National Bank of Egypt "Egyptian Joint Stock Company" Financial Statements For the period ended December & Limited Review Report Allied for Accounting & Auditing EY Public Accountant & Consultants Ahmed Wafik Mohamed Eraqi Accountability State Authority
Translation of financial statements Assets Cash and balances with Central Banks Due from banks Treasury bills and other governmental notes National Bank of Egypt S.A.E Separate Balance Sheet as at December 31 2017 Note (15) (16) (17) December 31 2017 70 451 453 463 212 376 329 063 898 June 30 2017 36 171 650 453 803 270 260 786 688 Trading financial assets (18) 363 493 287 189 Loans and advances to banks (19) 922 186 955 631 Loans and advances to customers (20) 382 154 438 376 776 273 Derivatives financial instrument (21) 32 334 21 992 Financial investments Available for sale investments (22) 43 437 321 46 515 629 Held to maturity investments (22) 136 136 324 148 438 287 Investments in subsidiaries and associates (22) 7 816 340 7 736 764 Other assets (23) 26 472 385 28 757 038 Investment property (23) 1 778 1 858 Fixed assets net after depreciation (24) 4 231 929 4 312 027 assets 1 464 296 255 1 364 564 296 Liabilities and shareholders' equity Liabilities Due to banks (25) 281 092 160 295 992 466 Customers' deposits (26) 952 705 562 861 715 157 Derivatives financial instrument (21) 131 208 96 890 Other loans (27) 91 550 950 89 884 421 Other liabilities (28) 38 987 663 24 988 840 Other provisions (29) 3 912 170 3 423 891 Pension benefits' liabilities (30) 2 757 285 2 528 575 liabilities 1 371 136 998 1 278 630 240 Shareholders' equity Paid-up capital (32) 28 650 000 28 650 000 Reserves (33) 10 698 734 10 484 194 CBE supportive loan differences between nominal value and present value 32 594 127 33 365 384 Retained earnings 21 216 396 13 434 478 shareholders' equity 93 159 257 85 934 056 liabilities and shareholders' equity 1 464 296 255 1 364 564 296 Contingent liabilities and commitments Letters of credit guarantee and other commitments (34) 399 826 186 389 414 300 - The attached notes from (1) to (37) are an integral part of these fnancial statements. 'NJ Chief Financial Officer Wael Abou-Ali Deputy Chairman Dalia ElBaz Deputy Chairman Yehia Abu-Elfotuh /44 an isham Ahmed Okasha Mr. Amr Mohamed Mostafa El Shaabini Allied For Accounting & Auditing Auditors ' r. Ahmed Wafik Mohamed Eraqi Accountability State Authority
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Translation of financial statements National Bank of Egypt S.A.E Separate cash flow statement for the period ended December 31 2017 Cash flows from operating activities Net profit before tax for the year Adjustments to reconcile net profit to cash flows from operating activities: Note December 31 2017 13 214 733 December 31 2016 10 475 236 Fixed assets depreciation (24) 502 299 339 075 Investment property depreciation (23/1) 71 59 Gain on sale of fixed assets - (1 345) Amortization of available for sale and held to maturity bonds (22) (160 907) (787 499) Impairment loss on loans (20) 448 237 5 235 778 Pension benefits' liabilities (30) 290 334 206 245 Revelation impairment differences in foreign currency (20) (177964) 4 577 920 Impairment charges on financial investment (22) 38 700 (23 914) Charge on other provision (29) 582 051 651 387 Other provision revaluation differences in foreign currencies (29) 2 672 453 845 Profits from sale of held to maturity and available for sale investments (22) (132 557) (51 737) Profits from sale of investments in subsidiaries and associates (22) (274542) (12465) Dividends income (8) (259119) (117976) Operating profits before changes in assets and liabilities provided from 14 074 008 20 944 609 operating activities. Net decrease (increase) in assets Obligatory reserve balances with CBE (15) (33 283 226) (6 713 489) Due from banks (16) 71 382 940 (10 327 140) Treasury bills (17) (77 630 883) (69 536 772) Trading financial assets (18) (76304) (189239) Loans and advances to banks (19) 33 445 (307 189) Loans and advances to customers (20) (5 430 438) (119 324 460) Financial derivatives net (21) 8 384 (16256) Other assets (23) 2 041 002 (5 752 126) Net increase (decrease) in liabilities Due to banks (25) (14 900 306) 127 104 131 Paid pension benefits' (30) (61 624) (38 756) Customers deposits (26) 90 990 405 190 628 472 Other liabilities (28) 13 213 567 15 803 671 Used form other provision (29) (6552) (18845) Income taxes (13) (4 711 791) (3 997 481) Net cash flows provided from operating activities 55 642 627 138 259 130
Translation of financial statements National Bank of Egypt S.A.E Separate cash flow statement for the period ended December 31 2017(Cont.) Note December 31 2017 December 31 2016 Cash flows from investing activities Payments to acquire fixed assets and fixtures of branches (24) (422 581) (404 453) Proceeds from sale of fixed assets (24) 380 1 984 Proceeds from sale of financial investments (other than trading financial assets) (22) 19 063 858 82 891 274 Purchase of financial investments (other than trading financial assets) (22) (3 162 077) (107 060 716) Payments to the acquisition of subsidiaries and associates. (22) (116 190) (73 451) Proceeds from sale of investment in subsidiaries and associates (22) 274 542 12 465 Dividends received (8) 259 119 117 976 Net cash flows form/ (used in) investing activities 15 897 051 124 514 921) Cash flows from financing activities Proceeds from other loans (27) 1 666 529 67 890 283 Payment of other loans (27) (771 257) (625 263) Net cash flows from/ (used in) financing activities 895 272 67 265 020 Net increase in cash and cash equivalent during the period 72 434 950 181 009 229 Cash and cash equivalent at the beginning of the period 440 550 511 81 283 388 Cash and cash equivalent at the end of the period 512 985 461 262 292 617 Cash and cash equivalents are represented in the following: Cash and balances with central banks (15) 70 451 453 38 994 971 Due from banks (16) 463 212 376 264 526 129 Treasury bills and other governmental notes (17) 329 063 898 232 750 031 Obligatory reserve balance with CBE (15) (57 109 271) (30 040 098) Amounts due from banks with maturity of more than three months (16) (8 513 022) (17 867 000) Treasury bills with maturity more than three months (17) (284 119 973) (226 071 416) Cash and cash equivalent 512 985 461 262 292 617 - The attached notes from (1) to (37) are an integral part of these fmancial statements. taa0 Chief Financial Officer Deputy Chairman Deputy Chairman Chairman Wael Abou-Ali Dalia ElBaz Yehia Abu-Elfotuh isham Ahmed Okasha
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National Bank of Egypt S.A.E Notes to the Separate financial statements for the financial period ended December Translation of financial statements 1. General information National Bank of Egypt (S.A.E) was established as a commercial bank on 25/6/1898 and operates in conformity with Law No. 88 for 2003 in Arab Republic of Egypt. The head office is located in Cairo. National Bank of Egypt (S.A.E) provides retail corporate and investment banking services in Arab Republic of Egypt through its head office and branches representative offices in Johannesburg (South Africa) Dubai (United Arab of Emirates) and Addis Ababa (Ethiopia) and through branches in New York (United States) Shanghai (China). The bank employs staff at the reporting date. 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 years presented unless otherwise stated. A- Basis of preparation of the separate financial statements The separate financial statements have been prepared in accordance with Egyptian Accounting Standards and Central Bank of Egypt instructions approved by its Board of Directors on 16 December 2008 and it`s appendices of explanatory instructions in April 2009. Under the historical cost convention as modified by the revaluation of financial assets and liabilities held for trading financial assets and financial liabilities classified at inception at fair value through profit and loss available for sale investments and all financial derivatives contracts. B- Foreign currency translation B/1 Functional and presentation currency Financial statements accounts that includes overseas branches balances are measured using the main economic environment currency where the branch` activities are in (functional currency). The financial statements of the Bank are presented in Egyptian pounds which is the Bank s functional and presentation currency. B/2 Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pounds. Foreign currency transactions during the fiscal period are translated into Egyptian pound using the prevailing exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-evaluated at the end of each financial period at the prevailing exchange rates on that date. Foreign exchange gains and losses resulting from settlement of such transactions and valuation differences are recognized in the income statement under the following line items: - Net trading income or net income on the financial instruments classified at inception in fair value through the profit and loss of assets / liabilities held for trading or those classified at inception in fair value through profit and loss according to their type. - Shareholders' equity for financial derivatives which are eligible for qualified hedge for cash flows or qualified hedge for net investment. - Other operating income (expenses) for the remaining items. Changes in the fair value of the financial instruments with monetary nature in foreign currencies classified as investments available for sale (debt instruments) are analyzed into valuation differences resulting from changes in amortized cost of the instrument differences resulting from changes in the prevailing exchange rates or differences resulting from changes in the instrument`s fair value. The valuation differences resulting from the change in amortized cost are recognized in income statement within ''Interest income on loans and similar income''. The differences resulting from the changes in the exchange rates are recognized in "Other operating 1
Translation of financial statements Notes to Separate financial statements for the financial period ended December income (expenses) whereas the change in fair value (fair value reserve/financial investments available for sale) are recognized within shareholders` equity. The revaluation differences resulting from items other than those with monetary nature include the gains and losses resulting from the change of the fair value such as the equity instruments held in fair value through profit and loss. The revaluation differences resulting from equity instruments classified as financial investments available for sale are recognized within the fair value reserve in the shareholders` equity. B Overseas branches Financial position and performance of overseas branches` operations are translated to the bank s reporting currency (if these branches do not operate in a rapidly inflated environment) which is different to its functional currency as follows: - Assets and liabilities of each presented foreign branch`s balance sheet are translated using the closing exchange rates at the balance sheet date. - Revenues and expenses of each foreign branch`s income statement are translated using average exchange rates unless if this average doesn t represent an acceptable approximate rate to the cumulative effect of prevailing exchange rates at transactions date. In this case revenues and expenses are translated using the spot exchange rates at the date of these transactions. Resulted foreign exchange revaluation differences are recognized in separate account (foreign exchange revaluation) in the shareholders` equity. In addition valuation differences resulting from valuation of net investment in foreign branches loans financial instruments in foreign currency specified for net investment hedge for that item retained to equity caption. These valuation differences recognized as other operating income loss in income statement when these net investments disposed. C- Financial assets: The Bank classifies its financial assets in the following categories: Trading 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. C/1 Trading financial investment: The financial instrument is classified on the basis that it is held for trading if it is acquired and holds its value mainly for the purpose of selling in the short term or if it represents part of a portfolio of specific financial instruments that are managed together and there is an evidence of recent actual transaction results profit in the short term. C/ Loans and receivables Loans and receivables 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 are classified as trading or those that the bank recorded upon initial recognition at fair value through profit or loss. - Those that the bank upon initial recognition designates as available for sale. - Those for which the Bank may not recover substantially all of its initial investment other than because of credit deterioration. C C Financial investments held to maturity: Held to maturity financial investments are non-derivative assets that carry fixed or determinable payments and where the bank has the intention and the ability to hold to maturity. Any sale of a significant amount not close to the date of its maturity would result in the reclassification of all held to maturity investments as available for sale except cases of necessity. Financial investments available for sale Available for sale financial investments are non-derivatives financial assets that are intended to be held for unspecified period and may be sold to provide liquidity or due to changes in shares prices foreign exchange currencies or interest rate. 2
Translation of financial statements Notes to Separate financial statements for the financial period ended December C/5 Subsidiaries Subsidiaries are all companies (including special purpose entities) over which the Bank has owned direct or indirect power to govern the financial and operating policies. Generally the bank owns more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or are considered when assessing whether the Bank has the ability to control the entity. C/6 Associate companies - Associates are all companies over which the Bank has owned directly or indirectly significant influence but not control generally the bank owns between 20% and 50% of the voting rights. - The purchase method is used to account for the acquisitions of subsidiaries by the Bank. The cost of an acquisition is measured as the fair value of the assets or/and asset given or/and equity instruments issued and loans assumed at the date of exchange plus costs. - Net assets including contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the minority interest. The excess of acquisition cost over the Bank s share fair value in the net assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the net assets the difference is recognized directly in the income statement under the item "Other operating income/ expenses and accounting for subsidiaries and associates in the separate financial statements is recorded by using cost method. According to this method investments recorded at cost of acquisition including goodwill if any and impairment losses are deducted. Dividends are recorded in the income statement when adoption of the distribution has been occurred and affirming the Bank s right in collecting them has been recognized. The following is applied to financial assets: - Purchase and sale transactions of the financial assets recognized at fair value through profit and loss of the held-tomaturity financial investments and of the available-for-sale investments shall be recognized in the ordinary way on the trade date on which the bank is committed to purchase or sell the asset. - Financial assets that are not classified at fair value through profit and loss at initial recognition are recognized at fair value plus transaction cost while the financial assets classified as at fair value through profit and loss are initially recognized at fair value only and the transaction cost is recognized in the profit and loss under "net trading income" - Financial assets are derecognized when the rights to receive cash flows have expired or when the bank transfers all asset risks and rewards to another party while a financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. - Available for sale financial investments and financial assets designated at fair value through profit and loss are subsequently measured at fair value. While loans and advances and held to maturity investments are measured subsequently at amortized cost. - Gains and losses arising from changes in fair value of financial assets designated at fair value through profit and loss are recorded in income statement during the year it occurred while gains and losses arising from changes in fair value of available for sale financial investments are recognized in "fair value reserve for available for sale investments" in equity until the financial asset is sold or impaired at which time the cumulative gain or loss previously recognized in equity should be recognized in profit or loss. - Interest income related to monetary assets classified as available for sale is recognized based on the amortized cost method in profit and loss. The foreign currency revaluation differences related to available for sale investments are recognized in the profit and loss. Dividends related to available for sale equity instruments are recognized in the profit and loss when they are declared. - The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset the Bank establishes fair value using valuation techniques. These include the use of recent arm s length transactions discounted cash flow analysis option pricing models or other valuation techniques commonly used by market participants if the Bank could not assess the value of the equity classified as available for sale these instruments should be valued at cost after deducting any amount of impairment (if any). - Debt instruments can be reclassified from the available for sale investments to "loans and receivables" or" financial assets held to maturity" using fair value when the bank has the intention and ability to hold the instrument on the future or till maturity. Any related profits or losses that have been previously recognized in equity are treated as follows: 3
