Annual Report 2012

Rising Above the Challenges

Banking Group Annual Report 2012 At a Glance Sustainable Growth Credit Libanais Identity...... 4 and Development Credit Libanais Strategy...... 6 Our People Capital...... 86 Facts and Figures...... 8 Internal Audit...... 94 Group Key Financial Highlights...... 10 Compliance and AML/CFT...... 100 Chairman’s Address...... 12 Risk Management and Strategy...... 106 Financial and Economic Section...... 16

Corporate Governance Corporate Social Corporate Governance Framework.....30 Responsibility (CSR) Board of Directors...... 34 CSR and CL Business Strategy...... 143 Management Committees Commitment to Shareholders and Governance Structure...... 36 and Corporate Governance...... 144 Group Structure...... 42 Commitment to our Customers...... 146 Investing in our Communities...... 147 Core Banking Activity Valuing our People Capital...... 149 Retail Banking...... 50 Commitment to the Environmentally Responsible Financing...... 152 Electronic Banking Services...... 58 Corporate Banking...... 68 Investment Banking (clib)...... 74 Group Treasury, Global Markets Contents and Wealth Management...... 80

Financial Results

Credit Libanais Group...... 154

Credit Libanais Investment Bank (clib)...... 240

Credit Libanais d’Assurances et de Reassurances (cla)...... 258

Correspondent Banks...... 274 Branch Network...... 282

2 Annual Report 2012 Credit Libanais Group 3 Credit Libanais’ Identity Vision Statement

Vision Credit Libanais’ purpose is to enhance Mission Credit Libanais’ is the preferred bank in shareholder, customer, and employee value. Lebanon-for customers and employees.

Core Values Credit Libanais’ core values are customer focus, Credit Libanais’ is primarily a retail bank and innovation, teamwork and reward for performance serves selected corporate customers.

1961 1977 1994 1996 2000 2003 2004 2005 2006 2007 2008 2010 2011 2012

Establishment Acquisition Acquisition Launching of Acquisition Issuance Issuance of Issuance of A capital Launching Successful Opening of the Best in Launching of of the Bank of of both First the investment of the of the third cumulative three-year Euro increase of of banking management fully-owned category: operations in Continental Phœnician banking arm operations tranche of Preferred CD listed on USD 102 million operations in by the Bank, banking Social and Iraq (Baghdad Bank Bank and of the Group of American three-year Shares maturing international by existing the Kingdom of with Credit subsidiary Economic and Erbil) Capital Trust through the Express Euro CD in 2011 markets shareholders Bahrain Suisse & Credit Award for Migration Bank majority owned Bank, listed on Acquisition of Launching Implementation Changing Byblos Bank, International Housing Loans to the core subsidiary Lebanon international of the 2009 sa, Senegal “Credit Libanais markets ISO 9001:2000 of Islamic of an Employee of affiliated Republic Social Media banking system, Investment Certification banking Stock Ownership leasing of Lebanon Acquisition of launching Equation, across Bank” for Quality operations Plan for a total company voluntary EFG Hermes Best Website all branches of Rising above the Management in Lebanon consideration Credilease into exchange Group of a Awards the Group First issuance of System through of 5.7% of the a Lebanese transaction controlling granted to Launching Euro CDs listed the Bank’s Bank’s common financial for a total majority in affiliates: construction challenges, we on international subsidiary shares institution consideration the capital of Hermes Travel works of the markets by a “Lebanese Winning of the of some USD Credit Libanais and CISA new landmark Lebanese bank Islamic Bank” Golden Pan 2.3 billion Issuance of (Senegal) CL Group continue to grow Arab Corporate USD 75 million Headquarters Website Award Subordinated PCI DSS in Ashrafieh, Bonds compliance for Lebanon and create value maturing subsidiaries in 7 years - Netcommerce where we operate. Transaction and IPN over - subscribed

We Cooperate We function as a team. Cooperation among individuals and units is fundamental in delivering the whole Bank Credit Libanais’ Business Principles to the customers.

We Serve We deliver superior customer service. We gain customer satisfaction with service that exceeds customers’ We Communicate We are open. We encourage continual dialogue across all units and levels. expectations. We Empower We emphasize delegation. Acceptance of personal accountability permeates our corporate culture. We Act We are action-oriented and encourage personal initiative. Can Do and Will Do are basic attitudes of all employees. We Build We continuously upgrade our skills. Commitment to self-development and training are cornerstones of our competitive advantage. We Perform We grow productivity each year. Revenue and Profit per employee are key measures for Bank performance. We Respect We value each other’s ideas. We treat colleagues fairly, sincerely and courteously regardless of differences in We Improve We embrace change. We continuously seek better problem solutions for the customer and the Bank. background.

4 Annual Report 2012 Credit Libanais Group 5 People Capital Optimization conservative risk management philosophy, taking only Credit Libanais Strategy Credit Libanais’ success depends on having the well evaluated risks in line with the board risk tolerance. competent talents and leaders to execute our strategy. As a leading institution in Lebanon and relies on the fundamental pillars of Our people strategy continues to optimize available Business Diversification and Expansion a source of major wealth creation and Customer Focus and Sustainable talent by building competitive advantage through Over the past years, our Group successfully comprehensive development training programs and development, Credit Libanais Group Growth, People Capital Optimization, implemented a business diversification strategy. CL tools. Our employee engagement is further enhanced believes that foreign expansion not only diversifies remains committed to its responsibilities Sound Capital Management, Prudent through improved communication and alignment of the risks, but also takes advantage of the economic and towards shareholders, customers, Risk Management and Appetite, corporate strategy with employee performance. Our business opportunities present in the regional and system of goal-setting, measuring and performance employees, communities and the Business Diversification and Expansion international economies. In the coming years, the Bank evaluation helps us build a respectable working is looking forward to further expanding its local, regional environment, and thrives to meet their and Responsible Cost Efficiency environment, capable of driving business success and and international network and plans to inaugurate new expectations. Our integrated strategy Management. delivering high quality customer services. branches and subsidiaries in Lebanon and the region. The expansion strategy achieved very positive initial Sound Capital Management results, as revealed by the Bank’s presence in Senegal, The way we manage our capital is key to our business. Bahrain, and Cyprus through full-fledged branches and Capital provides safety and soundness for our in Canada through a representative office, capitalizing ocus customers’ deposits, fuels our growth, and reassures r F Peo on the economic growth prospects in these countries e able ple m ain C all stakeholders. We remain committed to maintaining to st Opt a specifically through retail, commercial and corporate s u th im pi u S ow iz ta a solid capital base to support the risks associated with C d r at l Credit Libanais Group n G io banking, in addition to private banking and capital a n our diversified businesses across our entities, while still markets activities. In June 2012, the Bank launched two contributes to value providing investors with good returns. We also reinforce branches in Iraq (Baghdad and Erbil).

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M manner. responsibility more importance than ever, and striving to C management and make the right decision leading towards creating value Prudent Risk Management and Appetite and ensuring sustainable growth of our resources. k D B is At Credit Libanais, we are known for our robust risk i u R t Across Credit Libanais Group, we carefully monitor our a v s n responsible management n e in nt e d rs es de e management culture, characterized by a rigorous ifi s Pru em it spending and look for ways to improve productivity by Ex cat ag et pa ion Man pp of resources. approach and prudent processes. At the heart of our nsi d A being innovative and doing more with less. We target on an strength remain experience, good judgment, and a cost/income efficient ratio without compromising our knowing our customers. The growth witnessed by growth and image reputation. the Bank in Lebanon and overseas over the past few years was met by a significant investment in the support functions particularly in the areas of Corporate Customer Focus and Sustainable Growth Governance, Risk Management, Audit and Internal Sustainability in growth comes from our ability to build relationships with our existing customers and to attract new Controls, Compliance, Anti-Money Laundering and ones. Revenue growth is achieved when our professional advice and superior services meet our customers’ needs. Counter Financing of Terrorism. The Bank’s AML/CFT We offer them a wide variety of products through our traditional and electronic banking channels. Our Bank continues team collaborates with business lines to ensure that to expand its coverage to remain closer to customers and accompany them in their different life cycles, whether they a risk-based approach is integrated in products and are high net-worth individuals, corporations, small and medium-sized enterprises or institutional customers. Our services, and across all delivery channels. Years ago, innovation in banking products and services is made with the simplicity of processes in mind, to ensure efficient and the Bank has implemented a comprehensive plan to effective services across all entities of our Group. diversify and reduce its risks on the grounds of a

6 Annual Report 2012 Credit Libanais Group 7 Facts and Figures

70 Branches 300,700

Lebanon 66 Customers Limassol 1 served at Year Manama 1 End 2012 Baghdad 1 Erbil 1 1,609

Employees at Countries of Year End 2012 6 Geographical Outreach Lebanon 84 Cyprus Bahrain ATMs Canada Senegal Iraq 24/7

