing invest@hdb-egy.com Financial Affairs finance@hdb-egy.com Real Estate **ATM 98

100 Central and South Cairo Region Main Branch (Zamalek) Address : 10, El-Kamel Mohamed St., Zamalek, Cairo Tel. : Fax : P.O.Box : 74 Zamalek, Cairo SWIFT : HDBKEGCAZAM ATM El-Mohandeseen Branch Address : 26 El-Koroum St., El-Mohandeseen Tel. : Fax : P.O.Box : 154 Postal Code: **ATM El-Manesterly Branch Address : Tower No. 7, El-Manesterly Towers, El-Bahr El-Azam St., Giza Tel. : Fax : P.O.Box : 356 Postal Code: **ATM El-Manial Branch Address : 1 El-Manial Museum St., Road-Roda Island, Cairo Tel. : Fax : P.O.Box : 140 Manial El-Roda ** ATM 15th of May Branch Address : Suite No. 6, Administrative Building, 15th of May City Authority, Businessmen District, Tel. : Fax : P.O.Box : El-Sadat **ATM Maadi Branch Address : 3,4 d/5 Allaselky St., Maadi Tel. : Fax : ATM Dokki Branch Address : 6 Refaa Street, El-Mesaha, Dokki Tel. : Fax : **ATM 99

101 Saidia Branch Address : School Saidia Wall St., Cairo University, Giza Tel. : Fax : **ATM East Cairo Region El-Katameya Branch Address : El-Nile Company Buildings, in Front of El-Katameya Police Station El-Katameya, Cairo Tel. : Fax : P.O.Box: 423 El-Attaba Nasr City Branch Address : 2, Abbas El-Akkad St., Nasr City, Cairo Tel. : Fax : P.O.Box : 4593 Post Code: **ATM Heliopolis (Geser El-Suez) Branch Address : 128\130 Suez Bridge St., (Bonian Building) Tel. : Fax : P.O.Box : 2793 El-Horreya El-Tagmoa El-Khames Branch Address : Building No. 114, Behind Building Authority city El-Tagmoa El-Khames, Tel. : Fax : P.O.Box : El-Tagmoa El-Khames El-Tagamoua El-Awal Branch Address : El-Tagamoua El-Awal- New Cairo, Block 9, Building 3A, flat 3/4 Tel. : Fax : P.O.Box : El-Tagamoa El-Awal no. (40) Heliopolis (Geser El-Suez) Branch Address : Building No. 7,8 Misr Al-Taamir building- Second Zone Sheraton Heliopolis Area Tel. : Fax : North Cairo Region Roxy Branch Address : 6B, El-Hegaz St., Takseem B, Roxy, Ghernata Square, Heliopolis, Cairo Tel. : Fax : P.O.Box : 223 Heliopolis ** ATM 100

102 10th of Ramadan City Branch Address : Building Authority city, behind Sednawy, first Neighborhood, the first District center, Tenth of Ramadan city Tel. : Fax : P.O.Box : 84 El-Asher Badr City Branch Address : Apartment 3, Building No. 18, Third Neighborhood Next To Building Authority of badr City Tel. : Fax : P.O.Box : 17 Badr City El-Obour Branch Address : Banks Compound, El-Obour Market, El-Obour City, Misr Ismailia Road Kilo 25 Tel. : Fax : P.O.Box : El-Obour El-Obour, Golf City Branch Address : First entrance Obour City beside Carrefour mall Golf City Project Tel. : Fax : **ATM El-Shorouk Branch Address : Administrative Zone, Second District Centre, Next to the Medical Centre, El-Shorouk City Tel. : Fax : P.O.Box : 105 El-Shrouk Postal Code :11837 **ATM West Cairo & 6th of October Region 6th of October Branch Address : Central Axe, Next to Police Station, 6th of October City Tel. : Fax : P.O.Box : 2 Distinguished District Postal Code: ** ATM El-Sadat Branch Address : Villa No. 47, Belal Ebn Rabah St., El-Sadat City Tel. : Fax : P.O.Box : 64 El-Sadat City 6 th District Branch 6 th October City Address : 5 th Neighbourhood, Commercial Market, 6 th District, 6 th of October City Tel. : Fax : P.O.Box :