Translation of financial statements Notes to Separate financial statements for the financial period ended December. In case of the reclassification of financial assets with fixed maturity date the gains or losses shall be amortized over the remaining lifetime of the investment held to maturity by using the effective interest rate method. Any value difference based on the amortized cost and the value based on maturity date shall be amortized over the remaining lifetime of the financial asset by using the effective interest rate method. Later in case of any impairment in the financial asset value any gains or losses previously recognized directly among shareholders equity shall be recognized in the profit /loss statement.. In case of the financial asset that has undeterminable maturity date the gains or losses shall remain within shareholders' equity until the asset is sold or disposed and then be recognized within profit /loss statement. Later in case of any impairment in the asset's value any gains or losses previously recognized directly in shareholders equity shall be recognized in the profits and losses as well. -If the bank changes its estimates regarding payments or proceeds the book value of a financial asset (or group of financial assets) has to be adjusted to reflect the actual cash flows and the change in this estimate through calculating the present value of estimated future cash flows using the effective interest rate for the financial instrument. This adjustment shall be recognized as either income or expense in the profit and loss. -In all cases if the bank reclassifies a financial asset according to the above mentioned and on a subsequent date it raises its estimates of future cash receipts due to an increase in recovered cash then the impact of this increase shall be recognized as an adjustment of the actual rate of return from the date of the estimates change and not as a settlement to the asset's book balance on the date of estimates change. D- Offsetting Financial Instruments Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The agreements of purchase of treasury bills with the commitment to resell and the agreements for selling treasury bills with the commitment to repurchase shall be presented based on the net in the balance sheet within the item of treasury bills and other governmental notes. E- Derivative Financial Instruments and Hedge Accounting - Derivatives are recognized at fair value at the date of the derivative contract and are subsequently revaluated at fair value. Fair values are obtained from quoted market prices in active markets or according to the recent market deals or using the revaluation methods like the discounted cash flow modules and option pricing models as appropriate. Derivatives are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. - The derivatives embedded in other financial instruments such as the conversion option of convertible bonds into shares are treated as separate derivatives when the economic features and risks are not closely related to the host contract which is not classified at fair value through profit and loss. Such embedded derivatives are measured at the fair value. The changes in fair value are recognized under the net trading income in the income statement. The embedded derivatives will not be accounted for separately if the Bank determines to designate the entire hybrid (combined) contract as at fair value through profit and loss. - The profit and loss arising from the fair value is recognized depending on whether the derivative is designed to be a hedge instrument and the nature or the hedged item. The Bank designates certain derivatives as one of the follows: Hedges for the fair value risk of the recognized assets and liabilities or the confirmed commitments (Fair Value Hedges) Hedges for the highly future expected cash flow risks attributable to a recognized asset or liability or attributable to a forecasted transaction (Cash flow hedges). Hedges of net investment in foreign operations (Net investment hedge) The hedge accounting is adopted for the derivatives designed for this purpose if they meet the requirements. - At the inception of a transaction the relationship between the hedged items and the hedging instruments are documented by the stating the objectives of risk management and a strategy for undertaking various hedging transactions. Furthermore at the inception of a hedge and on ongoing basis the Bank produces consistently necessary documentation to estimate whether the derivatives used in hedging transactions work effectively to offset the changes in the fair value or the cash flow of the hedged item. 4
Translation of financial statements Notes to Separate financial statements for the financial period ended December E/1 Fair Value Hedge If the changes in the fair value of the derivative that qualifies for the fair value hedges are recognized in the Income Statement with any changes in the fair value attributed to the risk of the hedged asset or liability. The effect of the changes in the fair value of the interest rate swaps and related hedged items is accounted for as "Net Interest Income". The effect of the changes in the fair value of the futures is accounted for as Net Trading Income. If the hedge does not satisfy the requirements of the hedge accounting the adjusted book value of the hedged item measured by the amortized cost will be amortized by deducting from the profit and loss over the period until maturity. The adjustments made to the book value of the hedged shareholders' equity instrument remain in the shareholders' equity until it is ruled out. E/2 Cash Flow Hedge The effective part of the changes in the fair value of the derivatives qualified for the cash flow hedges are recognized in the shareholders' equity. The profit and loss related to the ineffective part are immediately recognized under "net trading income" in the Income Statement. The amount accumulated in the shareholders' equity is carried forward to the Income Statement in the same periods when the hedged item has an effect on the profit and loss. The profit and loss related to the effective part of the currency swaps and options are carried forward to 'Net Trading Income". When the hedged instrument matures or is sold or if it does not satisfy the hedge accounting the profit or loss accumulated shall remain in shareholders equity ". It is recognized in the Income Statement when the forecasted transaction is finally recognized. When there is no forecasted transaction to be conducted the profit or loss accumulated in the shareholders' equity are carried forward to the Income Statement. E/3 Net Investment Hedge Similar to the cash flow hedges net investment hedges are accounted for. The profit or loss of the hedged instrument related to the effective part of the hedge is recognized in the shareholders' equity. On the other hand the profit or loss or the ineffective part is recognized in the Income Statement. The profit or loss accumulated in the shareholders' equity is carried forward to the Income Statement when the foreign operations. E/4 Unqualified derivatives for Hedge Accounting The changes in the fair value of the unqualified derivatives for hedge accounting are recognized under "Net Trading Income" in the Income Statement. The profit and loss arising from the changes in the fair value of the derivatives subject to the correlation with the financial assets and liabilities classified at inception at fair value through profit and loss are recognized under "net income from the financial instrument classified at inception at fair value through profits and loss" in the Income Statement. 5
Translation of financial statements Notes to Separate financial statements for the financial period ended December F- Income and Expense of Interest Interest income and Expense related to financial instruments except for held for trading investments or recorded at fair value through profit and loss is recognized under ''interest and similar income'' or cost of deposit and similar charges. The effective interest method is a method of calculating the amortized cost of a financial asset or liability and allocating the interest income or interest expense over the relevant year. The effective interest rate is the rate that discounts estimated future cash payments or receipts over the expected life of the financial instrument or a shorter year when appropriate to reach the net carrying amount of the financial asset or 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 paid or received between the contract`s parties which is considered part of the effective interest rate the cost of the transaction includes all premiums or discounts. When loans or debts are classified as non-performing or impaired related interest income are not recognized but rather are carried off balance sheet in statistical records and are recognized as revenues according to cash basis as per the following: - When collected and after recovery of all arrears for retail loans personal loans small and medium business loans mortgage loans for personal housing and small loans for businesses. - For loans granted to corporate interest income is recognized on cash basis after the Bank collects 25% of the scheduling installments and after the installments continued to be regular for at least one year. Interest income will not be recognized as revenue until full payment of the loan balance before the rescheduling and client is considered to be performing. G- Fees and Commission Income Fees and commissions related to loan and advances are recognized as income when the service is provided. Fees and commission income related to non-performing or impaired loans or debts are suspended and are carried off balance sheet and are recognized under income according to the cash basis when interest income is recognized. Fees and commissions which represent part of the financial asset effective rate are recognized as adjustment to the effective interest rate. Commitment fees recognized as revenue when there is probability that this loan will be used by the customer as commitment fees represent compensation for the continuing interfere to own the financial asset. Subsequently it s recognized as adjustments to the effective interest rate of the loan. If the commitment year passed without issuing the loan commitment fees is recognized as income at the end of the commitment year. Fees and commission related to debt instruments measured by fair value is recognized as income at initial recognition. Fees and commission related to marketing of syndicated loan is recognized as income when the marketing is completed and the loan is fully used or the Bank kept its share of the syndicated loan using the effective interest rate as used by the other participants. Commission and fees arising from negotiation or participating in a negotiation to the favor of a third party as in share acquisition arrangements or purchase of securities or purchase or sale of businesses are recognized as income when the transaction is completed commission and fees related to management advisory and other service are recognized as income based on the contract terms usually on a time appropriate basis. Financial planning and custody services fees that are provided on long term are recognized over the year in which the service is provided. H- Dividend Income Dividends are recognized in the income statement when the bank s right to receive those dividends is declared. 6
Translation of financial statements Notes to Separate financial statements for the financial period ended December I- Purchase with Resale Agreements and Sale with Repurchase Agreements Securities sold subject to repurchase agreements (Repos) are reclassified in the financial statements added to treasury bills balance. Securities purchased subject to resell agreements (Reverse Repos) are reclassified in the financial statements by deducted from treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. J- Impairment of Financial Assets J/1 Financial Assets Carried at Amortized Cost: At each balance sheet date the bank estimates whether there is objective evidence that any financial asset or group of financial assets has been impaired as a result of one or more events occurring since they were initially recognized a loss event/s and whether that loss events have an impacted on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The bank considers any of the following indicators to determine the existence of substantive evidence for impairment losses: Great financial troubles facing the borrower or debtor. Breach of the loan agreement such as non-payment. Expected bankruptcy of borrower or subject to liquidation lawsuit or re-structuring the finance granted to it. Deterioration of competitive position of borrower. Granting privileges or assignments by the bank to the borrower due to economic or legal reasons which are not granted by the bank in the normal course of business. Impairment of guarantee. Deterioration of creditworthiness. An objective proof for impairment loss of the financial assets is the existence of clear information indicating a measurable decrease in the expected future cash flows of such category since initial recognition although such decrease is not identifiable for each individual asset for example increasing in the default cases number of a banking product. The bank estimates the period between a loss occurring and its identification for each specific portfolio in general between 3 to 12 m. The bank first estimates 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 taking into consideration the following: - If the bank determines that no objective evidence that an impairment loss has been incurred on a financial instrument considered individually whether significant or not the bank includes that financial asset in a group of financial assets with similar credit risk characteristics and collectively the whole group for impairment. - An individually impairment test is made for a financial asset if there is objective evidence that this asset is impaired. If the impairment occurred then this asset will be separated from group of financial assets that are collectively evaluated for impairment. - If the result of the previously test did not recognize impairment loss then this asset will be added to the group of financial assets. Impairment loss is calculated by the difference between the assets` carrying amount and the present value of estimated future estimated cash flows excluding future expected credit loss that have not been incurred yet discounted at the financial assets original effective interest rate. And the book value of the financial asset is reduced through using "impairment loss provision the privation of credit impairment recognized through the income statement. 7
Translation of financial statements Notes to Separate financial statements for the financial period ended December - If there is evidence that loan or other receivables or financial assets classified as held to maturity carry floating interest rate the discount rate will be the contract effective interest rate when there is objective evidence that an impairment loss has been incurred. For practical purposes the bank may measure the impairment loss using the fair value of the instrument through its market rate. - For guaranteed financial assets present value for expected futures cash flow has to be considered in addition to the proceeds from sale of guarantee after deducting selling cost. For the purposes of a collective evaluation of impairment financial assets are grouped on the basis of similar credit risk characteristics according to the bank classification taking into consideration type of asset industry geographical location collateral past-dues and other relevant factors. Those characteristics are relevant to the estimation of future cash flows for that group of assets as they are indicators of the debtors ability to pay all amounts due according to its contract terms for assets under study. If historical impairment losses rates method is used for a group of financial assets that are collectively evaluated for impairment future contractual cash flow will be used by the bank in future and the historical loss for a group of assets with similar credit risk characteristics are considered. Historical impairment loss rates are adjusted to reflect the effects of current circumstances that did not affect the year on which the historical impairment loss rates is based and to remove the effects of circumstances in the historical year that are not currently exist. The bank has to ensure that the estimates of changes in future cash flows for groups of assets are in consistence with changes in relative data from year to year such as changes in unemployment rates real estate prices settlement status or other factors that may affect the probability and magnitude of losses. The Bank reviews the basis and methods of estimation regularly. J/2 Available for Sale Investments: At each balance sheet date the Bank estimates if there is objective evidence that impairment loss for an asset or a group of assets classified as available-for-sale or held to maturity is occurred. For listed equity instruments classified as available for sale investments impairment is recognized if as its significant and a prolonged decline its price below its acquisition cost is observed. The decline in value is considered as a significant one for the equity instruments if it reaches 10% of the financial instrument s carrying g value`s cost and it is considered as a prolonged one if it continues for more than 9 months. When a decline in the fair value of an available for sale financial asset has been recognized directly in equity under fair value reserve and subsequent objective evidence of impairment emerges the Bank recognizes the total accumulated loss previously recognized equity will be recognized in profit and loss. Impairment losses recognized on equity instruments on profit or loss are not subsequently reversed. Impairment losses recognized through profit or loss on debt instruments classified as available for sale are reversed through profit and loss if the price subsequently increased and this increase can be objectively related to an event occurring after the recognition of impairment loss in profit or loss. K- Investments property Investments property represent land and buildings the bank owns in order to obtain rental revenue or capital appreciation. Consequently these investments do not include properties used by the bank for its operations and activities or the assets reverted to the bank in settlement of debts. The same accounting method for investment property is the same method applied for the fixed assets. 8