Customer Service Centre and Secure Online Banking Services www.creditlibanais.com Lebanon: 1518 International: +961 1 900 111

8 Annual Report 2012 Credit Libanais Group 9 Group Key Financial Highlights

Strong Capital Base As at 31 December (million LBP) 2012 2011 2010 2009 Shareholders’ Equity (million LBP) 900 60% Balance Sheet Previous period Total assets 11,981,081 10,814,554 9,846,905 8,263,708 750 933,205 50% 858,493 845,272 Customer deposits 10,493,393 9,486,202 8,511,969 7,265,166 600 40% Shareholders’ equity * 933,205 858,493 845,272 645,837 Liquid assets 8,128,316 7,472,366 6,982,739 6,008,967 450 645,837 30% Solvency ratio Loans & advances to customers 16.04% 3,368,166 2,979,232 2,493,188 1,947,558 pre-tax 300 20% Income Statement Return On average 150 10%

Net interest income Equity (ROaE) 189,222 184,275 191,799 160,137 Current year 0 0% Net financial income 276,387 261,214 266,581 204,974 2009 2010 2011 2012 Net profit for the year 92,072 97,792 119,268 79,376 Liquidity ratio 13.73% 77.46% 78.83% 82.03% 82.71% Sustainable Profitability and Value Creation Return on Average Assets (ROA)* Capital Adequacy Ratio 1.00% 1.13% 1.15% 1.24% Net Financial Income (million LBP) Return on Average Equity (ROE)* (as per Basel II) 16.04% 18.48% 18.33% 17.82% 300

250

Growth 276,387 266,581 10.62% 200 261,214 Total Assets increase 10.79% 9.83% 19.16% 23.07% Customer deposits 10.62% 11.45% 17.16% 24.83% 150 204,974 Solvency ratio (As Basel II) in customer deposits 13.73% 14.15% 16.95% 12.90% Growth of loans 13.05% 19.49% 28.02% 29.95% 100 Loan to deposit 10.79% 32.10% 31.41% 29.29% 26.81% 50 Liquidity/Assets 67.84% 69.10% 70.91% 72.72% growth 0 * Excluding extraordinary items for the years 2010 and 2011 in total assets 2009 2010 2011 2012

Growth Trend in Banking Activity Total Assets (billion LBP) Total Customer Deposits (billion LBP) Liquid Assets (billion LBP) Loans & Advances to Customers (billion LBP) 8750 3500 12000 12000 7500 3000 3,368 8,128

10000 11,981 10000 7,472 6250 2500 2,979 10,493 10,814 6,983

8000 9,847 8000 9,486

5000 2000 2,493 6,009 8,512 6000 8,264 6000

7,265 1500

3750 1,947

4000 4000 2500 1000

2000 2000 1250 500

0 0 0 0 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012

10 Annual Report 2012 Credit Libanais Group 11 A Message From the Chairman

Rising above the challenges, Credit Libanais continues its Chairman’s steady growth path, with all major activity indicators of the Address Group reporting significant increases in 2012.

experience in the communities of operation. By the return on average assets (ROaA) of 16.04% and same token, our Group is leading the way towards the 1% respectively in the year 2012 after adjusting for The curtains have closed on an agitated year 2012, leaving country’s modernization by launching the e-government extraordinary expenses suffered during the year behind a multitude of unanswered questions for most of the services related to online tax payments through our amounting to USD 4 million relevant to the tax players in the region. In the midst of these turbulences, Lebanese subsidiary NetCommerce payment gateway, in a move adjustments related to previous years, imposed by the banks continued to reaffirm their ever-praised immunity despite that aims to facilitate the citizens’ experience when Ministry of Finance.

the local and regional stalemate, posting a healthy balance dealing with the government. In 2012, capital markets activities strengthened across sheet growth of 8.04% year on year to $151.88 billion as at end the group and encompassed active sales and trading, of December 2012, an annual increase of 8.46% in customer Rising above the challenges, Credit Libanais, continues added to a wide range of financial markets products, deposits to $127.66 billion, and a growth of 10.35% in loans to its steady growth path, with all major activity indicators bonds, equities, equity-linked products, commodities $43.45 billion. The banking sector also preserved a high liquidity of the Group reporting significant increases in 2012. CL and securitized instruments. level throughout the year 2012, with a primary liquidity ratio of consolidated assets reached USD 7.948 billion, with customer deposits nearing USD 6.961 billion. On the 78.19%. Similarly, Lebanese banks succeeded at maintaining On the corporate banking front, fast decision-making lending front, customer loans rose by 13.05% during the vigorous profitability levels, at the year-end 2012. processes and operations are the result of our Group’s year 2012, surpassing the USD 2.234 billion mark, with strategy to assign experienced relationship managers At Credit Libanais Group, the most significant developments the loans-to-deposits’ ratio firming at 32.10 %, up from who have industry and sector experience, across the of the year are highlighted by our expansion abroad and the 31.41 % a year earlier. Bank’s regional management locations, thus ensuring opening of two branches in Iraq (Erbil and Baghdad), in a move a just-in-time and efficient customer experience. During towards the Iraqi markets characterized with high GDP growth Credit Libanais Group reported net profits amounting 2012, we concentrated on expanding our customer expectations (8.6% average growth rate). Locally, construction to USD 61.08 million. Net interest income attained base with a particular emphasis on the best performing works were launched in 2012 to build the new landmark CL Group USD 125.52 million, with net fees and commission sectors, all the while enhancing structured and trade Headquarters located in the Ashrafieh area, designed to optimize income expanding to USD 36.28 million, fueling as finance loans as an additive to existing industrial and and synergize all management teams’ efforts in one location, in an such net financial revenues of USD 184.29 million. commercial financing activities. In fact, industrial, ultra modern work place and environment. On the liquidity front, CL Group preserved a healthy liquidity ratio of 76%. The Group’s shareholders’ equity construction, and agriculture loans grew by 7.5% to In parallel, as part of our strategy to develop and create value (including profits of the year) reached at yearend USD form some 25% of our total outstanding portfolio. in the societies where we operate, our Group innovated in 2012 619.04 million, with the capital adequacy ratio reaching Commercial loans grew by 33.18% representing additional tailor-made retail products and services catering to the 13.73 (computed according to Basel II regulations). approximately 75% of our total outstanding portfolio. needs of the public. This move is made to facilitate the banking Moreover, our partnerships with international institutions, experience of dynamic segments of the population, demonstrating On the profitability front, Credit Libanais Group reported such as the International Finance Corporation (IFC), the once again Credit Libanais’ pioneering role in reshaping the banking a pre-tax return on average equity (ROaE) and a pre-tax European Investment Bank (EIB) and the Arab Trade

12 Annual Report 2012 Credit Libanais Group 13 A Message From the Chairman

Our strategy continues to focus on creating long-term and sustainable value to all stakeholders. We intend to do so by continuing to sustain growth through active capital, liquidity and funding management, and capitalizing on the continuous development of our human capital.

Finance Program (ATFP), allow our Group to offer a wide range of in the event of business disruptions. Moreover, Our strategy continues to focus on creating long-term other long term privileged financing programs to customers. procedures of fraud management and control, and sustainable value to all stakeholders. We intend policies to combat money laundering and financing to do so by continuing to sustain growth through On the retail banking front, based on the centricity of our of the crime according to acknowledged international active capital, liquidity and funding management, and customers at the heart of the bank activities, the retail best practices, namely those principles published capitalizing on the continuous development of our portfolio continued to grow across all business lines, despite by the Basel Committee on Banking Supervision human capital. We shall also endeavor to continue to the challenging market conditions. More than 100 retail are also meticulously implemented to safeguard the provide excellent service to customers, while looking for products and services covering consumer lending, accounts interests of all our stakeholders. lucrative and attractive new markets, and assuming our services, bancassurance, payment gateway, credit cards and corporate responsibilities in the communities where we technologically advanced electronic banking services, are Furthermore, other support functions witnessed operate. offered wherever our Group has a presence. These services are adequate development to accompany the continuous available across a multitude of channels and through an extensive growth of the Group. In terms of developing our On a final note, I must express my profound gratitude domestic network of 66 branches and entities in Cyprus, Bahrain, workforce, extensive trainings were designed and to shareholders for their trust, to our employees for Senegal, Iraq and Canada. With a global increase of 9.01% presented to the wide majority of our staff, namely their relentless efforts and to our customers for their in retail products, our housing loans showed a healthy 23.62 in IT, soft skills and core banking courses. We also confidence and loyalty. Such synergy of human and % growth; Iskan loans increased by 10.36 %; Personal Loans enhanced our existing sophisticated e-learning financial capitals is ensuring the sustainability of value by 10.45 %; Military Iskan loans by 21.58 %, and credit cards solution, to include more than 400 core banking and creation that Group Credit Libanais continues to witness by 2.16 %. In terms of delivery channels, we upgraded our behavioral courses. Impressive results were achieved across the years. I am pleased to share with you our customer relationship management (CRM) to allow us cater to our throughout the year 2012, where staff showed great major activities and highlights on the pages of the 2012 customers’ needs in a more efficient and timely manner. motivation to learn and develop. Annual Report.