103 El-Shiekh Zayed Branch Address : Building No. 50, Third Neighbourhood, El-Shiekh Zaied 6B Tel. : Fax : Banha Branch Address : El-Safa wa El-Marwa Tower, Corner of El-Amal wa El-Reyada Streets., Banha El-Gadida Tel. : Fax : P.O.Box : 110 Banha **ATM El-Motamize District Address : Building No. 22,23 Second Neighbourhood, El-Motamize district, 6 th of October City Tel. : Fax : P.O.Box : 2 El-Motamize district Postal Code: th District Collection Office Address : 5 Sites in Building No. 33,34, 5thNeighborhood, 12th district, 6th of October City Tel. : Fax : Alexandria Region Sultan Hussein Branch Address : 9, El-Fawatem and Bani El-Abbasi St. off Sultan Hussein St., El-Azaritta, Alexandria Tel. : Fax : P.O.Box : 5, Mail Circulation Centre, Alexandria **ATM Fleming Branch Alexandria Address : 513A, Gamal Abd El-Nasser Road, Fleming, Alexandria Tel. : Fax : P.O.Box : 263 Sidi Gaber, Alexandria **ATM Gelim Branch Address : Horia road Mazloum Square, in front of Central Glim, Alexandria Tel. : Fax : **ATM Marina El-Alamain Branch, North Coast Address : Building 12, North of First Commercial Centre, East of Circular Lake, kilo 94 Marina Elalamin center, Tel. : Fax : P.O.Box : El-Alamain **ATM 102

104 Marakia Branch Address : The first area, the commercial market, Marakia tourist village, Kilo 52 Alex-Matrouh road, northern coast Tel. : Fax : P.O.Box : 75 Borg El-Arab Borg El Arab Branch Address : Building No.34, Block No. 12, Neighbourhood No. 9, Borg El-Arab El-Gadeeda City Tel. : Fax : P.O.Box : 41 Borg El-Arab Damanhour Branch Address : Abdel salam elshazily Building next to mabara hospital, Damanhour Tel. : Fax : P.O.Box : 9 Damanhour Kafr El-Sheikh Branch Address : El-Forkan Building, in front of nasr compound El-Awkaf Bldg., El-Geish St., Kafr El-Sheikh Tel. : Fax : P.O.Box : 49 Kafr El-Sheikh **ATM Upper Egypt and Read Sea Region El-Haram Branch Address : Gardinia El-Haram Building, Spatis Station, El-Haram St. Tel. : Fax : P.O.Box : 49 Mena House **ATM Hurgada Branch Address : Sindbad Tourism Village Tourism Villages Zone, Hurgada Tel. : Fax : P.O.Box : 389 Hurgada **ATM Assiut Branch Address : 2, El-Gomhoreya St., El-Wagh El-Kebly Company Towers, Assiut Tel. : Fax : P.O.Box : 151 Assiut **ATM El-Fayoum Branch Address : 18 Taksim El_Horya st., Bandar El-Fayoum Tel. : Fax : P.O.Box : 176 El-Fayoum **ATM 103

105 El-Menia Branch Address : Sultan Building1, Taha Hussein St., Tel. : Fax : P.O.Box : 73 El-Menia **ATM Qena Branch Address : Modereyet El-Amn Square, Borg El-Modereya, Qena Tel. : Fax : P.O.Box : 61 Qena ATM Beni Souef Branch Address : Building No. 1h, Housing and Development Bank Buildings, Beni Souef - El-Gadida City Tel. : Fax : P.O.Box : Beni Souef El-Gadida Post Office Sohag Branch Address : Sohag road, sohag Tel. : Fax : P.O.Box : 58 Sohag **ATM Aswan Branch Address : Apartments 2 & 3, Building No. 9, El-Akkad District, behind Hall Indoors El-Sadat Road, Aswan Tel. : Fax : P.O.Box : 114 Aswan **ATM Hugrada El-Kawthar Branch Address : Moataz Bellah St., Kawther District Tel. : Fax : **ATM Aswan Branch (Cornish El-Nil) Address : 9 Cornish El-Nil, Aswan Tel. : Fax : P.O.Box : 114 Aswan **ATM Menia El Gadida Address : Building 33, No. 4.1 units, second neighboring, a project of the city,the new city of Minya, east of the Nile Tel. : Fax : P.O.Box : 73 Menia Luxor Branch Address : El Mahata St., Luxor Tel. : Fax : P.O.Box : 260 Luxor **ATM 104