Translation of financial statements Notes to Separate financial statements for the financial period ended December L- Intangible Assets L Software (computer programs) The expenses related to upgrading or maintenance of computer programs are to be recognized as expenses in income statement when incurred. The expenses connected directly with specific software and which are subject to the bank's control and expected to produce economic benefits exceeding their cost for more than one year are to be recognized as an intangible asset. The direct expenses include staff cost of software upgrading teamwork in addition to a suitable portion of respective overhead expenses. The expenses which lead to increase or expansion of computer software beyond their original specifications are recognized as an upgrading cost and are added to the original software cost. The computer software cost recognized as an asset shall be amortized over the year expected useful life not more than three years. L Other Intangible Assets Represents intangible assets other than goodwill and computer software (for example but not limited to: trademark license and benefits of rent agreement). Other intangible assets recognized at cost and shall be amortized using straight-line method or according to economic benefit expected to be received over its estimated useful life. Other intangible assets that do not have a finite useful life shall not be subject to amortization; however they shall be tested for impairment annually impairment (if any) shall be charged to income statement. M- Fixed Assets They represent land and buildings related to head office branches and offices and all fixed assets are reported at historical cost minus depreciation and impairment losses. The historical cost includes the costs directly related to acquisition of fixed assets items. Subsequent costs are included in the asset s carrying amount or are recognized as a separate asset 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. Maintenance and repair expenses are charged to other operating expenses during the financial year in which they are incurred. - Improvement on leasing assets are charged as an expense on income statement. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Building Furniture Fixture and fittings Vehicles Automated integrated machinery Vault doors 20 years 4 years 10 years 5 years 4 years 10 years N- Impairment of Non-Financial Assets Assets other than goodwill which do not have a finite useful life shall not be subject to amortization and shall be tested annually to determine whether there is any indication of impairment. Impairment of depreciable assets shall be reviewed whenever there are events or changes in conditions indicating that the book value may not be recoverable. An impairment loss is recognized for the amount by which the asset`s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset`s fair value less costs to sell or value in use. Assets are tested for impairment with reference to the lowest level of cash generating unit(s). A previously recognized impairment loss related to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset`s recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount that the original impairment has been recognized. 9
Translation of financial statements Notes to Separate financial statements for the financial period ended December O- Cash and Cash Equivalents For the purposes of the cash flows statement cash and cash equivalents include balances due within three months from date of acquisition cash and balances due from the Central Bank of Egypt other than the mandatory reserve and current accounts with banks and treasury bills. P- 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; where it is more likely that it required to use the bank resources to settle the obligation and the amount has been reliably estimated. Where there are a number of similar obligations the likelihood that an outflow is required to settle an obligation is determine taking into consideration the group of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any obligation in the group is minimal. Provisions no longer required are reversed in other operating income (expense). Provisions are measured at the present value of the expected required expenditures to settle obligations after one year from the financial statement date using the appropriate rate in accordance with the terms of settlement effect which reflects the time value of money (without the effect of applicable tax rate) If the settlement term is less than one year the provision is booked by the estimated amount of the liability unless this consideration has a significant effect then present value is used. Q- Financial Guarantees Contracts The financial guarantees contracts are contracts issued by the bank as security for loans or overdrafts due from its customers to other entities which require the bank to make certain payments to compensate the beneficiary for a loss incurred due to default of the debtor on maturity date and in accordance with debt instrument conditions. These financial guarantees are given to the banks corporations and other entities on behalf of the bank's customers. It is initially recognized at fair value including guarantee fees at the date of granting. Subsequently the Bank s obligation shall be measured by the value initially recognized less guarantee fees amortization which is recognized in the profit and loss on a straight-line basis over the higher of the guarantee life term or over the best payment estimates required to settle the financial obligation resulted from the financial guarantee at the balance sheet date. These estimates are mainly based on management experience with similar transactions and historical losses. Any increase in the obligations resulted from the financial guarantee is recognized in "other operating income (expenses)" caption. R- Employee's Benefits Employee's benefits include all financial and nonfinancial benefits provided by the bank to its employees for their offered services to the bank. R/1 Short-term Employee's Benefits Short-term employee's benefits include salaries and wages social insurance subscription fees paid annual leave days service bonus (if accrued within 12 months from the financial period ends) and non-financial benefits (as healthcare housing utilities transportation free and subsided services provided to current employees). Short-term employee's benefits are charged to the income statement as an expense for the period in which the service was provided to the bank's employees who are entitled to receive these benefits. R/2 Early termination-service's Benefits Early termination-service's benefits include accrued benefits for the employees who are early terminated in accordance with the regulations approved from board of directors'. The bank recognizes the cost of this benefits at the early termination date according to the optional early termination scheme in which the expenses are charged to the income statement for the accrued payment period of such benefits. 11
Translation of financial statements Notes to Separate financial statements for the financial period ended December R/3 Pension Benefits-specific subscription scheme: Social insurance: Pension Liabilities includes the bank's contribution to the social insurance and that is for the benefit of the employees according to the Law of the Social Insurance No. (79) for the year of 1975 and its amendments.as the bank pays its contribution in the social insurance authority for each period. This contribution is charged to the income statement in salaries and wages included in the general and administrative expenses for the period in which the bank's employees provide their services. The bank's obligation accountability is by the settlement of pension benefits as it is considered as defined subscription scheme therefore there would be no additional obligation on the bank related to employee's pension benefits expect its contribution of social insurance which are accrued to be settled by the bank on behalf of them for the authority. Special Insurance Fund The bank pays the fund's share (the private insurance fund) from the determined annual variable wages in accordance with the fund's primary statues which enclose that a yearly member's subscription fees have to be paid as of six and half month from the monthly subscription fees paid by the members. The fund's offers a defined single installment benefit in cases such as (Retirement in 60's age Death Early termination or Resignation) A variable post-employment monthly compensation is to be offered for ten years and the amount is to be determined based on the employee rank. The bank's accountability base is by the payment of such benefits which considered as defined subscription scheme. R/4 Other Post-Service's Benefits-Healthcare The bank provides healthcare benefits for pensioners after service ends customarily on condition; the benefits are accrued whenever the employee is in service for years. The accountability of the healthcare commitment considered as pension benefit scheme. The recognized liability in the balance sheet with regards to pensioner's healthcare system is represented in the present value of the defined benefits liabilities at the balance sheet s date after deducting the fair value of the regulation's assets and debiting (crediting) unrealized actuarial reconciliations of profits (losses) as well as the cost of additional benefits related to prior service terms. An independent actuary who applies the Projected Unit Credit Method calculates the liability of the defined benefit plans (future cash flows expected to be paid) annually. The present value of the identified plans liability is determined through deducting these expected future cash flows to be paid by applying the rate of return of high quality corporate bonds or the rate of return of government bonds in the same currency to be used in payment of benefits and which have almost the same maturity period as the retirement benefits obligations related to them. Calculated gains (losses) resulting from changes and adjustments in actuarial estimates and assumptions are to be deducted from (the losses added to) the income statement if they Do not exceed % of the plan assets value or % of the defined benefits liability whichever is higher. In case gains (losses) rise above-mentioned percentage then the increase shall be deducted (added) in the income statements. Post-service costs are immediately recognized in the income statement within administrative expenses unless the introduced changes on the retirements plans are conditional on the remaining of employees in service for a specified period of time (vesting period). R Other Post-Employment Benefits The bank extends health care benefits to retirees after the end of service term. Usually such benefits are conditional on the stay of the employee in the service until retirement age and the completion of a minimum period of service. The expected costs of these benefits are to be matured (vested) over the period of employment by adopting an accounting method similar to the method adopted in the defined pension benefit scheme. 11
Translation of financial statements Notes to Separate financial statements for the financial period ended December S- Income Tax The income tax on the bank s profit or loss at the end of the year includes both the current and deferred taxes. Income tax is recognized in the income statement except income taxes related to shareholder's equity items that are recognized directly in the equity. The income tax is calculated on the net taxable income using the effective tax rate at the balance sheet date in addition to prior year tax adjustments. Deferred tax is recognized due to the temporary differences resulting from reporting the value of assets and liabilities in one year for tax purpose and in another year for financial accounting purpose. Deferred tax is determined based on the method used to realize or settle the current values of these assets and liabilities using the tax rates prevailing at the balance sheet date. The deferred tax assets shall be recognized if it is probable that sufficient taxable profits shall be realized in the future whereby the asset can be utilized and the value of deferred tax assets shall be reduced by the value of portion not yielding the expected tax benefit. However in case tax benefit is highly expected the deferred tax assets shall increase to the extent of previous reduction. T- Borrowings Loans are recognized initially at fair value net of transaction costs incurred. Loan subsequently stated at amortized cost. Any difference between proceeds net of transaction costs and the value is recognized in the income statement over the period of loan using the effective interest rate method. Financial Risk Management: The bank as a result of the activities it exercises is exposed to various financial risks. Since the basis of financial activity is to accept risks; some risks or group of risks are analyzed evaluated and managed altogether. The bank intends to strike a balance between the risk and return 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 exchange rates interest rate risk and other pricing risks. The bank s risk management policies are designed to identify and analyze these risks set limits to the risk and control them through reliable methods and updated systems. The bank regularly reviews the risk management policies and systems and amend them to reflect the changes in market products and services and emerging best practice. Those risks are managed by risk department in the light of policies approved by Board of Directors. The risk department determines evaluates and covers the financial risks in collaboration with the bank s various operating units and the Board of Directors provides written policies for management of risks as a whole in addition to written policies covering specific risk areas like credit risk foreign exchange rate risk interest rate risk and using the financial derivative and non derivative instruments. Moreover the risk department is independently responsible for periodical review of risk management and control environment. A- Credit Risk The bank takes on exposure to the credit risk which it is the risk resulting from failure of one party to meet its contractual obligations towards the Bank. The credit risk is considered to be the most significant risks for the bank so the bank set specific procedures to manage that risk. The credit risks in the lending and investments activities which are represented bank s assets contain debt instruments. The credit risk is also found in off balance sheet financial instruments like loan commitment. The managing and monitoring process on credit risk is centralized at credit risk team management at credit risk department that prepare reports to Board of Directors and Head units on regular basis. A/1 Credit Risk Measurement Loans and advances to banks and customers In measuring credit risk for loans and advances to customers and banks the bank reflects three components: - Probability of default of the customer or a third party on their contractual obligations. - The current position and the likely expected future development from which the bank can conclude the balance exposed to default (exposure at default). - Loss given default. The daily activities of the bank`s business involve measurement of credit risk which reflects the expected loss (the expected loss model) required by Basel committee on banking supervision the operating measures may contradict with 12
Translation of financial statements Notes to Separate financial statements for the financial period ended December A the impairment charge according to the Egyptian Accounting Standard no. ( ) which depends on losses realized at the reporting date (realized losses model) and not on expected losses (Note A/3) The Bank evaluates the probability of default for every customer using internal policies for the different customers' categories. These policies have been updated taking into consideration financial analysis and statistical analysis for each customer category in Addition to the personal judgment of the credit officer to reach the appropriate grading. The customers are classified into four ratings. The bank assesses the probability of default at the level of individual customer using internal rating tools tailored to the various customers` categories to rate the creditworthiness of the different categories of customers in details. These methods have been developed for internal rating and the statistical analysis are taken into account together with the personal reasoning of credit officers to reach the adequate rating. The bank's customers have been divided into four categories of creditworthiness rating. The structure of creditworthiness adopted by the bank as illustrated in the following table reflects how probable default of each category is which mainly means that credit positions move among mentioned categories pursuant to the change in the assessment of the extent of default probability. The assessment methods are reviewed and developed whenever required. Further the bank periodically assesses the performance of the creditworthiness rating methods and how they are able to predict default cases. The Bank s internal classification categories: Classification Classification indication Performing loans Regular watching Watch list Non-performing loans The position exposed to default depends on the amounts the bank expects to be outstanding amounts when the default takes place; for example as for a loan the position is the nominal value while for commitments the bank enlists all already withdrawn amounts in addition to these amounts expected to be withdrawn until the date of default if it happens. Loss given default or loss severity each represents the bank's expectations of the loss to the extent when claiming repayment of debt if the default occurs. Expressed by the percentage of loss to the debt; this certainly differs in accordance with category of the debtor the claim's seniority and availability guarantees or other credit mitigation. Debt instruments treasury and other bills. The Bank use external ratings such as Standard and Poor s rating Meres - Modes rating and Fitch rating to manage their credit risk. The same methods used for credit customers are used for debt instruments and treasury bills. They represent better credit method and a readily available source to meet the funding requirements bills. Risk Limit Control and Mitigation Policies The Bank manages and controls credit concentrations at the borrowers' level groups of borrower s level industries level and countries level. The Bank manages the credit risk it undertakes by placing limits on the amount of risk accepted in relation to single borrower or groups of borrowers and to the geographical and economic activities segments. Such risks are monitored on a regular basis and subject to an annual or more frequent review when considered necessary. The top management reviews on quarterly basis the sectorial and country credit concentration. Exposure to credit risk is also managed through regular analysis of the existing and potential borrowers' ability to meet their obligations and through changing the lending limits where appropriate. The following are some tools used by the bank to mitigate the credit risk: - Collaterals The bank use different methods to limit its credit risk. One of these methods is accepting collaterals against loans and advances granted by the bank. The bank implements guidelines for collaterals to be accepted. The major types of collateral against loans and advances are: Real estate mortgage Business assets mortgage such as machines and goods. Financial instruments mortgage such as debt and equity instruments. 13