In parallel, audit, control and risk management functions are Based on our strong belief that, as a socially dynamically managed. Effective strategies and policies are well responsible institution, we can succeed only when our established and periodically reviewed, to ensure an enhanced communities succeed, we have taken the Corporate operational efficiency across the Group, an optimal utilization of Social Responsibly to the strategic level and shall resources and a transparent monitoring of capital consumption. embark on identification card implementation of In addition, a rigorous stress testing is incorporated in the capital initiatives transversally across the Group, according Dr. Joseph Torbey planning exercise, ensuring that the bank duly identifies and to CSR international guidelines and standards. We Chairman General Manager mitigates the risks to which it might be exposed. Security and believe that our goal is to conduct business while business continuity planning processes are implemented to integrating the social, ethical and environmental enable the Bank continue critical operations, and limit losses dimensions in all aspects of our activities.

14 Annual Report 2012 Credit Libanais Group 15 Financial and Economic Section

The agitated year 2012 left behind a multitude of The bleak picture of Lebanon’s political, economic, and the year, down from $3.4 billion in 2011. Financial unanswered questions on the regional and international social silhouette through the year 2012 has prompted levels. At present, the stage is set with a blurry outlook the International Monetary Fund (IMF) to downwardly The Lebanese real estate sector did not escape the and surrounding the U.S. economy, a struggling Euro zone revise its consensus growth estimates for Lebanon claws of the reigning political impasses, with the against the persisting sovereign debt crisis, and a for the year 2012 from 3.0% in its April 2012 World number of real estate transactions plummeting by Economic frenzied Arab world skirmishing against the recurrent Economic Outlook (WEO) report to 2.0% in its October double-digit figures (10.14%) y-o-y to 74,569 in the year violent clashes. In the midst of said turbulences, the 2012 WEO report. Capital inflows to the country were 2012, down from 82,984 in 2011. Paradoxically, the Section Lebanese economy since the second half of the year also hampered by the intensified local and regional aggregate value of real estate transactions managed 2012, mirrored through a series of street blockades and deadlock, keeping investors on the sideline. In figures, to gain some 3.80% on an annual basis to $9.18 billion internal collisions. financial inflows to Lebanon attained $15.26 billion as during the full year 2012, comparing to $8.84 billion in at year-end 2012, in comparison with $13.90 billion 2011. It is worth highlighting that the share of foreigners in the year 2011, remaining considerably below the in real estate sales transactions widened to 1.86% as $17.04 billion figure reported as at end of year 2010, at end of December 2012, up from 1.81% as at year- and the much higher $20.66 billion reading booked end 2011. Similarly, Lebanon’s construction permits during the full year 2009. Consequently, Lebanon’s contracted by 11.00% y-o-y to 12,361,736 sqm up to balance of payments (BOP) continued to linger within December 2012, with cement deliveries also shedding negative territories, with a BOP deficit of $1.54 billion up to 5,308,550 tons. to December 2012 in comparison with $2.00 billion in the year 2011. Foreign direct investments (FDIs) influx to Lebanon were another victim of the crippling turmoil in the region, with Barclay’s Capital projecting net FDI inflows to Lebanon to ease to $2.3 billion by the end of

Real Estate Transactions For the Year YOY Despite regional and local political uncertainty, social unrest and 2011 2012 % Change economic downturn, Lebanese banks continued to reaffirm Number of Sale Transactions 82,984 74,569 -10.14% their ever-praised immunity in 2012, owing to historically Value of Transactions (USD Billion) 8.84 9.18 3.80% Average Value per Transactions (USD) 106,533 123,051 15.50% proven capabilities to absorb shocks of all sorts. Source: General Directorate of Land Registry and Cadastre, Credit Libanais Economic Research Unit

16 Annual Report 2012 Credit Libanais Group 17 Financial and Economic Section

Evolution of Cumulative Construction Permits (sqm) In parallel, activity in the Lebanese agricultural a 649,084,000 LBP-worth project geared towards sector remained sluggish in 2012 amid the cross- fighting contagious plant-related diseases (i.e. 16,000,000 14,000,000 border tensions between Lebanon and Syria, which Deltamethrin, Bromadiolone, among others), and a 12,000,000 backfired on the exports of Lebanese agricultural project calling for the regulation of the nursery industry 10,000,000 products. Nevertheless, a set of agricultural projects in Lebanon (arboretum, plant sales outlets, etc.). It is 8,000,000 were launched in the year 2012, reflecting Lebanon’s worth highlighting, in this context, that the Lebanese 6,000,000 4,000,000 eagerness and ability to overcome difficulties during agricultural sector detains the largest number of

2,000,000 7,919,013 14,258,037 11,509,142 15,187,403 13,889,806 12,361,736 tough times. More particularly, a project revolving guarantees provided by the government-subsidized 0 2007 2008 2009 2010 2011 2012 around the cultivation of 40 million forest trees in program “KAFALAT”, amassing a stake of 38.93% Lebanon was launched by the Lebanese Ministry of (371 guarantees) of total guaranteed projects up to Agriculture in December 2012, aiming at enlarging November 2012. On the other hand, three previously- CAGR: 7.59% Yearly Evolution of Cement Deliveries the country’s forest areas by 13 to 20% (i.e. some launched agricultural projects were finalized in 2012, all 70 thousand hectares) within a period of up to 20 of which being financed by foreign counterparties, as 6,500,000 5,850,000 years. Similarly, two governmentally-funded projects elaborated in the table below: 5,200,000 were inaugurated earlier in 2012, namely 4,550,000 3,900,000 3,250,000 Project Summary Financing Party Amount Launching Date Finalization Date 2,600,000 1,950,000 Management of the invasive plant Solanum 1,300,000 FAO $0.93 million September 2010 July 2012 Elaeagnifolium in the Near-East

650,000 3,422,927 3,944,945 4,219,257 4,897,460 5,226,621 5,549,769 5,308,550 0 December 2006 2007 2008 2009 2010 2011 2012 Mainstreaming Biodiversity Management Source: BDL, Credit Libanais Economic Research Unit into Medicinal and Aromatic Plants (MAP) GEF - UNDP $1.13 million October 2008 October 2012 production processes in Lebanon

Community empowerment and livelihoods Italian Cooperation $0.703 million March 2011 October 2012 enhancement project Program Most economic sectors suffered a major setback in the year 2012, with exports activity paralyzed by the rising tensions on the Lebanese-Syrian borders, being a transit point between Lebanon and many neighboring Arab countries. More Source: The Lebanese Ministry of Agriculture, Credit Libanais Economic Research Unit *Note: “FAO” stands for the Food and Agriculture Organization of the United Nations specifically, Lebanon’s industrial exports came in 16.14% lower year-on-year at $2,952.0 million as at the end of the “GEF - UNDP” stands for the United Nations Development Program’s Global Environment Facility year 2012, compared to a shy increase in the year 2011 and double-digit expansions in the year 2010.

As far as tourism activity is concerned, the rising occupancy rate of 54% at Beirut’s four and five-star violence in many Arab countries and its rippling effect hotels during full year 2012, from 58% in 2011, coupled For the Year Y-O-Y onto neighboring Syria, coupled with the various with annual drops in the average rooms’ rate (-13.3%) 2011 2012 % Change security incidents and local clashes, some travel and revenues per available room (RevPAR) (-19.08%), Industrial Exports 3,520.1 2,952.0 -16.14% restrictions on Lebanon. Consequently, the number of according to Ernst & Young. In addition, the Global Blue tourists flooding into the country shed 289,206 y-o-y to shopping report conveyed a 6% annual decrease in tax- Industrial Imports of Equipment & Machinery 238.63 288.12 20.74%

million USD 1,365,845 visitors as at end of year 2012. The lackluster free spending in Lebanon during the year 2012. Source: Lebanese Ministry of Industry, Credit Libanais Economic Research Unit tourism season was translated into an average

18 Annual Report 2012 Credit Libanais Group 19 Financial and Economic Section

be transferred to the government’s treasury). It is worth in the year 2006. Nonetheless, Lebanon’s public debt Annual Growth in Spending Up to the Third Quarter of 2012 noting, in this perspective, that some experts estimate stock grew heavier this year, widening by 7.52% on the value of Lebanon’s offshore gas at somewhere an annual basis to settle at $57.69 billion during the 20% 15% between $300 billion and $600 billion. month of December. Domestic borrowing remained the 10% government’s main source of financing in 2012 (57.73% 5% On the public finance front, the Lebanese government

1% 6% 9% 14% 9% 18% of gross public debt), specifically from banks (around 0% succeeded at taming, to some extent, the country’s -5% 52% of LBP-denominated debt), in the aim of funding -9% -6% -1% -8%