106 Canal, Sinai & Delta Region Ismailia Branch Address : El-Talatiny Tower, El-Gomhoria St., El-Blajat Road, Ismailia Tel. : Fax : P.O.Box : 2/44 Ismailia **ATM Port Said (Chamber of Commerce Branch) Address : Chamber of Commerce Bldg., Mohamed Ali St., Port Said Tel. : Fax : P.O.Box : 943 Port Said Telex : HDBPS UN **ATM Damietta Branch Address : Ground Floor, El-Awkaf Building, Saad Zaghloul St., Damietta Tel. : Fax : P.O.Box : Damietta **ATM Damietta El-Gadida Branch Address : Central region area 90, Damietta El-Gadida City Tel. : Fax : P.O.Box : 28 Damietta El-Gadida Zagazig Branch Address : Building 1 Moderiat El Amn St., Bank s Project, Horia Building Tel. : Fax : P.O.Box : 236 Zagazig **ATM Kids Library Branch (Zagazig) Address : Mubarak Library, Saad Zaghloul St., Tel. : Fax : Sharm El-Sheikh Branch (El-Hadaba) Address : Banks zone, Om El-Seid Sharm El-Sheikh Tel. : Fax : **ATM Sharm El-Sheikh Branch (Nea ma Bay) Address : Mall No. 8 Nea ma Bay Tel. : Fax : P.O.Box : 342 Sharm El-Sheikh **ATM Sharm El-Sheikh Branch (Nabq) Address : Commercial Mall arab sat south Nabq touristic no. (11) Tel. : Fax : **ATM 105

107 Sharm El-Sheikh Branch (Teran) Address : Shop 29,28 Teran Mall, in front of the old mall Tel. : Fax : P.O.Box : 342 Sharm El-Shekh **ATM Sharm El Sheikh Branch (Dahab) Address : Tourism service area, Commercial Bldg. No. 7 commercial Tourism Tel. : Fax : **ATM El-Arish Branch Address : 23 rd of July St., Near to care Service and bank of Alex. El-Arish Tel. : Fax : P.O.Box : 192 El-Arish **ATM El-Salheya El-Gadida Branch Address : Building No. 6 Neighbourhood No. 12 In Front of Commercial Market, El-Salheya El-Gadida Tel. : Fax : P.O.Box : 5 Port Said Collection Office Address : 11 Saad Zghloul and El-Gish St Fax : P.O.Box : 1342 Port Said **ATM 106

108 Housing and Development Bank Group 107

109 Auditors Report To The Shareholders of Housing & Development Bank Egyptian Joint Stock Company Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Housing and Development Bank (Egyptian Joint Stock Company) which comprise the consolidated balance sheet as at December 31, 2014, and the consolidated statements of income, cash flows and changes in shareholders equity statement for the financial year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the consolidated Financial Statements These consolidated financial statements are the responsibility of the Bank s management. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the rules of preparation and presentation of the Bank s financial statements issued by the Central Bank of Egypt on December 16, 2008 and with the requirements of applicable Egyptian laws and regulations. This responsibility includes, designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, management responsibility also includes selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Egyptian Standards on Auditing and in the light of the prevailing Egyptian laws. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditors considers internal control relevant to the Bank s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide abases for our audit opinion on the consolidated financial statements. 108

110 Opinion In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Housing & Development as of December 31, 2014, and of its financial performance and its cash flows for the year then ended in accordance with the rules of preparation and presentation of Bank s financial statements issued by the Central Bank of Egypt on December 16, 2008 and with the requirements of applicable Egyptian laws and regulations related to preparation of these financial statements. Report on other legal and regulatory requirements During the financial year ended December 31, 2014 no contravention of the central bank, Banking and monetary, institution law No. 88 of 2003 noted The Bank maintains proper books of account, which include all that is required by law and by the statutes of the Bank, the consolidated financial statements are in agreement thereto. The financial information included in the Board of Directors report, prepared in accordance with Law No. 159 of 1981 and its executive regulations, is in agreement with the Bank s books of account. Auditors Alaa El-Din Abd EL-Azeem Mohamed Yehia Ahmed W. Eraqi Mostafa Shawki (MAZARS) (KPMG Hazem Hassan) Accountability Public Accountants Public Accountants State Authority & Consultants & Consultants Cairo: March 9,