Translation of financial statements Notes to Separate financial statements for the financial period ended December Longer-term finance and lending to corporate are often secured while credit facilities granted to retail customers are generally unsecured. To reduce credit loss to its minimum level the bank is keen to get additional collateral from the concerned parties as soon as indicators of impairment in a loan or facility appear. Collateral held as a security against assets other than loans and facilities; determined by the nature of the instrument and debt instruments and treasury bills are normally unsecured with the exception of asset -backed securities and the similar instruments backed by a securities portfolio. - Derivatives The bank maintains conservative control limits over amounts and terms for the net value of opened derivative positions i.e. the difference between purchase and sale contracts. In all cases the amount subject to credit risk is limited to the current fair value of instruments in which the Bank could gain a benefit from it (i.e. assets that have positive fair value) which represent small value of the contract or the notional value. The Bank manages this credit risk which is considered part of the total customer limit with market changes risk all together. Generally no collateral obtained for credit risk related to these instruments except for marginal deposits required by the bank from other parties. Settlement risk arises when cash equity instruments or other financial papers is used in the settlement process or if there is expectation to receive cash equity instruments or other financial papers. Daily settlement limits are established for each counterparty to cover the aggregate settlement risk arising from the daily Bank transactions. - Master netting arrangements: The Bank further restricts its exposure to credit losses by entering into master netting arrangements with counterparties of significant volume of transactions. Generally no netting between assets and liabilities at the balance sheet date. Relating to the master netting arrangements as aggregate settlements are made. However the credit risk related to contracts to the favor of the bank is reduced by a master netting arrangement as netting will be made with the counterparty to settle all transactions. The value of the credit risk faced by the Bank changes substantially within a short time as it is affected by each transaction occurs in the arrangement. A - Credit-related Commitments: The primary purpose of these commitments is to ensure that funds are available to customer when required. Guarantees and standby letters of credit are of the same credit risks as loans. Documentary and commercial letters of credit which are issued by the Bank on behalf of customer by which authorizing a third party to draw within a certain limit in accordance to specific terms and conditions and guaranteed by the goods under shipment are of lower risk than a direct loan. Credit related commitments represent the unused portion of credit limit of loans guarantees or letters of credit. With respect to credit risk related to credit related commitments the Bank is exposed to probable loss of amount equal to the total unused limit. However the probable amount of loss is less than the unused limit commitments as most commitments represent commitments to customers maintaining certain credit standards. The Bank monitors the maturity term of the credit commitments because long-term commitments are of high credit risk than short-term commitments. Impairment and provisioning policies: The internal rating systems described in Note (A-1) focus more on credit-quality at the inception of lending and investment activities. Otherwise impairment provisions recognized at the balance sheet date for financial reporting purposes are losses that have been incurred and based on objective evidence of impairment as will be mentioned below. Due to the different methodologies applied the amounts of incurred credit losses charged to the financial statements are usually lower than the expected amount determined from the expected loss models used to calculate impairment loss provision for CBE purposes. Note (A- The impairment provision appeared in the balance sheet at the end of the year is derived from the four internal rating grades. However the majority of the impairment provision comes from the last two ratings. The table below shows the percentage of in-balance sheet items relating to loans and advances and the related impairment provision for each rating: 14
Translation of financial statements Notes to Separate financial statements for the financial period ended December Bank s rating December June Loans and advances % Impairment provision % Loans and advances % Impairment provision % Performing loans.... Regular watch.... Special watch.... Non-performing loans... The Bank s internal rating assists management to determine whether objective evidence of impairment exists under EAS 26 based on the following criteria set out by the Bank: Financial difficulties face the borrower. Breach of loan conditions like non-payment. Initiation of bankruptcy or entering a liquidation or finance restructures. Deterioration of the borrower s competitive position. For economical or legal reasons the bank granted the borrower additional benefits that will not be done in normal circumstances. Deterioration in the value of collateral. Deterioration of customer credit status. The Bank policies require review of all financial assets (that exceed specific relative importance) at least once a year or more when required the impairment loss is determined on individual basis by determining case by case actual losses. These policies applied on all accounts have specific relative importance on individual basis. Valuation usually includes the existing collateral the related enforcements on these collaterals and the expected collections from those accounts. Impairment loss provision is formed based on group of similar assets using the historical experience available personal judgment and statistical methods. A Pattern of measure banking general risk In addition to the four categories of credit rating indicated in note (A/1) the management makes more detailed groups in accordance with the CBE requirements Assets exposed to credit risk in these categories are classified according to detailed conditions and terms depending on information related to the customer its activities and financial position and payment schedules. The Bank calculates the provisions required for impairment of assets exposed to credit risk including commitments relating to credit on the basis of rates determined by CBE. In case the provision required for impairment losses as per CBE regulations exceeds the provision required for financial statements preparation purposes according to the Egyptian Accounting Standards this increase shall be debited from the retained earnings to and credited to the "general Banking risk reserve" under the equity caption. This reserve is regularly adjusted with this increase and decrease to equal the amount of increase and decrease in the two provisions. This reserve is not distributable. The following are categories of corporate worthiness according to internal ratings compared with CBE ratings and rates of provision needed for assets impairment related to credit risk: CBE Rating Category Provision % Low risk Average risk Satisfactory risk Reasonable risk Acceptable risk Marginally acceptably risk Watch list Substandard Doubtful Bad debt 15 Internal rating Internal categorization Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Special watch Non-performing loans Non-performing loans Non-performing loans
Translation of financial statements Notes to Separate financial statements for the financial period ended December A/5 Maximum limits for credit risk before collaterals: Credit risk exposure in balance sheet*: Treasury bills and other governmental notes Due from banks Trading financial assets Debt instrument - Loans and advances to banks Loans and advances to customers: Retail loans: Overdrafts Credit cards Personal loans Mortgage loans Auto loans Retail loans Corporate loans: Overdrafts Direct loans Syndicated loans Other loans - Corporate loans loans to customers and banks Financial derivative instruments Financial investments: Debt instruments Other assets* *Represents the amount of accrued revenues. Credit risk exposure in off-balance sheet items December June (000's) (000's) Letters of credit (import and export) Letters of guarantee Customer acceptances Discounted bills December June 30 2017 The previous table represents the maximum limit of exposure to credit risk as at December and as at June without taking into considerations any financial guarantee. As for credit risk exposure in balance sheet items amounts depend on net book value presented in the balance sheet. As shown in the preceding table of the total maximum exposure to credit risk resulted from loans and advances to customers and banks against % at comparative year; while represents investments in debt instruments against % at comparative year. The management has confidence in its ability to continue of controlling and maintaining the minimum credit risk exposure resulted from loans and advances and debt instruments as follows: - of the loans and advances` portfolio is classified at the highest two ratings in the internal rating against at comparative year. - of the loans and advances` portfolio having no past due or impairment indicators against % as at comparative year. - Mortgage loans which represents significant part of the portfolio are covered by real estate collaterals. 16
Translation of financial statements Notes to Separate financial statements for the financial period ended December - Loans and advances that have been assessed on an individual basis amounted to 753 million June against million as at the comparative year. The Bank applied more conservative selection process when extending loans and advances during the financial period ended December. A/ Loans and advances Loans and advances are summarized as follows according to credit worthiness: December June 30 2017 Loans and Loans and advances advances to to banks customers Loans and advances to customers Loans and advances to banks Items Neither having past dues no subject to impairment Having past due but not subject to impairment - - Subject to impairment - - Less: Impairment loss provision ( ) - ( ) - Net* *The net amount is before excluding the retained earnings and unearned discount amounts. Bank s total impairment loss provision for loans and advances reached to million against to million as at the comparative year. the amount of million against million as at comparative year representing impairment loss provision of individual loans and the reminder amounting to million representing impairment loss provision for the credit portfolio as a group against to million as at the comparative year Note ( ) include additional information regarding impairment loss provision on loans and advances to customers. 17
Notes to Separate financial statements for the financial period ended December Translation of financial statement Loans and advances neither having past due nor subject to impairment The credit quality of the loans and advances portfolio that are neither having past due nor subject to impairment are determined by the internal rating of the bank. Guaranteed loans are not considered subject to impairment for the non-performing category after taking into consideration the collectability of the guarantees. December Retail Loans and Advances to Banks and Customers Corporate Loans and Advances to Customers Credit Personal Direct Syndicated Other Assessment Over draft Cards Loans Mortgages Auto Loans Over draft Loans Loans loans 1.Performing - 2.Regular watching - - - - - - - 3.Watch list - - - - - - - - - June 30 Credit Cards Retail Personal Loans Loans and Advances to Banks and Customers Corporate Auto Loans Direct Loans Syndicated Loans Loans and Advances to Customers Loans and Advances to Banks Loans and Advances to Banks Assessment Over draft Mortgages Over draft 1.Performing 2.Regular watching - - - - - - - 3.Watch list - - - - - - - - Other loans 18
Translation of financial statement Notes to Separate financial statements for the financial period ended December Loans and advances with past dues but are not subject to impairment: These are loans and advances with past dues from 30 days and more than 90 days but are not subject to impairment where there is a provision for losses in with the historical default rates for each type separately unless there is other information to the contrary. Loans and advances with past dues but not subject to impairment together with the fair value of their related collateral are represented as follows: Upon the initially recognition of loans and advances the fair value of collateral is evaluated based on the evaluation methods usually used for the corresponding assets. In later periods the fair value is updated at market or similar asset rates. Retail Corporate December 31 Over draft Past dues up to 30 days - Past dues > days - Past dues > 60 < 90 days - Past dues > 90 days - Direct loans Syndicated loans Credit Personal Autoloans Over draft December 31 cards loans Mortgage Past dues up to 30 days - - - - Past dues > days - - - - Past dues > 60 < 90 days - - Retail Credit Personal Autoloans Over draft June 30 2017 cards loans Mortgage Past dues up to 30 days - - - - Past dues > days - - - - Past dues >60< 90 days Past dues > 90 days - - - - - - Corporate Over draft Syndicated June 30 2017 Direct loans loans Past dues up to 30 days - past dues > days - - past dues > days - Past dues >90 days - Fair value of collaterals* - 19
Translation of financial statement Notes to Separate financial statements for the financial period ended December Loans and advances subjected to impairment on an individual basis Loans and advances to customers The balance of loans and advances subject to impairment on an individual basis before taking into account the cash flow from collateral amounted to Million (comparative year: Million). Following is a breakdown for the total value of loans and advances subject to impairment on an individual basis. December 31 Item Loans and advances subject to impairment on an individual basis Over draft - Credit card Retail Personal loans Mortgage Autoloans Over draft Direct loans Corporate Syndicated loans Other loans - - June 30 Item Loans and advances subject to impairment on an individual basis Over draft Credit card Retail Personal loans Mortgage Autoloans Over draft Direct loans Corporate Syndicated loans Other loans - - Restructured loans and advances: Restructuring activities include rescheduling arrangements implementation of obligatory management programs modification and deferral of payment. The applied restructuring policies depend on indicators or criteria that indicate in the management's discretion that the continuous payment of the loans is likely to occur. Such restructuring policies are subject to ongoing review. Restructuring is commonly applied to long-term loans especially the loans of financing customers Loans that have been negotiated is Thousands. June June 30 2016 Item Loans and advances to customers Corporate: Over draft A/7 Debt instruments treasury bills and other governmental notes The following table presents an analysis of debt instruments treasury bills and other governmental notes at the end of the fiscal period according to Standard & Poor's and Moody`s with a positive future outlook. Rating Treasury bills and other governmental notes Trading Securities B - Investments in securities 21
Translation of financial statement Notes to Separate financial statements for the financial period ended December A/8 Acquisition of collaterals during the period Type of asset Land and buildings Real estate assets Book value Acquired assets are classified among other assets in the balance sheet. The Bank as practical sells such assets. (A/9) Concentration risks of financial assets with credit risk exposure Geographical segments The following table represents an analysis of the Bank's main credit risks exposures at book value risks distributed in accordance to the related geographical location at the end of current year. Arab Republic of Egypt Alexandria Delta Greater Sinai Description Cairo and Canal Upper Egypt Treasury bills & other governmental notes - - Other Countries Held-for-trading financial assets Debt instruments - - - - - Loans and advances to banks - - Loans and advances to customers Loans to individuals Over draft - Credit cards - Personal loans - Mortgages - Auto-loans - Loans to Corporate Over draft - Direct loans - Syndicated loans - Other loans - - - - - Financial derivatives - - - Financial investments (debt instruments) - - Other assets* - - at the end of reporting period at the end of the comparative period *Represented in current accrued revenues. B- Market risks The Bank is exposed to market risks embodied in the fair value fluctuations or the future cash flows stemming from changes in market rates. Market risks arise from the open positions of interest rate currency rates and the equity instruments as each of them is liable to the market's general and specific movements as well as to changes in the sensitivity level of market rates or prices such as interest exchange rates and equity instrument rates. The Bank separates its exposure to market risk either for trading or non-trading portfolios. The management of market risks stemming from trading or non-trading activities is centralized in the Bank's Market Risks Department and it is monitored by two separate teams. Regular reports on market risks are submitted to the Board of Directors and the heads of business unit. The trading portfolios include the positions resulting from the Bank's direct dealing with customers or with the market. The non-trading portfolios arise mainly from management of return rate of assets and liabilities related to retail transactions. These portfolios include the foreign exchange risks equity instruments resulted from the held-to-maturity investments and available-for-sale investments. 21