-14% -17% debt-to-GDP ratio, which neared the 128% mark by the -10% the recurring budget deficit and rolling over maturing -15% end of the year 2012, down from 129% in the full year debt. -20% 2011, 134% in 2010, and a noticeably higher 180% All Countries Saudi Arabia Kuwait UAE Jordan Egypt France Qatar Syria United States Nigeria Other Countries Source: Global Blue, Credit Libanais Economic Research Unit

Public Debt Y-O-Y Also on the tourism front, the Beirut International of Water & Energy, Lebanon has launched in the year December 2011 December 2012 % Change Airport (BIA) activity was modest this year, with the 2012 a three-dimensional seismic scan for half of its total number of passengers increasing by 5.42% on an 22,000 sqm Exclusive Economic Zone (EEZ). In fact, Gross Public Debt 53.65 57.69 7.52% annual basis to 5,960,414 (including transit travelers) as an initial survey conducted by Spectrum, the British- Domestic Debt 32.73 33.30 1.74% billion USD at the end of December. In related news, the Lebanese based oil and gas company that was contracted by the External Debt 20.92 24.39 16.55% cabinet approved earlier this year a 12-year extension Lebanese government to conduct a 3-D seismic survey for the exclusive rights of Lebanon’s national carrier, the of the Lebanese coast, suggested that an area of 3,000 Public Sector Deposits 7.29 8.57 17.59% Middle East Airlines (MEA). Said extension fell short, sqm contains a potential 12 trillion cubic feet (tcf) of gas Net Public Debt 46.37 49.12 5.93% however, of the original 20-year mandate proposed that could meet Lebanon’s electricity production needs Source: The Association of Banks in Lebanon, Credit Libanais Economic Research Unit by the Minister of Public Works and Transport due for 99 years. Oil and gas operations go traditionally to stiff resistance from some ministers who deemed through four stages, namely reconnaissance, such a move as detrimental to increasing competition, exploration (three to five years), appraisal, (one to two More specifically on the sovereign debt front, the the budget deficit. More specifically, the Lebanese improving the quality of services, and reducing ticket years) and development (two to three years) stage. Lebanese Republic successfully completed during Ministry of Finance mandated Credit Suisse, prices. According to the terms of the exclusive rights Accordingly, Lebanon, and by having surveyed half of the month of November the exchange of year 2013 Byblos Bank and BLOM Bank to lead manage the agreement, the national carrier will control a sizeable its shore for oil companies, has already saved some maturing Eurobonds, exchanging in total $701.39 aforementioned $2 billion Republic of Lebanon (ROL) 35% stake of all air traffic at the BIA. one or two years of exploration time, according to million of face value notes with longer maturity notes. Eurobond issue, which aimed at rolling over two a statement by the Minister of Water & Energy. The Furthermore, the Lebanese Republic managed to issue On the energy front, Lebanon completed several Eurobond tranches maturing in the year 2013, namely Minister also affirmed that 26 international companies, for cash new notes totaling $823.61 million, thus raising milestones towards putting Lebanon on the international a first tranche maturing in March 2013 worth some among which are some of the top five U.S. oil firms, the aggregate face value of issued notes (exchange of oil and gas production map, namely the formation $875 million and carrying a coupon rate of 9.125%, have so far purchased surveys of Lebanon’s offshore 2013 maturing Eurobonds plus newly issued notes) to of the Petroleum Administration Committee and the and a second tranche maturing in June 2013 for a area for a total of $90 million which will be split between $1,525 million. The participation rate in the voluntary setting of February 1, 2013 as a date for launching the total consideration of $650 million bearing a coupon of the Lebanese government and the British-based Eurobond exchange was 46.0%, varying across the two tender for offshore oil and gas drilling. Furthermore, 8.25%. Spectrum. Concurrently, and during the production tranches and hovering between 44.7% and 47.7%. It is the government assigned March 21, 2013 as a date for phase, Lebanon will be earning revenue streams worth noting that the new Eurobonds carry remarkably Earlier throughout the year, the Ministry of Finance publishing the list of qualified firms for the tender and from the mandated oil firms in three forms, namely a completed a new ROL Eurobond issue totaling some May 2nd of the same year as a date for receiving formal lower coupons than the exchanged notes, the thing royalty fee, a share in oilfield profits (both of which will $975 million, split over two tranches, namely a new applications. which comes in line with the Ministry of Finance’s be transferred to a sovereign fund), and taxes on the objective to refinance sovereign debt at lower rates in $600 million five-year tranche carrying a 5.0% annual In addition, and according to the Lebanese Ministery selected companies’ project-related earnings (which will an endeavor to tame debt service and contain coupon and maturing in October 2017, and a longer

20 Annual Report 2012 Credit Libanais Group 21 Financial and Economic Section

term tranche of $375 million reopening the November tamed by the ever-increasing reserves portfolio at Public Finance For the Year YOY 2026 maturity and carrying a coupon of 6.6%, Banque Du Liban (BDL), with the ratio of total reserves 2011 2012 % Change addressing local banks’ pursuit of higher yields. The to gross public debt surpassing the 90% mark, up Lebanese government mandated back then Byblos from 86.95% in the year 2011. More specifically, total Revenues 9,333 9,396 0.67% Bank and Bank of America Merrill Lynch to lead reserves ended the year 2012 up by 9.46% at $51.05 Expenditures (including debt servicing) 11,675 13,321 14.10% manage the related issue. Said new ROL Eurobond billion, with gold reserves appreciating by $0.91 billion million USD Debt Servicing 4,003 3,816 -4.67% issue was listed in April 2012 on the Beirut Stock y-o-y to $15.31 billion and foreign assets (foreign Exchange (BSE). currency reserves) rising by 10.86% to $35.74 billion. Total Deficit (2,342) (3,925) 67.62% In a related context, Lebanon positioned 19th on a It is worth noting that the Lebanese government’s Total Primary Surplus/ (Deficit) 1,662 (110) -106.63% worldwide basis and 3rd regionally in terms of gold financial commitments for the year 2013 are estimated Deficit / Total Expenditures 20.06% 29.47% reserves in December 2012 according to the World at $8.5 billion, of which $6.57 billion (LBP 9,910 billion) Gold Council, trailing behind Saudi Arabia (global rank: Source: The Lebanese Ministry of Finance, Credit Libanais Economic Research Unit is domestic debt and $1.6 billion is foreign debt. 16 <322.9 tons>) and Turkey (global rank: 17 <319.9 Lebanon’s devastating public debt burden is, however, tons>). On the current account side of the balance of payment, a center point for land exports from Lebanon to the the turbulences in neighboring Syria landed a hefty region, the thing which explains the 30 to 40% drop blow on Lebanon’s trade deficit, which was further in Lebanese exports through the Syrian territories. In end of December 2006 2007 2008 2009 2010 2011 2012 aggravated to reach $16.80 billion during the full year this perspective, Lebanon’s total exports expanded Gold 5.81 7.64 8.03 10.06 13.01 14.40 15.31 2012, in comparison with $15.89 billion in 2011, and this by a shy $218 million y-o-y to just over $4.48 billion, Foreign Assets 12.97 12.39 19.73 28.30 30.60 32.24 35.74 owing to the close trade ties and proximities between counterbalanced by the $1.12 billion annual increase in billion USD the two countries. In fact, Syria represents imports to around $21.28 billion. Total Reserves 18.78 20.03 27.76 38.36 43.61 46.64 51.05

Source: Banque Du Liban, Credit Libanais Economic Research Unit Balance of Trade During the Year YOY

On the other hand, and from a budget angle, Lebanon’s increase in transfers to Electricité Du Liban (EDL). 2011 2012 % Change public finances continued to represent a major Said expansion has largely diluted the 0.67% yearly Exports 4,265 4,483 5.11% impediment for the government, with the total deficit increase in government revenues to around $9.40 Imports 20,158 21,280 5.57%

(budget & treasury) piling up to $3.93 billion during the billion, the latter being mainly buoyed by a 3.9% rise in million USD year 2012, from $2.34 billion in the year 2011. This can income tax revenues to $1.67 billion. In addition, it is Trade Deficit (15,893) (16,797) 5.69% be mainly attributed to a 14.10% annual expansion in worth highlighting that the refinancing of maturing public Source: Higher Customs Council, Credit Libanais Economic Research Unit government expenditures (including debt service) to just debt at lower rates has indeed reduced debt service by over $13.32 billion, fueled by some $519.10 million 4.67% to around $3.82 billion up to December 2012.