111 Consolidated Balance Sheet As of December Assets Note Cash and balances with the Central Bank (16) Due from banks (17) Treasury bills (18) Trading financial assets (19) Loans and facilities to customers (20) Financial Investments Available for sale (21) Held to maturity (21) Investment in Associated companies (22) Housing projects (23) Real Estate investments (24) Other assets (25) Differed tax assets (32) Fixed assets (26) Total Assets Liabilities and Equity Liabilities Due to banks (27) Customers deposits (28) Other loans (29) Dividends payable Other liabilities (30) Provisions (31) Current income tax obligation Retirement benefit obligations (33) Total Liabilities Equity Paid-up capital (34) Reserves (35) Retained earnings (including net profit of the year) Total Equity Non Controlling Interest Total Liabilities, Equity and Non Controlling Interest The accompanying notes are integral part of these consolidated financial statements and to be read there with. Auditor s Report of a consolidated financial statements attached 110

112 Consolidated Income Statement For the Financial year ended December 31, 2014 Note Interest from loans & similar income (6) Interest on Deposits & similar expenses (6) ( ) ( ) Net interest income Fees and commissions income (7) Fees and commissions expenses (7) ( ) ( ) Net fees and commissions income Dividends income (8) Net trading income (9) Housing projects profits (10) Asset management revenues Security and cleaning services revenues Financial and Real Estate marketing revenues Development and Technological Services revenues Asset management expenses ( ) ( ) Security and cleaning services expenses ( ) ( ) Financial and Real Estate marketing expenses ( ) ( ) Development and Technological Services expenses ( ) ( ) Bank s share from associates profits ( ) Financial Investments Gain or ( Loss ) (21) (44 000) Impairment of loan losses (13) ( ) ( ) Administrative Expenses (11) ( ) ( ) Other operating ( Expenses ) Revenues (12) ( ) Net profit for the year before taxes Income Tax Expenses (14) ( ) ( ) Net profit for the year attributable to : Non-controlling interests Controlling interests Earnings Per Share (15)

113 Consolidated Statement of cash flows For the financial year ended December 31, Cash flows from operating activities Net Profit for the Year before taxes Adjustments to reconcile the net profit to the net cash flows from operating activities Depreciation and amortization Provisions Revaluation Differs of trading Financial assets. ( ) ( ) Impairment Loss of Financial Investments available for sale Amortization of premium of held to maturity investment Bank s share from (loss) associate companies ( ) Utilization of other provisions ( ) ( ) Provision no longer required ( ) ( ) Gain on sale of fixed assets ( ) ( ) Operating income before changes in assets and liabilities from operating activities Net decrease (increase) in assets Due from banks ( ) Treasury bills (due more than three months) ( ) trading Financial assets. ( ) ( ) Loans and facilities to customers ( ) ( ) Housing projects & Real estate investments ( ) ( ) Other assets ( ) ( ) Net increase (decrease) in liabilities Due to banks Customers deposits Other Liabilities Paid income tax ( ) ( ) Net cash flows provided from (used in) operating activities ( ) Cash flows from investing activities Payments to purchase of fixed assets & preparing branches ( ) ( ) Proceeds from sale of fixed assets Payments for Purchase financial investments rather than trading investments ( ) ( ) Proceeds of financial investments rather than trading investments proceeds from selling associate and subsidiaries companies Net cash flows (used in) provided from investing activities ( ) Cash flows from financing activities Long term loans ( ) Paid dividends ( ) ( )

114 Net cash flows (used in) provided from financing activities ( ) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year Cash and cash equivalents are represented in: Cash and balances with Central Bank of Egypt Due from banks Treasury bills Due from Central Bank of Egypt within the required Reserve percentage ( ) ( ) Due from Bank s Deposits ( ) ( ) Treasury bills ( due more than three months ) ( ) ( ) Cash and cash equivalents at end of the year

115 Consolidated Changes in Shareholders Equity Statement For the financial year ended December 31, 2014 paid up Capital Legal Reserve General Reserve Special Reserve Other Reserve Reserve of Retained General Bank Risk Earnings (Losses) Total Balances as of 31/1/ Dividends ( ) ( ) Transferred to reserves ( ) - Balance as of 01/1/ 2012 adjusted by dividends Net Profit for Premium issuance for shares Transferred from reserve of general bank risk ( ) Balances as of 31/12/ Dividends ( ) ( ) Transferred to reserves ( ) - Balance as of 01/1/2013 after dividends Net Profit for Settlements Transferred from reserve of general bank risk ( ) Balances as of 31/12/ Dividends ( ) ( ) Transferred to reserves ( ) - Balance as of 01/1/2014 after dividends declaration Net Profit for Capital Increasing ( ) Transferred from reserve of general bank risk ( ) Balance as of 31/12/

116 Notes to the consolidated financial statements For the financial year ended December 31,