Translation of financial statement Notes to Separate financial statements for the financial period ended December B/1 Market risk measurement techniques As part of market risk management the Bank has several hedging strategies and enters into interest rate swaps to balance the risks inherent in debt instruments and long term loans with fixed rates if the fair value option is applied. The following are the most important measurement methods applied to control the market risks. - Value at Risk The Bank adopts "Value at Risk" method for trading and non-trading portfolios in order to estimate the market risks for the outstanding positions and the maximum limit of expected loss based on a number of assumptions for the various changes in the market conditions. The Board of Directors sets limits for the value at risk which the Bank can tolerate for trading and non-trading separately. Such limits are daily monitored by the Bank's Market Risks Department. Value at risk is a statistical prospect for the expected loss of the present portfolio due to the market's adverse circumstances. It is an expression of the maximum value the Bank may lose using a defined confidence coefficient ( %). Consequently a statistical probability of ( %) indicates that the actual loss may be greater than the expected value at risk. The value at risk model assumes a defined retention period (one day) before closing the open positions. The model also assumes that the market's move will follow during the retention period the same pattern of movement that occurred during the previous day. The Bank estimates the previous movement on the basis of the information for the past five years. The Bank applies such historical changes in the rates prices and indicators to the current positions directly a method known as the historical simulation. Actual outputs should also be monitored on a regular basis to measure the correctness of assumptions and the factors used to calculate the value at risk. Usage of this method does not prevent the losses over these limits in case of larger movement within the market. Since value at risk is considered a basic component of the Bank's system in control of market risk the Board of Directors' sets the limits of the value at risk for each of trading and non-trading transactions to be divided on the units of activity. The actual values at risk are compared with the limits set by the Bank and daily checked by the Bank's Market Risk Department. The quality of the value at risk model is persistently monitored through back testing to confirm the results of the value at risk of the trading portfolio. Results of these tests are reported to senior management and Board of Directors. - Stress Testing Stress tests provide an indication of the potential size of losses that could arise under extreme market condition. Stress testing is designed to match business using standard analyses for specific scenarios. Stress testing administered by the Bank's Market Risk Department includes a risk factor stress test assumption. Groups of sharp movements were applied to each risk type and the emerging market stress is tested. Emerging markets are subject to sharp movements and special stress tests including potential events that influence specific positions or areas such as the results of liberating a currency in one area. The senior management and Board of Directors review the results of stress testing. 22
Translation of financial statement Notes to Separate financial statements for the financial period ended December B/2 Summary of value at risk - value at risk according to the risk type Exchange rate risk Interest rate risk Interest rate risk for portfolio managed by others Equity risk (trading) Equity risk (non-trading ) strategic Risk of Portfolios managed by others 12 months for the year ended December 12 months for the year ended June - Value at risk of the trading portfolio according to risk type Exchange rate risk Average Higher Lower Average Higher Lower - 12 months for the year ended December 12 months for the year ended June 30 Average Higher Lower Average Higher Lower Interest rate risk (portfolios managed by others) Equity risk Risk of Portfolio managed by others - - Value at risk for non-trading portfolio according to risk type 12 months for the year ended December 2 months for the year ended June 30 Average Higher Lower Average Higher Lower Interest rate risk Equity risk (non-trading ) strategic The increase in value at risk especially the interest rate risk related to the increase in the sensitivity of interest rates in the international financial markets. The previous results of value at risk calculated separately and independently from the concerned positions and the markets' historical movements. values at risk for trading and non-trading do not form the Bank's value at risk due to the correlation between the types of risks and types of portfolios and the subsequent diverse impacts. 23
Translation of financial statement Notes to Separate financial statements for the financial period ended December B/3 Foreign exchange rate volatility risk The Bank is exposed to foreign exchange rate volatility risk in terms of the financial position and cash flows. The Board of Directors has set limits for foreign exchange risk at the total value of positions at the end of the day and intra-day which are monitored on the spot. The following table summarizes the bank s exposure to the risks of volatility in foreign exchange rates at the end of the reporting period. This table includes the book value of the financial instruments broken down into its component currencies: - The concentration of currency risk of financial instruments As at end of the current year USD* EUR GBP Swiss Franc Financial assets Cash and balances with central banks Due from Banks - Treasury bills and governmental notes - - - - - Trading financial assets - - - - - - - Loans and advances to banks - - - - - - Loans and advances to customers - - Financial derivatives - - - - - - Financial investments Available for sale - - - - - Held to maturity - - - - - - Investments in associates - - - - - - Other financial assets - - - - - - financial assets Financial liabilities Due to banks Customers deposit Financial derivatives - - - - - - - Other loans - - - - Other liabilities - - - - - - financial liabilities Net of financial positions ( ) ) ( ) ( ) ( ) ( ) Credit related commitments ** JPY SAR Other currencie s As at end of the comparative year financial assets financial liabilities Net of financial positions Credit related commitments ** USD* EUR GBP Swiss Franc JPY SAR Other currencie s ) ( ) ( ) ( ) ( ) ( ) * Overseas branches included in USD column. ** Other contingent liabilities not included and its breakdown according to currencies balance only. 24
Translation of financial statement Notes to Separate financial statements for the financial period ended December B/4 Interest rate risk The Bank is exposed to the impact of fluctuations in the levels of interest rates prevailing in the market. This is known as the cash flow risk of interest rate represented in the volatility of future cash flow of a financial instrument due to changes in the interest rate of the mentioned instrument. The fair value risk of interest rate is of volatile financial instrument value resulting from changes in market interest rates. The interest margin may rise due to these changes but still the profits may decrease if unexpected movements occur. The Board of Directors set limits for the level of difference in the re-pricing of interest rate that the Bank can maintain; and Asset Liability Department and Treasury Department in the Bank daily monitors this. The following table summarizes the extent of the Bank's exposure to the risk of fluctuations in interest rates that includes the book value of financial instruments divided based on the price of re-pricing dates or maturity dates whichever is earlier. Up to 1 month More than 1-3 months More than 3 months 1 year More than 1-5 years More than 5 years December Financial assets Cash and balances with Central banks - - - - - Due from Banks - - Treasury bills and other governmental notes - - - Loans and advances to customers and banks - Financial derivatives - - - - - Financial investments: Debt instruments Equity instruments - - - - - Other financial assets - - - - - financial assets Financial liabilities Due to banks - Other loans Customers' deposits Financial derivatives - - - - - Other financial liabilities - - - - - financial liabilities Interest re-pricing gap ( ) ( ) Up to 1 month More than 1-3 months More than 3 months 1 year More than 1-5 years June 30 2017 financial assets financial liabilities Interest re-pricing gap ( ) More than 5 years Million Interest free Million Interest free C- Liquidity risk The liquidity risk is the risk to which the bank is exposed to when being unable to meet it's commitments associated with it's financial obligation at maturity date and replacing the funds that have been withdrown ; and that may result in failure to meet obligation related to repayment of the depositor's funds or meet the lending commitments. Liquidity risk management The Bank's liquidity risk control is carried out by Assets and Liabilities Management Department in cooperation with the Treasury Department in the Bank including the following: The daily funding is managed by monitoring and controlling the cash flows projecting to ensure the ability to fulfill all obligations and requirements. This inculdes replenishment of funds as they mature or are borrowed by customers. The Bank maintains an active presence in the global money markets to ensure achievement of this target. Maintaining a portfolio of highly marketable assets which can easily be liquidated to meet any unexpected interruption in cash flows. Monitoring liquidity ratios compared to the internal requirements of the Bank and the Central Bank of Egypt's requirements. Management of concentration and profile of loans maturities. 25
Translation of financial statement Notes to Separate financial statements for the financial period ended December Monitoring and reporting take the form of cash flow measurement and procjections for the next day week and month respectively- being the key periods for liquidity management. The starting point for these projections is represented in the analysis of the contractual maturities of financail liabilities and expected collection dates of financial assets. Assets and Laibilities Management Department together with the Treasury Department control the unmatched medium term assets management the level and type of the unutilized portion of loan commitments the extent of utilizing debit current accounts advances and the impact of contingent liabilities such as letters of guarantees and documentary credits. Financing approach Sources of liquidity are reviewd by a separate team in the Assets and Liabilities Management Department together with the Treasury Department to provide a wide diversification within currenceis geographical regions resources products and maturites. Cash flows derivatives Derivatives settled on a net basis The Bank's derivatives settled on net basis include: *Foreign exchange derivatives: currency option off and over the counter and currency future contracts. *Interest rate derivatives: interest swaps return-term agreements Interest rate options off and over the counter contracts for future returns and other return agreements. Derivatives settled with total Derivatives settled with total include: *Foreign exchange derivatives: Currency swap contracts and forward exchange contracts *Interest rate derivatives: interest rate and exchange traded swaps. D- Fair value of assets and financial liabilities D/1 Financial instruments measured at fair value: Due from banks The fair value of overnight deposits with variable return represents its current value. The expected fair value of deposits with variable return is estimated according to the discounted cash flows by applying the current interest rate in financial market for debts with high credit risk and a similar maturity date. Loans & advances to banks Loans & advances to banks are represented in loans other than deposits with banks. The expected fair value for Loans & advances represents the discounted value of future cash flows expected to be collected. To determine the fair value cash flows are discounted by adopting the current market rate. Loans & advances to customers Loans & advances are presented in net after discounting the impairment loss provision. The expected fair value for Loans & advances represent the discounted value of future cash flows expected to be collected. To determine the fair value cash flows are discounted by adopting the current market rate. 26
Translation of financial statement Notes to Separate financial statements for the financial period ended December Investments in securities Investments in securities include only held to maturity bearing assets. Available for sale assets are evaluated at fair value except for the equity instruments which the bank has been unable to evaluate their fair value to a reliable extent. The fair value of financial assets held to maturity is determined according to the market rates or prices obtained from brokers. If such data were not available then the fair value is estimated by applying financial markets' rates of negotiable securities with similar credit features maturity dates as well as similar rates. Due to other banks and customers The estimated fair value for deposits with unfixed maturity date which include as well non- interest bearing deposits represents the cash that is to be paid on demand. Fair value of fixed interest rate deposits and non-negotiable loans in an active market are determined according to the discounted cash flows by applying interest rates of new debts with similar maturity dates. Issued debt instruments fair value is calculated based on current financial markets' rates. As for securities that have no active market discounted cash flows model is used in the first time according to the current rate applicable to the remaining period till maturity date. D/2 Financial instruments not measured at fair value: Financial investment held to maturity For bonds It includes financial investments held to maturity and restricted registered at market which is measured with amortized cost. For investment funds the evaluation is based on realizable value (fair value) compared to cost in which the lower of them is determined. The reversal would be on the income statement with the value of the decrease in cost till the limit of what have been decreased previously on the income statement in case of the increase in value again. E- Capital management The bank's objectives behind managing capital which include elements other than equity shown in the balance sheet are represented in the following: Comply with capital legal requirements in Arab Republic of Egypt and in other countries where the bank's branches operate. Protecting the bank's ability to continue as going concern and enabling it to continue in generate yield to shareholders and other parties dealing with the bank. Maintain a strong capital base to enhance growth of the bank's operations. Capital adequacy and capital utilizations are reviewed according to the requirements of regulators (Central Bank of Egypt in the Arab Republic of Egypt) and monitored daily by the bank's management through models that depend on the guidelines of Basel Committee for Banking Supervision. Required information is submitted to the Central Bank of Egypt on a quarterly basis. The Central Bank of Egypt requires each bank to do the following: Maintain the sum of 500 Million as a minimum limit for issued and paid-up capital. Maintain a percentage between capital elements and assets and contingent liabilities elements weighted by risk equals to or exceeds 10%. Overseas branches are subject to the supervision rules regulating banking business in countries where they operate. 27
Translation of financial statement Notes to Separate financial statements for the financial period ended December The numerator of the capital adequacy ratio consists of: Some items that will be deducted/ negligible which are listed under supervision instructions of minimum capital adequacy ratio chapter 2 related to capital base will be processed later as per the instructions. These items are deducted from core constant capital if its value is negative otherwise (positive value) are neglected. - Reserves: which include legal statutory supportive and capital reserves only. - Noncumulative permanent preferred stock: under condition of CBE approval to be added to tier one which meet conditions for listening in additional core capital. - Interim gain/loss: Interim net profit is not added to capital base till it is audited and declared dividends approved by General Assembly and also Central bank of Egypt. However current losses are processed without any conditions. - Going concern core capital after regulatory adjustments: item 1.1 before deduction of investments in financial companies which are listed in item... taking into consideration what is stated in regulatory instructions item 3/8/1/2. - Investments: The bank must evaluate investments periodically and if not any increase in fair value is ignored in preparing this report. - Mixed financial instruments: are listed after CBE approval on its characteristic and its commitment with the referred standards to be listed in this tier. Central bank of Egypt has the right to enlist only specific percentage. - Supportive loans (deposits): only if not exceed 50% of tier one after exclusions as 20% of its value to be consumed yearly of its 5 years in its useful life. - Must not exceed 1.25% of total credit risk for assets and regular contingent liabilities that are risk weighted as also impairment loss provisions of loans and advances credit facilities and irregular contingent liabilities must be sufficient enough to meet obligations that provisions have created for. - Going concern capital before regulatory adjustments: which is paid up capital reserves retained earnings after goodwill deduction and treasury shares. - In case of bank doesn t achieve net profit and there are no retained earnings so it is obligatory to discount that reserve 50% from tier one and 50% from tier two. - The value that exceed risk weighted predetermined limits of syndication for countries: that value must be according to sample number 720 which is about syndication of abroad countries taking into consideration adjusting the value of capital base included in pre mentioned report as per above calculated value. 28
Translation of financial statement Notes to Separate financial statements for the financial period ended December The following table summarize components of core and supportive capital and capital adequacy ratios: Capital adequacy ratio has been prepared based on the consolidated figures of the affiliated financial entities only (` Million)......... Items capital base after exclusions (capital conservation buffer included) Tier one after exclusions (capital conservation buffer included) (Going-concern capital): Going concern core capital after exclusions (Common Equity) Issued and paid capital Goodwill Reserves Retained Earnings (Loss) The surplus (deficit) of going concern core capital after exclusions the percentage of December 31 2017 - - June - - capital conservation buffer available from the surplus of going concern core capital after exclusions (If found) -.................................................. The deficit of formed capital conservation buffer Retained earnings allocated for the capital conservation buffer deficit* formed capital conservation buffer Additional Going Concern Additional core capital - Interim retained earnings Non-controlling interest Differences between nominal value and present value (supportive loan) Common Equity exclusions from continuous core capital - Items to be deducted: Bank investments in financial institutions (banks or companies) and insurance companies. (shares & mutual fund) The excess over 10% of the company's issued capital for each separate investment.(shares) (- ) The excess over 10% of the mutual funds` net assets for each separate investment (mutual funds). The excess of the total of the 10% or less total bank`s investments in issued and paid up capital in the financial institutions and the 10% or less of mutual funds' net assets to common equity. Supportive loans granted to other institutions Intangible assets (other than goodwill) Deferred tax assets Cash flow hedges reserves Tier two after exclusions : Gone Concern Capital 45% of the positive foreign exchange currency translation reserve. 45% of the special reserve 45% of the positive excess in fair value of financial investments comparing to book value. 45% of fair value reserve for available for sale investments 45% of the investments held to maturity excess in fair value comparing to carrying value 45% of Investments in subsidiaries and associates excess in fair value comparing to carrying value Supportive loans (Deposits) Supportive loans (Deposits) limited within the decided share (50% of Tier one after exclusion) impairment loss provision for performing loans advances and contingent liabilities (according to Balance Sheet) ) - - ( ) - - - - - - - ) - - - - (. Acceptable performing loans advances and contingent liabilities impairment and provision. assets and contingent liabilities with weighted risk of credit market and operational. credit risk.... assets and contingent liabilities with weighted risk of credit market and operational Capital requirements for counterparty risk 29