22 Annual Report 2012 Credit Libanais Group 23 Financial and Economic Section

million USD Cumulative Balance of Trade Deficit The roller-coaster trend in fuel and commodity prices the business sentiment in both 2012 and 2013, further witnessed during the year 2012, added the different intensified by the political upheaval in Syria and the 24000 attempts by various labor unions in Lebanon to adjust 20000 tense domestic security situation. Additionally, the rating 16000 wages, have fueled inflationary pressure to high levels. agency pinpointed the challenges encountered by 12000 More specifically, the average price of a Lebanese- Lebanese banks in spurring their lending activity in the 8000 consumer good-basket rallied astoundingly by 10.1% turbulent local and regional markets, the latter suffering 4000 Exports Imports Deficit y-o-y to 129.5 as at the end of December, up from 0 from either economic downturns or radical changes in -4000 117.6 a year before, and this according to the Central their political systems. The rating agency commented, -8000 Administration of Statistics (CAS). Contradicting figures however, that the abovementioned risks can be partly -12000 released by the ABL pointed to some 4.86% annual mitigated by the ample liquidity levels within Lebanese -16000 -20000 increase in the consumer price index (CPI) to 145.92 as banks and the “stable” depository base, together with 2011 2012 at year-end 2012. banks’ historically proven managerial capabilities Source: Higher Customs Council, Credit Libanais Economic Research Unit to absorb shocks of all sorts. Moody’s also praised In the banking sector, the Syrian crisis has taken a the constant efforts of the Lebanese Central Bank in greater toll on the performance of Syrian affiliates of fostering banking sector’s growth and resilience, added In related news, the Beirut port freight activity was up As far as customs receipts are concerned, customs Lebanese banks during the year 2012. This is, in fact, the record level of foreign reserves and “the stability by 8.21% y-o-y to 7,225 thousand tons during the year collections rose by a slim 0.42% y-o-y to around $3.01 mirrored by the sharp 45.79% annual drop in the net of the Central Bank’s domestic funding base”, which 2012, while that of the Tripoli port was down by 19.5% billion during the year 2012, thanks to a 3.20% hike consolidated profits of seven Lebanese banks’ Syrian altogether continuously shield it from local and external on an annual basis to 813.611 thousand tons up to the in customs revenues to just over $1.56 billion which affiliates to around SYP 1.07 billion ($13.81 million) in shocks. month of August 2012, succumbing to the escalating outweighed the 4.03% annual drop in VAT revenues to the full year 2012, amid the increasing provisions on tensions in the North, which paralyzed cross-border $1.45 billion. loan impairments. In this context, and from a positive angle, Lebanese circulation of merchandises. banks continued to reaffirm their ever-praised immunity In this context, Standard & Poor’s (S&P), downwardly despite the local and regional stalemate, posting a revised Bank Audi, BLOM Bank, and BankMed’s 2011 2012 % Change healthy balance sheet growth of 8.04% y-o-y to $151.88 outlook from “Stable” to “Negative” during the month billion as at end of December 2012, an annual increase Custom Revenues 1,513 1,562 3.20% of May, attributing its revision of the outlook of all three of 8.46% in customer deposits to $127.66 billion, and VAT Revenues 1,514 1,453 -4.03% Lebanese banks to “the risks inherent to their fragile

million USD a growth of 10.35% in loans to $43.45 billion. The operating environment”. International rating agency Custom Collections 3,027 3,014 -0.42% banking sector also preserved a high liquidity level Moody’s Investors Service also placed during the throughout the year 2012, with a primary liquidity ratio Source: Lebanese Customs, Credit Libanais Economic Research Unit month of April the local currency long-term deposit of 78.19% in December. The deposit dollarization rate rating, the banking financial strength rating (BFSR), at Lebanese banks reversed the upturn witnessed The sluggish macroeconomic activity during the year 2012 Moody’s Investors Service assigned a rating of “B1” and the national scale long-term deposit rating of Bank in 2011, notching lower to 64.82% as at end of year has prompted the international rating agency, Standard & to Lebanon’s local and foreign currency denominated Audi, BLOM Bank and Byblos bank under review for a 2012, down from 65.92% in the year 2011, reaffirming Poor’s (S&P), to downwardly revise Lebanon’s long-term government bonds, and a rating of “Ba1” to the country’s possible downgrade, in addition to the foreign currency once again investors’ and depositors’ confidence sovereign credit outlook from “Stable” to “Negative” in local currency ceiling on both bonds and bank deposits. subordinated debt rating for Byblos Bank. in the Lebanese Pound. Similarly, Lebanese banks late May, while reiterating the country’s “B/B” short-term Similarly, Lebanon’s foreign currency ceiling on bonds On a consolidated scale, Moody’s Investors Service succeeded at maintaining vigorous profitability levels, and long-term local and foreign currency sovereign credit and bank deposits remained unchanged at “Ba3” and affirmed the Lebanese banking system’s negative with consolidated net profits aggregating to $1.58 billion ratings. Moody’s Investors Service, on the other hand, “B1” on a respective basis. It is crucial to note that both outlook in its latest banking system outlook report dated as at end of year 2012, compared to a slightly higher maintained Lebanon’s sovereign rating unchanged at agencies have considered Lebanon’s vulnerability to the October 24, 2012. In fact, the rating agency stressed on $1.59 million figure reported during the year 2011. “B1”, with a “Stable” outlook, in its latest “Credit Analysis” political uprising in Syria as a major source of concern the negative repercussions on the Lebanese banking report dated November 27, 2012. More specifically, that can curtail economic growth in Lebanon. system of the weakening Lebanese economy and

24 Annual Report 2012 Credit Libanais Group 25 Financial and Economic Section

Activity in the Lebanese Banking Sector Rates as of December 1, 2011 Rates as at December 1, 2012 Change (bps)

140.00 90.00% BRR on LBP Lending 7.09% 8.44% 135 120.00 80.00% Dollarization Rate (Deposits) 70.00% 100.00 BRR on USD Lending 4.68% 5.76% 108 60.00% Loans / Deposits Ratio 80.00 50.00% 40.00% Source: ABL, Credit Libanais Economic Research Unit 60.00 Loans (billion USD) 30.00% 40.00 20.00% 20.00 10.00% Deposits (billion USD) 0.00 0.00% On the Beirut Bourse front, activity was highly impeded efforts to find a solution to the sovereign debt crisis. In 2007 2008 2009 2010 2011 2012 by the local and regional political uproar, with investors’ figures, traded volume on the BSE fell dramatically by Source: ABL, Credit Libanais Economic Research Unit appetite towards risky assets being hampered amid almost 29% in the year 2012 to 55.03 million shares, the aggravation of the turmoil in Lebanon and the with traded value also dipping by some 21% to around Arab world. On a more global scale, investors’ $408.50 million. The downturn in the prices of listed stocks It is worth highlighting that the Lebanese Central Bank the average interest rate on Lebanese Pound reluctance to invest in equities was further hindered throughout the year 2012 mimicking the trend in global governor, Mr. Riad Salameh, has reassured on several denominated deposits reaching 5.41% during the month by the ongoing debate with regards to the fiscal cliff equities’ prices has weighed negatively on the BSE’s occasions, the sector’s abidance by international of December 2012, trailing behind the 5.63% level that in the United States, the heated bickering prior to the valuation multipliers, with the weighted average Price requirements, including the sanctions imposed by the was prevailing in December of 2011. On the other hand, U.S. presidential elections which were convened in to Earning (P/E) ratio easing to 7.53x and the weighted Arab League and various international authorities, the average interest rate on U.S. Dollar denominated November, and the European leaders’ continuous average Price to Book (P/BV) ratio slowing to 1.00. positioning the Lebanese banking sector more favorably deposits rose shyly to 2.86% in December 2012, from in the eyes of the international community. 2.83% in December 2011, with commercial banks’ discount and lending rate crawling to 7.07% on LBP Analysis of the BSE Activity During the Full Year Also in the banking sector, interest rate levels did not denominated loans and 6.87% on USD denominated 2011 2012 % Change show major fluctuations in the year 2012, with loans. Traded Value ($ 000) 515,373 408,499 -20.74%

Traded Volume (000) 77,504 55,034 -28.99% Interest Rate Levels December 2011 November 2012 December 2012

LBP USD LBP USD LBP USD Market Capitalization ($ Million) 10,285 10,421 1.32%

Average Rate on Deposits 5.63% 2.83% 5.38% 2.85% 5.41% 2.86% Traded Value/Market Capitalization 5.01% 3.92%

Term Savings & Deposits Rate 5.91% 3.31% 5.79% 3.31% 5.78% 3.35% Turnover Ratio 4.62% 3.27%

Discount & Loans Rate 7.38% 7.02% 7.11% 7.09% 7.07% 6.87% Weighted Average P/E 8.42 7.53

Source: Banque Du Liban, Credit Libanais Economic Research Unit Weighted Average P/BV 1.12 1.00