Translation of financial statement Notes to Separate financial statements for the financial period ended December Capital adequacy ratio - continued:... The value of exceeding the set limits of risk weighted average for the top 50 customers Capital requirements for market risk Capital requirements for operational risk Going concern core capital after exclusions/ assets and contingent liabilities with weighted risk of credit and market operation. Capital conservation buffer/ assets and contingent liabilities with weighted risk of credit market and operation. Going concern core capital after exclusions including capital conservation buffer / assets and contingent liabilities with weighted risk of credit market operation. tier one including capital conservation buffer / assets and contingent liabilities with weighted risk of credit market and operation. tier two including capital conservation buffer / assets and contingent liabilities with weighted risk of credit market and operation. capital base excluding capital conservation buffer / assets and contingent liabilities with weighted risk of credit market and operation (including the effect of top 50 customers) - Financial leverage Items Tier one of capital after exclusion exposure in and off balance sheet Leverage ratio (1/2) December (` Million) June 30 The significant accounting estimates and assumptions: The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next fiscal year. These estimates and assumptions are based on historical experience and other factors including the expectations of future events that are considered reasonable in accordance with the available information and surrounding conditions. A- Impairment loss on Loans & advances The bank reviews Loans & advances portfolio quarterly at least to assess impairment. The bank applies personal judgment when determining the necessity of recording the impairment charges to the income statement so as to know if there is any reliable data which refer to the existence of a measurable decline in the expected future cash flows of the loans portfolio even before being acquainted with the decline at the level of each loan in the portfolio. These evidences may include data which indicate the occurrence of a negative change in the ability of a portfolio of borrowers to repay the bank or local or economic circumstances related to default in the bank's assets. On scheduling future cash flows the management uses estimates based on historical experience of losses of assets with credit risk characteristics in the presence of objective evidence of impairment similar to those included in the portfolio. The method and assumptions used for estimating both the amount and timing of future cash flows are reviewed on a regular basis to minimize any differences between estimated and actual losses based on expertise. B- Impairment of available for sale equity instruments The Bank determines the impairment of the shareholders equity instruments available for sale when there is a significant or continuous decline in fair value below their cost. A significant or continuous decline needs a personal judgment. To make this judgment the Bank assesses besides other factors the common share price volatility. In addition impairment exists when there is objective evidence that the invested company has a financial deterioration in its cash flows from operating and financing activities industry or sector performance or technological advances. If the full decline in the fair value below the cost is considered as a significant or permanent decline then the bank will face additional loss which represent the transfer of negative fair value reserve to income statement. 31
Translation of financial statement Notes to Separate financial statements for the financial period ended December C- Fair value of derivatives The fair values of derivative financial instruments not quoted in active markets are determined using valuation methods. When these methods (models) are used to determine the fair values they are tested and reviewed periodically by qualified personnel who are independent of whom prepared them. All models have been approved before being used and after being tested to ensure that their results reflect actual data and prices that can be compared to the market to the extent that is deemed practical. Only reliable data are used in these models; however areas such as credit risks related to the bank and counterparties volatility or correlations require management to use estimates. Changes in assumptions surrounding these factors may affect the fair value of the financial instrument disclosed at the date of the balance sheet. D- Held to maturity financial investments The Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as financial investments held to maturity. This classification requires personal judgment; therefore the Bank evaluates the intention and ability to hold such investments to maturity. If the Bank fails to hold such investments till maturity except for certain circumstances such as selling an insignificant amount of financial investments held to maturity which are close to maturity date such investments should be reclassified as available for sale. Accordingly those investments will be measured at fair value instead of the amortized cost; in addition the classification of any investments under this item will be suspended for two years. E- Income taxes The Bank is subject to the income taxes of several tax departments for our external branches. This requires the usage of significant estimates to determine the total provision of the income taxes. It is difficult to accurately assess the final taxes for certain operations and accounts. The Bank records the commitments of the expected results of tax examination according to estimates of the probability of the emergence of additional taxes. When there is a variance between the final result of taxes and the amounts previously recorded then these variances will affect the income tax and deferred tax provision for the year in which the variance has been identified Segmental analysis: A) Business segment analysis Business segment includes operational processes assets used in providing banking services and management of their surrounding risks and return related to this business that are different from those of other business segments. It includes the segment analysis of these operations in accordance with banking business as follows: Large medium and small Corporate It includes the current accounts deposits debit current accounts loans and credit facilities. Investment It includes mergers of the companies the acquisition of investments financing and restructuring companies and financial instruments. Banks it includes central local and foreign banks Retail It includes the current accounts savings deposits credit cards personal loans real estate loans etc.. Governmental For assets includes treasury bills and governmental bonds and for liabilities it includes deposits and other governmental loans. Asset and liability management They include other banking businesses such as asset and liability management in addition to treasury activities. Dealings and transactions between the segmental activities are done in accordance with the bank s normal course of business. Assets and liabilities include operational assets and liabilities as presented in the Bank s balance sheet. 31
Translation of financial statement Notes to Separate financial statements for the financial period ended December Assets & Liabilities according to business activity ( 000s) December 31 Business activity assets Non-classified assets Corporate SME Investment Banks Retail Governmental Other activities - - - - - - - - Assets - Business activity liabilities - - - Non-classified liabilities - - - - - - liabilities - - ( 000s) June 30 2017 Corporate SME Investment Banks Retail Governmental Other activities Business activity assets - Non-classified assets - - - - - - Assets Business activity - - - liabilities Non-classified liabilities - - - - - - liabilities - - 32
Translation of financial statement Notes to Separate financial statements for the financial period ended December Net interest income For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Interest income on loans and similar income: Loans and advances to: Banks Customers Treasury bills and governmental notes Investment in debt instrument held to maturity and available for sale Deposits and current accounts Reverse repo agreements - Interest expense on deposits and similar expense: Deposits and current accounts: Banks Customers Repo agreements Other loans Net interest income 7. Net fee and commission Income For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 December 31 2016 Fees and commissions income : Fee and commissions related to credit Other fees Fee and commission expenses : Fees paid ( ) ( ) ( ) ( ) Net income from fee and commission 33
Translation of financial statement Notes to Separate financial statements for the financial period ended December Dividend income For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Trading securities Available for sale securities Subsidiaries and associates. Held to maturity & mutual fund certificates Net trading income For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Foreign currency transactions: Profit from foreign currency exchange ) ) ) Trading financial investments Currencies and interest rate contracts revaluation profit - - Profit (loss) from currency swap contracts revaluation ( ) ( ) ( ) ( ) ) ) ( ) ) 10. Administrative expenses For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Staff costs: Salaries and wages ) ) ) ) Social insurances Retirement Cost ( ) Other administrative expenses* ( ) ( ) ( ) ( ) ) ) ) ) *Other administrative expenses include the following: -Improvements on leased assets amounted to Million (Comparative year: Million). - Fixed assets depreciation amounted to 507 Million (Comparative year: Million). - Donations amounted to Million (Comparative year: Million). - Supplies and services amounted to Million (Comparative year: Million). - Taxes and fees amounted to Million (Comparative year: Million) 34
Translation of financial statement Notes to Separate financial statements for the financial period ended December 11. Other operating income (expenses) For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Profit revaluation of monetary assets and liabilities in foreign currencies (Charges) reversed of other provisions ( ) ( ) ( ) ( ) Other revenue Impairment loss for credit losses For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Loan and advances to customers (Notes 2029) ( ) ( ) ( ) ( ) Financial investments held to maturity* ( ) * Settlement of the provision for impairment losses of financial investments held to maturity December 31 2017 June 30 Balance at the beginning of the period ( ) ( ) Impairment (charge) for credit losses during the period Balance at the end of the financial period ( ) 13. Income tax expense For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Income tax (overseas branches) ( ) ( ) ( ) ( ) Taxes on treasury bills and bonds yield and dividends * ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) *The amount paid is thousands (Comparative year: thousands). 35
Translation of financial statement Notes to Separate financial statements for the financial period ended December Deferred tax detailed in note no (31) the difference between the taxes on the bank s profits and the resulted from the application of the applicable current tax rates are as follows: For the six month ended For the three month ended December 31 2017 December 31 2016 December 31 2017 December 31 2016 Profit before tax Applicable tax rate Non- taxable income ( ) ( ) ( ) ( ) Non- deductible expenses (Expenses) income tax Calculated effective tax rate (before taxes on treasury bonds and treasury bills' yield) Actual effective tax rate based on taxes on treasury bonds and treasury bills' yield* * Actual effective tax rate calculated based on the amount of taxes accrued on treasury bills and treasury bonds divided by profit before tax. Difference between the income tax on treasury bills and treasury bonds yield figure booked in income statement and the paid tax disclosed in the cash flow statement represents the taxes accrued until the date of the financial statement for discount/premium not realized yet. Basic Earnings per share (EPS) Earnings per share is calculated by dividing the net profit attributable to equity holders of the Bank by the weighted average number of shares issued during the year after excluding the average stock which the bank re-purchased and kept in the treasury shares. December 31 2017 *according to the amendment in subject (27) of the primary status of bank s articles of association as detailed in note no. (34). December 31 2016 Net profit for the period Employees` profit share in net profit for the period * ( ) ( ) Shareholders' share in net profit (1) The weighted average of the ordinary issued shares (2) Basic earnings per share () (1:2) 36
Translation of financial statement Notes to Separate financial statements for the financial period ended December. Cash and balances with central banks Cash Obligatory reserve balance with CBE December 31 2017 June 30 201 Non-interest bearing balances Due from banks Current accounts Deposits December 31 June 30 Central banks excluding obligatory reserve percentage Local banks Foreign banks Non - interest bearing balances Floating interest bearing balances Fixed interest bearing balances Current balances. Treasury bills and other governmental notes 37 December 31 June 30 2017 Treasury bills and other governmental notes Reverse repos - Repos ( ) ( ) Treasury bills by maturity: 91days 182 days 273 days 364 days Unearned interests for more than 3months ( ) ( ) Unearned interests for less than 3months ( ) ( ) Reverse repos less than 3 months - Repos more than 3 months ) ( ) ( Net Treasury bills
Translation of financial statement Notes to Separate financial statements for the financial period ended December 18. Trading financial assets Equity instruments shares in local banks and companies Portfolios managed by others December 31 June 30 2017 Other debt instruments -. Loans and advances to banks Long term loans December 31 June 30 2017 Current balances Non-current balances. Loans and advances to customers Retail Over draft Credit cards Personal loans Auto loans Mortgage (1) December 31 June 30 2017 Corporate including loans to SMEs Over draft Direct loans Syndicated loans Other loans - (2) loans and advances to customers (1+2) Less: Impairment loss provision ( 000 ) ( ) Interest in suspense ( ) ( ) Unearned discount - - Net Distributed to : Current balances Non-current balances *An amount of thousand has been excluded represents the amount of retained interest for touristic companies' sector in accordance with the Central Bank of Egypt initiative. 38
Translation of financial statement Notes to Separate financial statements for the financial period ended December Impairment loss provision of loans and advances to customers ( 's) December Corporate Individual Balance at the beginning of the period Impairment loss during the period Amounts written-off during the period ( ) ( ) ( ) Transfers Amounts recovered during the period Differences in revaluation of foreign currency Balance at the period end Corporate: Over draft Direct loans Syndicated loans Other Loans - Retail: Over draft Credit cards Personal loans Mortgages Impairment loss provision of loans and advances to customers ( 's) June Corporate Individual Balance at the beginning of the year Impairment loss during the year Amounts written-off during the year ( ) ( ) ( ) Transfers Amounts recovered during the year Differences in revaluation of foreign currency Balance at the year end Corporate: Individual: Over draft Direct loans Syndicated loans Other loans - Over draft Credit cards Personal loans Mortgages Financial Derivative Cash flow hedge December Currency swap (FX) contract Currency and interest swap (cross) cross currency swap Interest rate swap (IRS) Notional amount Assets Liabilities Current balances June 30 2017 Currency swap (FX) contract Currency and interest swap (cross) cross currency swap Interest rate swap (IRS) Notional amount Assets Liabilities Current balances 39
Translation of financial statement Notes to Separate financial statements for the financial period ended December. Financial investments Available For Sale Listed debt instruments with fair value Unlisted equity instruments Listed equity instruments available for sale (1) Held to maturity Debt instruments (amortized cost) Listed Unlisted Equity instruments Mutual funds units (funds established by the bank) held to maturity (2)* (1+2) December June 30 2017 Current balances Non-current balances Fixed interest - Debt instruments Floating interest - Debt instruments *Fair value as at December 2017 amounted to Million (comparative year: Million). The following is the movement of financial investments during the period: Available for sale investments Held-to-maturity investments Beginning Balance on July 1 Addition Deduction (selling - redemption) ( ) ( ) ( ) Fair value changes movement - Impairment loss (charge) recovery ( ) ( ) Bonds amortization Ending balance on December Available for sale investments Held-to-maturity investments Beginning Balance on July 1 Addition Deduction (selling - redemption) ( ) ( ) ( ) Fair value changes movement - Impairment loss (charge) recovery ) Bonds amortization ( ) Ending balance on June 30 41
Translation of financial statement Notes to Separate financial statements for the financial period ended December Financial investments continued: Investments in subsidiaries and associates movement during the period represented as follows: December June 30 Beginning balance Addition Deduction Transferred - Impairment losses (charge) Profits of financial investments: For the six month ended For the three month ended Profits from selling available for sale investments* Impairment losses of available for sale equity instruments Profit from selling investments in subsidiaries and associates Impairment losses (profit) of selling shares in subsidiaries and associates Profit from selling investments held to maturity December 31 2017 December 31 2016 December 31 2017 December 31 2016 ( ) ( ) ( ) - ( ) ( ) * After the exclusion of an amount of Million represents the formed reserve for these investments against an amount Million as at the comparative year. 41
Translation of financial statement Notes to Separate financial statements for the financial period ended December Note (22) financial investments continued: Investments in subsidiaries and associates December No. Name Subsidiaries companies Share % Book value Available financial statement Company' s assets Company's liabilities without shareholders ' equity Company's revenues Profit (losses) of the company Currency National Bank Of Egypt - NBE (Uk) 70/00/7073 1 438 234 1 288 631 25 463 11 514 Jack NBE -Dubai international financial center.difc International Co. For Animal Wealth Al Ahly for mortgage National Bank Of Egypt - El Khartoum Al-Ahly Capital Holding Co. 70/00/7073 70/00/7073 70/00/7073 94 165 594 178 1 267 145 7 881 511 773 117 221 379 619 911 727 37 119 773 31 389 23 111 43 982 567 269 - -8 783 11 783 48 247 523 794 USD SDG El Ahly for leasing Al Ahly for exchange 70/00/7073 2 191 991 1 919 113 New establishment 288 545 36 814 Dream Land Co. For Urban Development 77/77/7000 2 112 441 1 412 167 162 321 16 493 Dream Land Co. For Meeting 77/77/7000 297 531 251 979 118-13 668 Dream Land Markets Co. 77/77/7000 119 892 83 265 1-6 581 Dream Land Health Resort Co. Forsan Dream Land 77/77/7000 77/77/7000 456 311 211 251 117 181 129 619 417 297 15 251 715-15 111 70 Dream Land Pyramids Co. For Golf* Ahly for trading in securities National Melamine And Urea Formaldehyde Co Rady Group for touristic investment 77/77/7000 70/00/7073 984 171 5 717 19 517 51 717 591 621 361 3 411 27 861 113 248 817 32-32 692 348-517 The Egyptian Co. For Asset Management & Investment subsidiaries 77/07/7073 3 691 282 3 242 193 19 815 16 152 42
Translation of financial statement Notes to Separate financial statements for the financial period ended December No. Name Associate companies Share % Book value Available financial statement Company' s assets Company's liabilities without shareholders' equity Company's revenues Profit (losses) of the company Currency The Egyptian Salts And Mineral's Co (Emisal) 70/00/7073 489 713 217 411 336 988 42 772 Egy Marble 77/77/7000 22 516 22 122 4 215-327 International Electrical Produscts 77/77/7000 262 529 153 948 133 885 1 172 Dream Park* 77/77/7000 34 129 49 731 2 986-4 892 International Electronics* 77/77/7002 422 229 217 545 69 123 7 989 Egy Serv. 77/77/7000 376 517 318 354 13 595-8 912 Al Ahly Real Estate Development Co. 70/00/7073 68 138 22 182 91 197 27 291 Upper Egypt for the man. concentrates and juices 4 949 619 4 581 217 411 315 28 161 National Co. For Housing For Pro. Syndicates 112 974 141 373 58 982-27 437 Imbt 70/00/7073 186 362 15 632 11 461 851 Al Ahly For Projects And Medical Services 111 216 96 132 1-2 911 Financial Sector Fund Co 98 124 29 112 29 411 1 841 6th Of October Storage And Dist. 70/00/7073 493 281 11 985 111 695 82 889 Oriental Resorts For Touristic Dev. 115 228 58 176 6 895-19 166 Mena Tele. Co. (Menatel) 70/00/7075 22 681 14 536 1-17 Real Estate Egyptian Consortium (conslidated) 70/00/7073 681 561 486 999 31 995 25 975 Nile Holding Com. For Inv.& Dev. 213 177 281 27 699 9 197 Maspiro CO. FOR URBAN Dev. 184 991 39 462 84 238 51 347 Upper Egypt For Investment Co. 129 354 481 2 184-5 186 Horizon For Inv. & Ind. Dev. 70/00/7073 685 618 249 451 334 219 8 447 Multi Trade Holding- Luxembourg 77/77/7077 598 9 16 5 Euro Misr Aswan For Fishing Hunting And Fabricating 22 924 5 271 25 545 881 Port Said National Food Security Co 3 213 661 417 7 Al Ektesadia For Housing And Reconstruction 131 477 43 829 29 111 12 867 37 Multi-Investment International Co. 70/00/7070 68 257 8 122 6 683 5 217 43
Translation of financial statement Notes to Separate financial statements for the financial period ended December No. Name The Universal Co For Cellulose Products El Sherouk For Markets & Commercial Stores New Ismailia For Investment And Tourism Co. Al Montazah For Tourism & Investment Co. Development industrial Free Zone (East port-said) Concord National Investments Limited - Isle of man Misr Company For Financial Investment Share % Book value Available financial statement 77/77/7000 70/00/7073 77/77/7075 77/77/7077 77/77/7073 Company 's assets 258 561 118 412 45 963 531 175 47 995 238 68 379 Company's liabilities without shareholders' equity 188 288 42 526 22 368 386 157 3 148 1 11 159 Company's revenues 1 187 551 16 871 19 135 1 188 317 12 883 Profit (losses) of the company 1 7 425 7 447-169 837 68 188-364 Currency USD Samcrete Development 70/00/7073 1 754 458 1 347 815 93 929 18 411 Alexandria Company For Petroleum Additives (Acpa) Economic Islamic Trade And Distribution Co October For Development & Real-Estate Investment Co Commercial Inter. Investment Company (Ciic) Elshorouk Co.For Moulds And Metallurgical Products El tahrer for investment parking ( TECO) Upper Egypt For Manufacturing Food Materials Al Ahly Co. For Agricultural Upper Egypt For Touristic & Real-Estate Development 70/00/7073 224 733 2 119 234 868 455 497 18 191 675 121 121 834 899 272 29 193 87 146 1 989 42 641 78 724 4 596 383 814 92 191 28 181 1 296 317 195 114 36 813 47 676 1 661 96 681 82 233 36 371 2 897 8 911-287 666 25 289 133-6 416-3 139 48 251-2 191 Air Cairo 149 297 112 915 127 281-2 812 USD Multitrading & Stores Co. 461 117 412 618 443 188 2 927 Elnabila For Investment And Development Tourist Suez Building Materials Urban And Tourist Development Co InterNational Systems For Development & Investment 77/77/7073 77/77/7077 348 183 17 998 3 259 342 5 381 98 39 126 4 733 1-7 916-852 -98 Ismailia Whole Markets Co 18 313 3 951 2 936 974 subsidiaries and associates 7. 44
Translation of financial statement Notes to Separate financial statements for the financial period ended December Note (22) financial investments continued: Comparative year 30 June : No. Name Subsidiaries companies Share % Book value Available financial statement Company's assets Company's liabilities without shareholde rs' equity Company' s revenues Profit (losses) of the company Currency National Bank Of Egypt - NBE (Uk) 70/00/7070 1 414 817 1 276 717 51 185 4 637 Jack NBE -Dubai international financial center.difc International Co. For Animal Wealth Al Ahly for mortgage National Bank Of Egypt - El Khartoum Al-Ahly Capital Holding Co. 77/77/7075 111 196 438 154 1 267 145 5 996 831 72 772 223 315 911 727 14 839 41 541 54 262 43 982 412 689 -. -2 428 12 613 48 247 355 839 USD SDG El Ahly for leasing Al Ahly for exchange New establishment 1 965 536 1 714 844 373 161 29 881 Dream Land Co. For Urban Development 77/77/7000 2 112 441 1 412 167 162 321 16 493 Dream Land Co. For Meeting 77/77/7000 297 531 251 979 118-13 668 Dream Land Markets Co. 77/77/7000 119 892 83 265 1-6 581 Dream Land Health Resort Co. Forsan Dream Land 77/77/7000 77/77/7000 456 311 211 251 117 181 129 619 417 297 15 251 715-15 111 70 Dream Land Pyramids Co. For Golf* Ahly for trading in securities National Melamine And Urea Formaldehyde Co Rady Group for touristic investment 77/77/7000 77/07/7073 77/77/7075 984 171 5 485 19 517 31 552 591 621 369 3 411 16 616 113 248 275 32-32 692 118-517 Seela group for edible oil 77/77/7075 33 561 77 752 19 954-7 158 The Egyptian Co. For Asset Management & Investment subsidiaries 3 674 212 3 241 166 17 839 37 216 45
Translation of financial statement Notes to Separate financial statements for the financial period ended December No. 37 Name Associate companies The Egyptian Salts And Mineral's Co (Emisal) Egy Marble* International Electrical Produscts* Egy House* Dream Park* International Electronics* Egy Serv. Al Ahly Real Estate Development Co. Upper Egypt for the man. concentrates and juices National Co. For Housing For Pro. Syndicates Imbt Al Ahly For Projects And Medical Services Financial Sector Fund Co 6th Of October Storage And Dist. Oriental Resorts For Touristic Dev. Mena Tele. Co. (Menatel) Real Estate Egyptian Consortium (conslidated) Nile Holding Com. For Inv.& Dev. Maspiro CO. FOR URBAN Dev. Upper Egypt For Investment Co. Horizon For Inv. & Ind. Dev. Multi Trade Holding- Luxembourg Misr Aswan For Fishing Hunting And Fabricating Port Said National Food Security Co Al Ektesadia For Housing And Reconstruction Credit Guarantee Co Share % Book value Available financial statement /77/7070 77 /77/7000 77 /77/7000 77 /77/7000 77 /77/7002 77 /77/7000 77 /00/7073 70 /77/7075 77 /77/7070 77 /77/7070 77 /77/7070 77 /77/7070 77 /07/7073 77 /77/7070 77 /77/7070 77 /00/7075 70 /77/7070 77 /00/7070 70 /77/7070 77 /77/7070 77 /77/7070 77 /77/7077 77 /77/7075 77 /77/7075 77 /77/7070 77 /77/7070 77 Company's assets 451 547 22 516 262 529 34 129 422 229 376 517 68 138 6 267 222 112 974 185 911 111 216 98 124 518 358 36 626 115 228 22 681 685 142 217 163 184 991 129 354 591 636 598 22 395 3 178 131 477 315 336 Company's liabilities without shareholde rs' equity 187 354 22 122 153 948 49 731 217 545 318 354 22 182 6 118 871 141 373 16 132 96 132 29 112 12 267 6 824 58 176 14 536 511 237 377 39 462 481 336 876 9 6 487 631 43 829 211 391 Company' s revenues 318 148 4 215 133 885 2 986 69 123 13 595 91 197 1 218 939 58 982 12 431 1 29 411 47 696 8 271 6 895 1 55 815 12 324 84 238 2 184 546 196 16 22 783 453 29 111 81 854 Profit (losses) of the company 46 861-327 1 172-4 892 7 989-8 912 27 291-51 166-27 437 238-2 911 1 841 41 333 2 791-19 1666-17 37 719 11 681 51 347-5 186 37 583 5 67 35 12 867 19 293 Currency Euro 46
Translation of financial statement Notes to Separate financial statements for the financial period ended December No. Name Multi-Investment International Co. The Universal Co For Cellulose Products El Sherouk For Markets & Commercial Stores New Ismailia For Investment And Tourism Co. Al Montazah For Tourism & Investment Co. Development industrial Free Zone (East port-said) Concord National Investments Limited - Isle of man Misr Company For Financial Investment Share % Book value Available financial statement 70/00/7070 77/77/7000 77/07/7073 77/77/7075 77/77/7075 77/77/7077 77/77/7075 77/07/7073 Company' s assets 68 257 258 561 115 226 45 963 532 169 47 995 1181 73 668 Company's liabilities without shareholders' equity 8 122 188 288 43 814 22 368 218 819 3 148 1 17 111 Company's revenues 6 683 1 58 311 16 871 16 919 1 188 688 3 135 Profit (losses) of the company 5 217 1 2 952 7 447-14 512 68 461-857 Currency USD Samcrete Development 1 596 249 1 218 115 142 625-51 785 Alexandria Company For Petroleum Additives (Acpa) Economic Islamic Trade And Distribution Co October For Development & Real-Estate Investment Co Commercial Inter. Investment Company (Ciic) Elshorouk Co.For Moulds And Metallurgical Products El tahrer for investment parking ( TECO) Upper Egypt For Manufacturing Food Materials Al Ahly Co. For Agricultural Upper Egypt For Touristic & Real-Estate Development 77/77/7075 77/77/7075 248 413 2 119 246 217 455 497 18 191 675 121 121 834 899 272 94 633 92 161 1 989 37 265 78 724 4 596 383 814 92 191 28 181 3 251 277 165 114 71 798 47 676 1 661 96 681 82 233 36 371 7 745 9 191-287 21 498 25 289 133-6 416-3 139 48251 2 345 Air Cairo 149 297 112 915 127 281-2 812 USD Multitrading & Stores Co. 461 117 412 618 443 188 2 927 Elnabila For Investment And Development Tourist Suez Building Materials Urban And Tourist Development Co InterNational Systems For Development & Investment 77/77/7073 77/77/7077 348 183 17 998 3 259 342 5 381 98 39 126 4 733 1-7 916-852 -98 Ismailia Whole Markets Co 18 313 3 951 2 936 974 subsidiaries and associates 47
Translation of financial statement Notes to Separate financial statements for the financial period ended December 23. Other Assets Accrued revenues Prepaid expenses Advance payments for the purchase of fixed assets Assets reverted to the bank as settlement of debts * Insurances and custodies Memorial coins Others** December June 30 2017 *Net provision amounted to Thousands (Comparative year: Thousands). ** Net provision amounted to Thousands (Comparative year: Thousands). Other assets include (Other item): -Finance transactions on behalf of Central Bank of Egypt amounted to Million (Comparative year: Million). - Interest accrued on certificates issued on behalf of National Investment Bank amounted to Million (Comparative year: Million). -An amount of Million paid in advance as shareholders` dividends. - An amount of 3 200 Million for The Egyptian Co. For Asset Management - An amount of Million for the supportive loan installments and it's an earned interest. - An amount of Million for taxes on salaries and wages. 23/1- Investment property: Accumulated Depreciation depreciation as Cost for the period at / / Value of agricultural land (Shobrakhit district) - - Building No. 10 Emraa El Nourystreet Banha Al Qaliubiya* Building No. 174 Al Nozha street Building No. 51 Ain Shams street (Al Tegaryoon Bank) Net book value as at / Accumulated Depreciation depreciation as Cost for the year at / Value of agricultural land (Shobrakhit district) - - Building No. 10 Emraa El Nourystreet Banha Al Qaliubiya* Building No. 174 Al Nozha street Building No. 51 Ain Shams street (Al Tegaryoon Bank) Net book value as at / 48
Notes to Separate financial statements for the financial period ended December Translation of financial statement. Fixed assets Automated integrated systems Vault rooms' doors Furniture Fixtures Land Buildings Vehicles and fittings Balance as at June 302016 - Cost Accumulated depreciation - Net book value as at June 30 2016 - Additions - Disposals' cost - - - - - Depreciation cost - ) ) ( ) - ( ) Disposals` accumulated depreciation - - - - - Net book value as at June 30 2017 - Cost Accumulated depreciation - ) ) ( ) ) Net book value as at June 30 2017 - Additions during the period - Disposals' Costs - - ( ) ( ) - - - ( ) Depreciation - ( ) ( ) ( ) ( ) - ( ) ( ) Disposals` accumulated depreciation - - - - - Net book value as at December - Cost* Accumulated depreciation - ) ( ) ( ) ( ) ( ) ( ) Net book value as at December - *Includes fully depreciated assets amounted to 2 thousands (mostly important: hardware devices amounted to thousands Fixture and fittings amounted to thousand) 49
Notes to Separate financial statements for the financial period ended December Translation of financial statement 25. Due to Banks Current accounts Deposits Central Bank Local banks Foreign banks December June Non-interest bearing balances Fixed interest bearing balances Floating interest bearing balances Current balances Non-current balances - 26. Due to customers Demand deposits Time and notice deposits Certificates of deposit Saving deposits Other deposits December 31 2017 June 30 2017 Non-interest bearing balances Floating interest bearing balances Fixed interest bearing balances December 31 2017 June 30 2017 Current balances Non-current balances 51
Notes to Separate financial statements for the financial period ended December Translation of financial statement 27. Other loans Interest rate Social Fund for Developmental Projects % Commercial International Bank due (October Floating Danish government Without Supportive loan as part of EL Mohandes Bank merge due (October 2019) Supportive loan as part of Tegareyoon Bank merge due (January 2021) Two soft-term loans signed between the Egyptian government and the Italian government (UNIDO) due (November 2036) Without Without European Investment Bank due (Sep 2031) % National Investment Bank (as part of WB and the IDA loans) due (July 2032) % December 31 2017 African Development Bank due (August 2019) Floating 035 African Export-Import Bank due (April Nordea bank due (June 2023) Royal bank due (October 2020) Danske bank Copenhagen due (December 2025) Floating Without Without Without Japan Bank for International Cooperation due (May 2046) French Agency due (May 2030) Floating Loans from international institutions financing banks due (February 2028) China Development Bank due (June ) Floating Eco Spanish Foundation due (August 7073) European Bank for reconstruction and development EBRD due (March 2020) Saudi fund grant for development due (November Floating 5% annually from the date of transfer till the date of re-loan and then 2%anually Sanad mutual fund (USD 15 Million) due (July ) Floating June 30 2017 Arab Trade Finance Program Ever Grow Specialized Fertilizers Co. due (October Floating Emirates - NBD due (Novmber. Floating Standard Chartered due (April ) Floating JP Morgan Chase - - United Bank ltd Pakistan - - Commerz bank Frankfurt due (January. ) Floating Citibank NA CAIRO due (July 2017) - - Credit Suisse-London due (August. ) Supportive deposit amounted to 13 Billion due (August 2026)* Without Supportive deposit 2 amounted to 16 Billion due (December 2026)* Without Supportive deposit 3 amounted to 14 Billion due (March 2027)* Without Green climate fund due (June ) Floating RAKBank - - First Abu Dhabi Bank (FAB) due (November ) Floating Bank UBAE SPA Rome Italy due (Jan 2018) Floating United bank LTD New York - - UBAF Seoul bank - - Deutsche bank AG-London due (February ) Floating Current balances 730 Non-current balances *An interest rate of 17.15% has been calculated according to the average yield of the treasury bonds with 10 years' maturity date. 51
Notes to Separate financial statements for the financial period ended December Translation of financial statement Other loans upon pledged treasury bills and governmental bonds as follows: Banks Loan amount Pledged financial instrument Treasury bills Governmental bonds Emirates NBD - Dubai -UAE $ $ Deutsche Bank -London $ - Switzerland-Credit Suisse Bank $ $ - London-Credit Suisse Bank - Arab African International Bank - First Abu Dhabi Bank PJSCUAE 3 090 750 - - 28. Other Liabilities Accrued interest payable Unearned revenue Accrued expenses Fixed assets purchase liability Creditors Stamp tax liabilities Other credit balances * December June 30 2017 * Other credit balances includes the following: - An amount of 15 Million represents the relative stamp taxes related to the customers of the merged banks and the amount will be settled when the final courts' orders issued. -An amount of Million represents the difference between the par value and the present value of the supportive loan arising from the merge of El Mohandes and El Togareen banks (Comparative year: 730 Million). - An amount of represents the amount due to the restructuring of public sector`s fund (Comparative year: ) - An amount of represents under settlement checks collected on behalf of tax authority (Comparative year: Million) -An amount of Million represents tax calculated on treasury bills. (Comparative year: 1 Million) -An amount of represents collection checks in clearing house. (Comparative year: same amount) -An amount of Million represents taxes on salaries and wages. -An amount of Million represents 20% of the retained amounts for reduction of industrial pollutions' loan. -An amount of Million represents stamp tax reserve for credit facilities balances. -An amount of Million represents ACH system other credit balances'.. 52