Source: BSE, Credit Libanais Economic Research Unit

Further on Lebanon’s interest rate environment, the at end of year, from 7.09% as at end of year 2011. The Association of Banks in Lebanon (ABL) lifted the Beirut ABL has similarly urged banks to raise rates on U.S. Evolution of Beirut Bourse Cumulative Trading Activity Reference Rate on lending in Lebanese Pounds on Dollar lending sequentially throughout the year, with the 600,000 10450 several occasions during the year 2012, raising the Beirut Dollar Reference Rate upwardly revisited by 108 500,000 10400 400,000 LBP/BRR rate by 135 basis points (bps) to 8.44% as bps y-o-y to 5.76%. 10350 300,000 515,373 10300 200,000 Market Capitalization (million USD) 408,499 10250 100,000 77,504 55,034 Traded Volume (million USD) Traded Value (million USD) 0 10200 December 2011 2012 Source: Higher Customs Council, Credit Libanais Economic Research Unit

26 Annual Report 2012 Credit Libanais Group 27 02 Corporate Governance

Corporate Governance Framework 30

Board of Directors 34

Management Committees and Governance Structure 36

Group Structure 42

Board and Management Committees 44

Organizational Chart 46

At Credit Libanais Group, we recognize the importance of good Corporate Governance to ensure sustainability and safeguard the interests of all stakeholders. Corporate Governance

Corporate Governance Framework Corporate Governance Framework and Guidelines

Corporate Governance and International Bodies practices. ABL adopted a Corporate Governance Foreign Account Tax Compliance Act (FATCA) was Guidelines Guidelines (ABL CG Guidelines) in January 2011 to enacted into the United States (US) law on March complement the regulations issued by the BDL. 18, 2010 and the related regulations were issued Corporate Governance involves the manner in which a Bank is governed by on January 17, 2013. FATCA provisions target US its Board and Senior executive management, which affects how they: (i) set Banque Du Liban (BDL) updated, in March 2012, BDL persons who maintain financial accounts, deposits o the Bank’s strategy and objectives; (ii) determine the Bank’s risk tolerance/ Basic Circular N . 106 covering Corporate Governance and investments, outside the US. FATCA introduces o appetite; (iii) operate the Bank’s business on a day-to-day basis in a safe in conventional banks, BDL Basic Circular N . 118 the concept of the Foreign Financial Institution and sound manner, with integrity and in compliance with applicable laws relating to the Board practices and Board committees, (FFI) which includes any financial institution or bank and regulations; (iv) meet shareholders’ expectations, protect interests of o followed by BDL Basic Circular N . 77 focusing on operating outside the US. Lebanese banks like all FFIs depositors, and take into account the interests of all other stakeholders; and internal controls. Moreover, the Banking Control worldwide are required to comply with FATCA within (vi) follow effective disclosure and transparency policies. Commission (BCC) of Lebanon issued Circular the timeline set by the applicable laws and regulations No. 271 in September 2011, setting guidelines for In addition to best practices, the Basel Committee on Banking Supervision and the agreements. With FATCA, FFIs shall have (BCBS) published in 2006 revised principles to assist banking supervisors in the implementation of internal controls system. responsibilities of identifying US tax payers among their promoting the adoption of sound Corporate Governance practices by banking clients, and of reporting to the US Internal Revenue Anti-Money Laundering and Counter Financing of organizations in their countries. The principles also serve as a reference point Services (IRS) names and accounts information. Terrorism (AML/CFT): BDL issued, in April 2012, for the banks’ own Corporate Governance efforts. BDL Basic Circular No. 126 setting guidelines on the In this respect, Group Credit Libanais abides by all The BCBS issued the Principles for Enhancing Corporate Governance in relationship between banks and financial institutions above mentioned circulars and has also established a October 2010. (FIs) and their correspondents. It requires these entities dynamic action plan aiming at complying with local and to implement the regulations for the control of financial international Corporate Governance standards. Transparency is a major element that allows shareholders, stakeholders and and banking operations for fighting money laundering market participants to effectively monitor and hold accountable the Board and terrorist financing, particularly for those customers Group Credit Libanais’ Commitment to Corporate and senior executive management. Such a process creates confidence and seeking to engage in cross-border transactions or to Governance establishes an environment of trust across the organization. utilize correspondent banks. Credit Libanais Group is committed to safeguarding the interests of all stakeholders and recognizes Corporate Governance and the Lebanese Regulations Basel III and its implementation: the BDL amended the importance of good Corporate Governance and Guidelines Basic Circular No. 44 dated December 7, 2012 for its sustainable success. The Bank recognizes Given the important financial intermediation role of banks in the Lebanese requesting from banks and FIs the early adoption that transparent disclosure of its governance helps economy, and the positive effects of sound governance on public trust and on of Basel III standards. Basel III strengthens micro- stakeholders assess the quality of the Group and its sustainability of banks, 2011 witnessed a renewed interest by the Association prudential regulation and supervision, and adds a management and assists interested investors in their of Banks in Lebanon (ABL) and the regulators for banks’ Governance macro-prudential overlay that includes capital buffers. investment decisions.

30 Annual Report 2012 Credit Libanais Group 31 Corporate Governance

Group Credit Libanais’ Governance framework and deviations are reported to an appropriate level of been established throughout the organization with responsible for the development of the Group’s that of its major banking subsidiaries encompass a management and, in case of material deviations, to the effective channels of communication to ensure investment policies, market risk, interest rate risk in considerable number of policies, charters, codes of Board. implementation of core Group strategy. the banking book, liquidity risk, the hedging of foreign conduct and regulations that cover key areas in our The AML/CFT Department implements strict policies Our employee handbook sets the rights and duties exchange exposures of capital investments abroad, Corporate Governance culture. Those include: Board and procedures to manage the fighting against money of employees. It also incorporates Credit Libanais’ managing capital ratios, and the Group-wide capital practices, senior executive management, audit, risk laundering and CFT. The Bank ensures regular and code of conduct, which outlines the basic principles requirements. management and internal controls, compensation, timely update of the KYC forms on yearly basis. Any of business ethics and requirements to ensure that The Group is currently embarking on a strategic CSR corporate structures, compliance, remuneration, suspicious cases or transactions are immediately the Bank’s activities are conducted with integrity and Project to ensure sustainability is embedded in all succession planning, performance evaluation, code reported to the Special Investigation Commission. The honesty. Employee handbook is made available to all aspects of our business. of conduct, as well as disclosure and transparency. Bank (i) ensures continuous training of relevant staff staff and new recruits on the Bank’s intranet portal. Audit, Risk Management and Internal Controls Moreover, Credit Libanais’s structure, functions and and bank officers on AML/CFT measures; (ii) regularly A disciplinary council was appointed to regulate lines of communication support dissemination of reviews the procedure regarding money laundering and any staff behavior breaching the Corporate Values The Bank’s Audit, Risk Management and Internal Control functions have the necessary authority, stature, corporate strategy at all levels of the organization. Our terrorist financing regulations; and (iii) maintains a risk- of CL Group. The council is responsible for taking independence, resources and access to the Board to carry Bank adopts and implements corporate governance based approach to classify customers and operations. corrective action in order to ensure that our culture of out their duties in an independent and transparent manner. practices, set in its Code of Corporate Governance, In addition, the AML/CFT Department ensures that, trust is disseminated amongst all employees. The Bank’s Audit, Risk Management, Compliance disseminated to staff and made available on the Bank’s when establishing a relationship with a correspondent Our compensation system’s is constantly reviewed and Internal Control infrastructures keep pace with any website. bank, the latter is not a shell bank, has a good to ensure adequate compensation decisions and further reputation, is subject to good control and implements alignment with the Group’s culture, long-term business changes to the Bank’s risk profile, including its organic Group Credit Libanais’ Approach to Implement sufficient and appropriate procedures with regard to and risk strategy, performance and control environment, and international growth; Corporate Governance Practices fighting money laundering and terrorist financing. as well as legal or regulatory requirements. Risks are identified, assessed and monitored on an Credit Libanais Group CG Practices encompass: In 2012, the AML/CFT Department put in place an A performance matrix system ensures adequate ongoing bank-wide and individual entity basis; A periodical update of organizational rules which action plan for the Implementation of FATCA law within remuneration of our best performing employees. An open and timely internal communication within determine lines of authority, rights, responsibilities and the timeline set by the applicable laws and regulations Branches and other head office departments have the Bank concerning risk, audit and compliance is ensured, both across the organization and through key activities. The Board is structured in terms of size, and the agreements. seen their performance evaluated according to this reporting to the Board and senior executive management. frequency of meetings and the support of specialized Transactions with related parties are reviewed to performance matrix, which initiated and strengthened committees, to promote efficiency, deep review of the performance culture. assess risk and are conducted at arm’s-length terms Dividend Policy business matters and a robust and critical discussion of and approved by the Board and shareholders in Complying with all the reporting requirements Upon recommendation of the Board and approval of issues. compliance with the Code of Money and Credit (CMC) set by the regulatory authorities, Credit Libanais the General Assembly, Credit Libanais Group enjoys a Credit Libanais Group abides by the quantitative and and the Code of Commerce (CC). ِA summary of such Group’s annual report has become richer in terms of track record of dividend payments on common shares, qualitative requirements of the third pillar of the Basel transactions are disclosed in the Financials section. disclosure and information. The Bank’s internet website for the past twelve years, demonstrating the Bank’s accord and its subsequent updates. Credit Libanais Group reporting is in accordance with is also constantly updated with pertinent information sustainability and value creation to shareholders. The Compliance function within the Group, among International Financial Reporting Standards (IFRS). relevant to all stakeholders. other things, routinely monitors compliance with laws, This provides for a high degree of transparency and The Group Asset and Liability Management (ALM) Corporate Governance rules, regulations, codes and facilitates comparability with international peers. function supports the capital management process, policies to which the Bank is subject and ensures that Clear lines of responsibility and accountability have which is governed by the Group ALCO. ALM is