Notes to Separate financial statements for the financial period ended December Translation of financial statement. Other Provisions Charge of other provision Exchange revaluation difference Used during the period Adjustments against debit balances Provisions no longer required December Beginning balance Transfers Provision for other claims - (0 ) - - Provision for legal claims ( ) - - Provision for contingent ( ) - - liabilities ( ) ( ) - Others Ending balance June 30 2017 Beginning balance Charge of other provision Exchange revaluation difference Used during the year Transfers Adjustments against debit balances Provisions no longer required Other Provision for other claims ) ( ) - Provision for legal claims ( ) - - Provision for contingent liabilities ( ) - - ( ) ( ) - Ending balance 53
Notes to Separate financial statements for the financial period ended December Translation of financial statement Pension benefits' liabilities Balance sheet liability amount: Post-retirement healthcare benefits Amounts recognized in the income statement: Post-retirement healthcare benefits December June 30 2017 Pensions benefits Balance sheet liability amount: Present value of unfunded obligation The movement on liabilities during the year is as follows: Beginning balance Current service Cost Interest cost Benefits paid ( ) ( ) Actuarial losses - -. Deferred income tax Deferred income tax has been calculated on temporary tax differences according to the liabilities method using the effective tax rate. Deferred tax assets resulting from carried forward tax losses are not recognized unless it is probable that there are future tax profits to utilize the carried forward tax losses. The bank does not offset deferred tax assets and deferred tax liabilities unless; the bank has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority. Deferred tax liabilities and assets: The movement of deferred tax assets and liabilities are as follows Deferred tax assets and liabilities balances December 31 2017 Deferred tax assets June 30 Fixed assets - - Provisions (other than impairment loss provision for loans) Deferred tax liabilities December 31 2017 June 30 2017 - - Available for sale investments impairment - - - - deferred tax asset (liability) Net deferred tax asset (liability) - - - - 54
Notes to Separate financial statements for the financial period ended December Translation of financial statement Movement of deferred tax assets and liabilities: Beginning balance December 31 2017 Deferred tax assets June 30 2017 Deferred tax liabilities December 31 2017 Additions - - June 30 2017 Deductions - - Ending balance Deferred tax assets not recognized Deferred tax assets are not recognized for the following item: Provision for loan loss impairment (excluding of 80% charged during the period) December June 30 Deferred tax assets related to the above mentioned item has not been recognized due to the lack of assurance that this account can be utilized to reduce future taxable profit or create future benefit.. Capital Extra Ordinary General Assembly approved on December the increase of the authorized capital to 30 000 Million and increased the paid up capital with an amount of Million transferred from shareholders` equity reserves to reach Million divided on 15 000 Million shares with par value for each share paid also amended the primary statues with that increase. It has been published in official Egyptian newspaper (Al- Waqa`a al Masrya) in / / 2015 and in Banks record at /. - Extra Ordinary General Assembly approved on February the increase of the authorized capital to 000 Million and increased the paid up capital with an amount of Million transferred from shareholders` equity reserves to reach Million divided to 28 650 Million share with 1 par value for each share paid and also amended the primary statues with that increase. It has been published in official Egyptian newspaper (Al- Waqa`a al Masrya) in / / and in Banks commercial register on /. - Extra Ordinary General Assembly approved on February the increase of the paid up capital with an amount of Million transferred from supportive reserves to reach Million and also amended the primary statues with that increase. It has been published in official Egyptian newspaper (Al- Waqa`a al Masrya) in / / and in Banks commercial register on / /. 55
Notes to Separate financial statements for the financial period ended December Translation of financial statement. Reserves Legal reserve According to the primary status of bank s articles of Association 10% of the yearly net profit (after excluding sale profit of fixed assets) is to increase legal reserve until it reaches 100% of the Bank's issued and paid in capital. General reserve According to the primary status of bank s articles of Association a 10% of the yearly net profit available for dividends allocation (after the exclusion of the legal reserve share) is retained for the general reserve. Capital reserve Includes the return of fixed assets sale (Capital revenue). This reserve is used to enhance the capital base by increasing the issued and paid capital. Supportive reserve According to the primary status of bank s articles of association which enclose that if the ministry of finance has not acquired it's share then it would be fully redirected to the supportive reserve. This reserve is also used to enhance the capital base and increase the paid and issued capital. Special reserve The special reserve includes previous years' revaluation differences of available for sale investment in foreign currency. In addition to the difference between impairment provision and the provision formed in accordance with the credit worthiness as a result of the first adoption of policies of preparation and presentation of financial statements as of 30/06/ Fair value reserve for available for sale investments (After Tax) It includes revaluation differences of available for sale investments which result from the change in market fair value for each investment separately profit/loss 56
Notes to Separate financial statements for the financial period ended December Translation of financial statement Reserves - continued: General Banking risk reserve movement CBE's instructions obligate forming a general reserve for banking risks to meet differences between provisions provided according to the credit worthiness and the provision provided according to impairment of loans for the same year plus the 10% of assets reverted to the bank that has been in bank`s records and not disposed of for 5 years. Reserves Legal reserve General reserve Capital reserve Supportive reserve Special reserve * Reserve for available for sale investments fair value(after tax)** Overseas branches foreign exchange revaluation differences December June 30 2017 Financial derivatives reserve ( ) ( ) General Banking risk reserve *** *As a result of the first adoption of policies of preparation and presentation of financial statements as of 30/06/2010 a difference between impairment provision formed and the provision formed in accordance with the credit worthiness amounting to Million. The remaining amount 106 431 Thousands represents revaluation differences of financial investment available for sale in foreign currencies. The use of this reserve is restricted unless pre-approval obtained from Central Bank of Egypt. **The movement in fair value- AFS investment (after tax) Beginning balance selling movements revaluation Movement of bonds fv amortization which has been transferred from AFS to HTM. Ending balance December June 30 2017 *** Represent an amount of Thousands related to loans impairment (Comparative year: 1 868 638 thousand) and an amount of Thousands related to assets reverted to the bank (Comparative year: 67 806 thousand). 57
Notes to Separate financial statements for the financial period ended December Translation of financial statement. Contingent liabilities and commitments A/ Loans guarantees and advances commitments Customers acceptances Letters of guarantee Letter of credit (import and export ) Other potential liabilities** Discounted bills December 58 June 30 2017 **The net sales of investment certificates group (A B C) and according to the ministerial decision no.199 for the year 1993 subject 2 are being represented in the transferred of investment certificates income with an amount of 727 Thousands from the National Investment Bank. B/Capital Commitments On December capital commitments for the financial investment not required to be paid are amounting to Thousands (Comparative year: Thousands). The value of commitments for the purchase contracts of fixed assets and branches construction that have not been implemented till the date of financial statement amounted to Thousands (Comparative year: Thousands).. Transactions with related parties The Bank is an affiliate of the Ministry of Finance (Arab Republic of Egypt) which owns 100% of the ordinary shares of the bank. The bank has entered into many transactions with the related parties within the context of its normal business these transactions includes loans and deposits. A) Loans and advances to related parties (subsidiaries and associates) Loans and advances to customers Balances at period end Interest income Due from banks Balances at year end Interest income Loans and advances to banks Balances at period end Interest income Other assets B) Deposits from related parties Due to customers Balances at period end Interest expense Due to banks Balances at period end Interest expense C) Employee benefits for a top 20 management employee Average (monthly) December June 30 2017
Notes to Separate financial statements for the financial period ended December Translation of financial statement. Mutual funds: A- NBE s First Mutual Fund with Accumulated Return has been established by virtue of CBE's approval dated 14/7/1993 and license No. Issued by Capital Market Authority on 26/6/1994. The Fund started business on 4/9/1994. On November 6 Capital Market Authority approved rendering the Fund into a mutual fund with periodic and accumulated return as well as splitting certificate nominal value to become 10. Al Ahly Mutual Fund Management operates the Fund. The number of certificates as at / / accounted for certificates with a market value of Thousands. NBE's share on the same date reached certificates. This share encompasses an acquired stake held till the end of Fund period with the amount of certificates with a market value of Thousands in addition to financial investments available for sale certificates with a market value of Thousands. This reflects the declared rates of the Egyptian Capital Market Association ECMA. According to the amended prospectus at 1/4/2016 the Bank shall receive 7.5 per thousands yearly of net assets value as a supervision fee on the Fund in addition to the other administrative services performed by the Bank excluding the fees of management service companies with a percentage of 1.5 per ten thousand. The bank has obtained thousands total commission for the fiscal year ended as of / /. B- NBE s Second Mutual Fund with Periodic Return has been established by virtue of CBE's approval dated 14/7/1993 and license No. 70 Issued by Capital Market Authority on 12/6/1995. The Fund started business on 3/10/1995 It is operated by Al Ahly Mutual Fund Management. The number of certificates as at / / accounted for certificates with a market value of thousands. NBE's share on the same date reached certificates. This share includes amount held till the end of the Fund period which is certificates; it`s market value is thousands in addition to financial investments available for sale certificates with a market value of Thousands. This reflects the declared rates of the Egyptian Capital Market Association ECMA. Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain. per thousand annually as commissions and fees against its supervision on the Fund in addition to the other administrative services performed by the Bank excluding the fees of management service companies with a percentage of 1.5 per ten thousand. The bank has obtained 737 thousands total commission for the fiscal year ended as of / C- NBE s Third Mutual Fund with Periodic and Accumulated Return has been established by virtue of CBE's approval dated 15/3/2005 and license No. issued by Capital Market Authority on 12/5/2005. The Fund started business on 9/8/2005. HC Securities and Investment operate it. The number of certificates as at /77/. Accounted for certificates with a market value of Thousands. NBE's share on the same date reached certificates in the form of an acquired stake held until the end of Fund period with a market value of Thousands. This reflects the declared rates of the Egyptian Capital Market Association ECMA. Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain per thousand annually of the Fund's net asset value against its supervision on the Fund in addition to the other administrative services performed by the Bank excluding the fees of management service companies with a percentage of 1.5 per ten thousand. commissions for the year ended on / / accounted for 75 Thousands. 59
Notes to Separate financial statements for the financial period ended December Translation of financial statement D- NBE s Fourth Cash Return Fund with Daily Accumulated Return has been established by virtue of CBE's approval dated 1/12/2005 and license No. 345 issued by Capital Market Authority on 26/3/2006. The Fund started business on 30/4/2006. Al Ahly Mutual Fund Management operates it. The number of certificates as at 77/ / accounted for certificates with a market value of Thousands. NBE's share on the same date reached certificates with a market value of Thousands in the form of an acquired stake held until the end of Fund period. This reflects the declared rates of the Egyptian Capital Market Association ECMA for the period ended / /. Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain per thousand annually as commissions and fees against its supervision on the Fund in addition to the other administrative services performed by the Bank. The bank has obtained thousand total commission for the fiscal period ended as of / E- NBE s Fifth Lottery Mutual Fund with Accumulated Return has been established by virtue of CBE's approval dated 15/3/2005 and license No. (386) issued by Capital Market Authority on 13/2/2007. The Fund started business on 20/5/2007. Al Ahly Mutual Fund Management operates it. The number of certificates as at / / accounted for certificates with a market value of Thousands. NBE's share on the same date reached certificates with a market value of Thousand in the form of an acquired stake held until the end of Fund period. Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain per thousand annually as commissions and fees against its supervision on the Fund in addition to the other administrative services performed by the Bank excluding the fees of management service companies. The bank has obtained thousands total commission for the fiscal year ended as of / F- NBE s and Al Baraka Bank s Sixth Mutual Fund with Periodic and Accumulated Return (Bashaier) has been established by virtue of CBE's approval dated 5/7/2007 and license No. 432 issued by Capital Market Authority on 31/12/2007. The Fund started business on 10/2/2008. It is operated Al Ahly Mutual Fund Management. The number of certificates as at / / accounted for certificates with a market value of Thousands. NBE's share on the same date reached certificates with a market value of Thousands in addition to financial investments available for sale certificates with a market value of 55 335 Thousands. Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain 3. per thousand annually as commissions and fees against its supervision on the Fund in addition to the other administrative services performed by the Bank excluding the fees of management service companies with a percentage of 1.5 per ten thousand The bank has obtained thousands total commission for the fiscal period ended as of / 61
Notes to Separate financial statements for the financial period ended December 31 2017 Translation of financial statement G- NBE's Seventh Mutual Fund with Accumulated and Per]odic Return (the Fund of Egyptian Funds) has been established by virtue of CBE's approval dated 6/1/2009 and license No. 513 issued by Capital Market Authority on 19/5/2009. The Fund started business on 29/7/2009. It is operated by Prime holing for securities and investment. The number of certificates as at 31/12/2017 accounted for 152 046 certificates with a market value of 21 335 Thousands. NBE's share on the same date reached 40 883 certificates with a market value of 5 737 Thousand (certificates rates on 31/12/2017). Pursuant to the Fund's management contract as well as the prospectus the Bank shall obtain 3.75 per thousand annually as commissions and fees against its supervision on the Fund in addition to the other administrative services performed by the Bank in condition that the fees of the management service company shall be afforded by the bank according to the two term contract. The bank has obtained 35thousands total commission for the fiscal period ended as of 31/12/2017 H- NBE's eighth EL-Waed Mutual Fund with fixed income (the Fund of Egyptian Funds) has been established by virtue of CBE's approval dated 14/11/2010 and license No. 636 issued by Capital Market Authority on 23/5/2011. The Fund started business on 16/10/2011. Al Ahly mutual fund management operates it. The number of certificates as at 31/12/2017 accounted for 490 191 certificates with a market value of 695 831 Thousands. NBE's share on the same date reached 11 616 certificates with a market value of 16 489 Thousands in addition to financial investments available for 84 154 certificates with a market value of 119 457 Thousands. This reflects the closing rates of mutual fund certificates on 31/12/2017. Pursuant to the Fund's management contract amended in 03/04/2016 as well as the prospectus the Bank shall obtain 2 per thousand annually as commissions and fees against its supervision on the Fund excluding the fees of the management service company with 0.05% per thousand as well as commissions and fees against its supervision on the Fund. In addition to the other administrative services performed by the Bank. The bank has obtained 818 thousands total commission for the fiscal period ended as of 31/12/2017 37. Comparative Figures: The Bank has amended the comparative numbers to conform with the classification of financial statements of the current fiscal period. Vtu Chief Financial Officer Wael Abou-Ali Deputy Chairman Dalia ElBaz -r Deputy Aairman Yehia Abu-Elfotuh irman Hisham Ahmed Okasha 61