32 Annual Report 2012 Credit Libanais Group 33 Corporate Governance

The Risk Committee’s main mission is to advise quarterly, or more frequently as needed. Board of Directors the Board on the Bank’s overall current and future risk tolerance/ appetite and strategy, and provides The Credit Policy Committee’s main mission is to set the Bank’s lending policies at the level of Group approved charter that sets out its mandate, scope and oversight of senior executive management’s activities Composition of the Board of Directors CL, in line with the Board’s objectives. The Credit working procedures. in implementing strategies for capital and liquidity Dr. Joseph Torbey. Chairman - General Manager : management, as well as credit, market, operational, Policy Committee defines credit risk strategies, policies H.E. Mr. Marwan Hamade, CIH Bahrain Members : The Corporate Governance, Nominations, Human compliance, reputational and other risks of the and limits for the efficient management of the various International Holding sal represented by Mr. Abdullah Resources and Compensation (CGNHRC) Bank. The effectiveness of the Risk Committee is counterparty risk exposures, industries, aggregate Saudi, Mr. Hassan Haykal, Mr. Mohamad Wajih El-Bizri, The Committee’s main mission is to: (i) oversee senior further enhanced by receiving formal and informal exposures by product, segment of activity and country Mr. Yasser Mallawani, Mr. Rabah Jaber, Mr. Rabah executive management’s implementation of the Bank’s communication from the Bank’s Risk Management and exposure on a stand-alone and consolidated basis. Idriss, Mr. Sarkis Demerdjian, Mr. Mohamed Arafa, Mr. Corporate Governance Framework, principles and Chief Risk Officer (CRO). The Risk Committee Charter The Committee meets at least once a year, or more Ramzi Zaki, Dr. Michel Khadige. corporate values, including the Code of Conduct; (ii) satisfies BDL Basic Circular No.118, as amended on frequently as needed. Group Credit Libanais is governed by a Board provide recommendations to the Board for the nomination April 21, 2011. The Risk Committee meets at least once consisting of twelve members. Current Board Members of new Directors and members of senior executive are leading bankers and businessmen from Lebanon management; (iii) oversee the Human Resource Policies; and the region, and are elected by the General and (iv) oversee the compensation system to ensure that Shareholders’ Information Assembly of shareholders for a term of three years. compensation is commensurate with performance and The following table sets out the composition of the holders of the Common Shares, as of December 31, 2012 consistent with the Bank’s values of integrity, long-term The Board considers that it is of an appropriate size Country (Ultimate business and risk strategy, performance and compliance Shareholders / Group of Shareholders Economic Ownership) Percentage Ownership(1) to oversee the Group’s businesses, with a suitable (2) environment. The CGNHRC Charter satisfies BDL Basic EFG Hermes CL Holding sal Lebanon 63,74% diversity of backgrounds and a mix of experience and o Circular N .106 dated 26 July, 2006 and amended on 21 (3) CIH Bahrain International Holding sal Lebanon 25,20% expertise to maximize efficiency. April, 2011. CGNH meets at least once a year, or more Over 1,000 shareholders(4) Majority Lebanese 11,06% To fulfill its Corporate Governance responsibilities, frequently as needed. Total Shareholding 100% Group CL Board has established a governance (1) The Audit Committee’s main mission is to assist Percentage ownership figures represent both Common Shares owned by the named Shareholders and are expressed as a percentage of the total structure which contributes to the effective oversight number of Common Shares issued and outstanding.

the Board in its responsibilities, in terms of: adequacy (2) EFG Hermes CL Holding sal is the major shareholder. of subsidiaries, as discussed in greater detail in Group of accounting and financial reporting policies, (3) CIH Bahrain International Holding sal, majority owned by Capital Investment Holding Manama Bahrain (99%). CL Organization Chart hereafter; ensures that enough internal control and the compliance system. The (4) More than 1000 other holders of shares, including mainly executives and employees of the Bank, each with less than five per cent. resources are available for each subsidiary to meet Audit Committee also recommends the appointment, both Group and local governance standards; and compensation, effectiveness and dismissal of external is equipped with the appropriate means to monitor Management Committee auditors; ensures independence and effectiveness of the the compliance of each subsidiary with applicable internal audit function; reviews and approves the audit President Dr. Joseph Torbey Chairman - General Manager governance requirements. scope and frequency; and ensures that senior executive Members Dr. Michel Khadige Deputy General Manager - Group Corporate Banking and Financial Institutions During 2012, no changes occurred to the Board of management is taking necessary corrective actions in Mr. Michele Cherenti Deputy General Manager - Group Retail Banking and Branches Directors’ composition. The current Directors were a timely manner to address control weaknesses, non- Mr. Georges Gerios Deputy General Manager - Group Operations and Support Services reelected at the meeting of the General Assembly compliance with policies, laws and regulations and other Mr. Georges Karkabi Deputy General Manager - Group Investment Banking of shareholders held on March 29, 2012. The Board problems identified by auditors. In addition, the Audit Mr. Anthony Ussher Deputy General Manager - Group Electronic Banking serves for a term expiring on the date of the General Committee oversees the establishment of accounting Assembly (expected in 2015) that will examine the policies and practices by the Bank. The Audit Committee Mr. Elie Abimrad General Controller - Group Internal Audit accounts and activity of the year 2014. Charter was revised in accordance with BDL Basic Mr. Alexandre Salem Deputy General Manager - Group Treasury, Capital Markets and Private Banking o Circular N .118 dated July 21, 2008, and amended on Mrs. Nada Awad Rizkallah Deputy General Manager - Group Risk Management and Strategy Board Committees April 21, 2011. External auditors are appointed for a Mr. Badih Azzi Assistant General Manager - Group Human Resources Management To properly carry out its duties, the Board is supported renewable period of three years, with the partner rotation Mr. Alain Hakim Assistant General Manager - Group Marketing and Business Development by the Corporate Governance, Nominations, Human principle applying for a maximum period of five years in Resources and Compensation (CGNHRC) Committee, line with BDL Basic Circular No.122 dated August 13, Mr. Nagib Ghanem Assistant General Manager - Group Information Technologies the Audit Committee, the Risk Committee, and the 2009. Audit Committee meets at least once quarterly, or Mr. Charbel Mourad Assistant General Manager - Group Finance Credit Policy Committee. Each Committee has an more frequently as needed. Secretary Mrs. Nina Elhajj Srour Manager - Corporate Projects and Publications - CEO Office

34 Annual Report 2012 Credit Libanais Group 35 Corporate Governance

CL’s various committees are established with clear Foreign Entities Committee management development, training and education, staff Group Credit missions, authorities and responsibilities. The turnover, mobility, performance appraisal, succession The Foreign Entities Committee responsibilities are to Committees’ respective authorities are of decisive planning career path and staff merits. It reviews and approve the foreign entities’ annual business plans, Libanais and consultative nature, where all recommendations approves the compensation policies and all rewards review their quarterly business performance, compare that require Board approval are submitted through and incentives to be provided to staff and defines the Management the Chairman - General Manager for review, decision- them to pre-set benchmarks and evaluate their risk standards and criteria for performance management. making or ratification. The Board remains aware of all exposure. The Foreign Entities Committee also reviews This Committee also proposes the annual budget for Committees the decisions governing the Bank’s overall activities the foreign entities’ compliance with applicable laws and training and development to the CGNHRC Committee. as submitted and recommended by the various regulations, their internal and external audit reports, the The Human Resources and Training Committee and Committees. host country’s control bodies reports and provides the convenes quarterly or more frequently as needed. Board with an official report on the foreign entities’ risk- Governance Management Committee based performance. This Committee places emphasis Sales and Business Development on the on-going monitoring of foreign entities’ risk The Management Committee regularly reviews the Committee management, anti-money laundering and information Structure growth and performance of the Bank against the The Sales and Business Development Committee security, and convenes at least quarterly or more approved budget, and proposes corrective actions, is responsible for the introduction, maintenance and where and when applicable. Management Committee frequently as needed. promotion of the Bank’s various products and services also ensures the execution of the Bank’s policies and to existing and new large customers. It supervises the procedures as approved by the Board. It proposes Human Resources and Training development of new products and services with the aim long-term policies and objectives, including business Committee of ensuring that they meet customers’ needs as dictated development projects to the Board for its review and The Human Resources and Training Committee is by market and competitive conditions. This Committee approval. This Committee plays a key role in ensuring responsible for establishing the policies and procedures is also responsible for generating new profitable the participation of key employees in managerial pertaining to human resources management and products and services and for analyzing the expected decision-making by means of regular communication overseeing the execution of the Bank’s human income and return of such products and services. and liaison with all regional managers. Results resources short and long-term plans. This Committee The Sales and Business Development Committee is of operations and the allocation of key corporate supervises the orientation programs and training responsible for designing and implementing the Bank’s resources, in accordance with the strategic plan courses of newly recruited and existing staff. It is also overall advertising strategy, approving advertising approved by the Board, are also discussed and responsible for discussing all matters pertaining to campaigns, and monitoring results and feedback. This analyzed by the Management Committee which meets personnel welfare (such as medical care, insurance and Committee meets quarterly and upon launching new at least quarterly or more frequently as needed. reimbursement of work-related expenses), staff and products and services.

At our Group, Transparency and Compliance are the pillars of our sustainable development.

36 Annual Report 2012 Credit Libanais Group 37 Corporate Governance

Banking Group Information requirements, coordinate BCP development and testing responsible for developing plans for investment banking Risk Committees Technology Steering Committee in close coordination with all local and foreign entities, activities, according to their specialization. It is the Group Asset and Liability Committee businesses and support units; conduct business impact responsibility of this Investment Committee to consider, The Banking Group Information Technology Steering (ALCO) analysis and risk assessment, identify critical activities discuss and approve mergers and acquisitions, equity Committee sets the general strategies and policies and geographies; develop and propose recovery and loan participants, and other investment issues of The ALCO is the body responsible for managing and for developments relating to banking information strategies and BCP documentation; ensure adequate strategic financial importance and the major investment controlling the Bank’s balance sheet and income technology, in accordance with the Bank’s master communication and training is maintained within the opportunities available to the Bank with respect to real statements and formulating the general financial strategic plan. It oversees the implementation of Bank; ensure BCP maintenance; and provide regular estate acquisitions and major property developments strategy of each business unit by identifying, measuring any banking technology development mechanism progress reports in relation to the BCP to senior and improvements. and managing inherent financial risks. The ALCO (such as acquiring new IT systems and ensuring that executive management of the Bank. BCP Committee reviews all activities of the Bank which have an impact they comply with IT security and user acceptance meets quarterly or more frequently as needed. on all balance sheet items. The ALCO focuses on risks procedures). The Banking Group Information and strategic issues relating to interest rate monitoring, Technology Steering Committee’s main objectives are ISO Executive Committee liquidity management and market risks, as well as their to ensure the adequate functioning and development control and mitigation. The ALCO reviews and validates of information technology systems in line with the The ISO Executive Committee oversees the all relevant policies and procedures and ensures their continuous development of systems, applications and development and implementation of the Bank’s Quality compliance with regulatory guidelines pertaining to services to support the Bank’s expansion plans. The Management System and assists in the continuous liquidity risks, investment portfolio risks, interest rate Committee convenes quarterly or more frequently as improvement and long-term effectiveness of quality needed. systems impacting the performance of every division and foreign exchange risks, market risks, political and of the Bank. The ISO Executive Committee ensures country risks, risks relating to the pricing of loans and Business Continuity Planning (BCP) that the quality policy remains efficient and complies deposits, profitability risks, and risks of unrealized Committee with the Bank’s business requirements. It also provides gains and losses resulting from long-term positions, a framework for establishing and reviewing quality prior to submitting such policies and procedures to the The primary objectives of the BCP Committee are to objectives at all levels of the Bank’s business and Board for final approval. ALCO meetings are held on a ensure continuity of service to the Bank’s customers, support units. ISO Executive Committee meets once a monthly basis, or more frequently as needed. in an efficient and timely manner, safeguard the year or more frequently as needed. interests of its principal shareholders and mitigate negative effects deriving from eventual disruption of the Credit Committees Bank’s activities. The main responsibilities of the BCP Investment Committee The Bank has a number of Credit Committees with Committee are to propose BCP policies, recommend The Bank has a Financial Investment Committee and a different levels of lending authority, depending on the priorities, establish plans to meet business continuity Real Estate Investment Committee, each of which is business segments concerned and the type, amount

38 Annual Report 2012 Credit Libanais Group 39 Corporate Governance

and nature of the counterparty exposure. Credit the adequate credit decisions in light of the comments and ensures that adequate procedures exist in order the Bank’s internal and external auditors and the Committees are responsible for ensuring the adequacy provided by independent credit risk analysts from to check all the Bank’s customers and transactions. BCC, ensuring that corrective actions are taken by of the Bank’s lending policies and that the lending the Credit Risk Management Department, ensuring It closely examines and monitors suspicious cases relevant parties to comply with audit and regulatory origination process is in accordance with the Bank’s compliance with the credit risk policies set by the Board. and takes pro-active steps in the prevention of money recommendations and requirements. This Committee credit policy and in compliance with the applicable laundering or fraudulent activities within the Bank. The convenes at least once quarterly. laws and regulations. The Credit Committees’ approval Financial Institutions Credit AML/CFT Committee also reports suspicious cases to process is in line with the Risk Management guidelines Committee the Special Investigation Commission at the BDL and is Basel Committee and the lending policies set by the Bank’s Credit Policy The Financial Institutions Credit Committee approves responsible for providing regular updates of AML/CFT The Basel Committee is responsible for following-up Committee. Credit Committees meet regularly and the Banks and Financial Institutions with which Credit procedures and training to the Bank’s management on the action plan for the implementation of Basel II/ maintain minutes of meetings to ensure the transparent Libanais deals and those with which the Bank intends and employees. This Committee meets at least once III across the Banking group and for providing regularly and disciplined implementation and monitoring of to enter into a business relationship. The Committee quarterly, or on a need basis. updated progress reports. With respect to Pillar 1, their decisions by the business owners and under the defines also the credit lines to be granted for each the Basel Committee monitors and reports on the supervision and control of the Credit Administration entity. The Financial Institutions Credit Committee’s Banking Group Information Security choice of the application methods for the calculation and Control departments that report to the Credit Risk decisions are compliant with applicable laws and Committee of the total minimum capital requirements for credit, Management Department. The presence of the Credit regulations and are in line with the Board’s strategic The Banking Group Information Security Committee market and operational risk, in line with the regulatory Risk Management Department forms an integral part objectives and the Group’s credit policy. The Risk reviews and approves the Group information security directives and regularly updates the action plan for of the credit approval process through the participation Management Function is an integral part of the approval strategy, sets security policies and procedures on the implementation of Basel II/III. With respect to Pillar of the Head of Risk Management and Strategy or process of the Financial Institutions and the monitoring matters related to information security and privacy 2, the Basel Committee works to ensure that there a representative from the Credit Risk Management of the Committee’s decisions. and proposes them for the approval of the Board. This are adequate relationships and coordination with the Department, as an Observer in the Credit Committees Committee also reviews and approves the scope of regulatory authorities with respect to the validation and as the Secretary for most of the commercial lending Group Anti-Money Laundering (AML) security programs and the related budgets throughout of internal models; to develop an internal capital credit committees. Committee the Bank and its affiliates; monitors significant changes assessment process in order to set appropriate capital Among others, specific Credit Committees include The AML/CFT Committee reviews all relevant on the exposure of information assets to major threats; targets to support all the risks to which the Bank is the Retail Lending Product Committees, the Retail policies and procedures, in compliance with local and reviews information security incidents, providing exposed; and to ensure the implementation of adequate Commercial Credit Committees, the Retail Central and international money laundering laws (including solutions on how to deal with security breaches or risk policies and procedures. With respect to Pillar 3, Credit Committee, the Corporate Central Credit Lebanese Law No.318 dated April 20, 2001 and BDL control overrides. This Committee also recommends the Basel Committee monitors and reports on market Committee and the Recovery Credit Committee. Basic Circular No.83 dated May 18, 2001). It reviews security training programs for the Bank’s staff and discipline and ensures compliance with the regulatory These Committees retain the primary responsibility for the AML/CFT systems adopted by the Bank to control reviews and discusses the assessment reports framework with respect to disclosure requirements. This evaluating the credit applications and taking and prevent money laundering and terrorism financing submitted by the Information Security Department, Committee convenes at least once semi-annually.

40 Annual Report 2012 Credit Libanais Group 41 Group Entities Organizational ChartandGeographicalPresence Group Structure Annual Report 2012 Group GeographicalPresence Credit Libanais External Auditors Advertising Insurance Tourism andTicketing IT Solutions Financial Institutions Banking Collection Services ofReceivables Real Estate Shareholders Board Committees Board ofDirectors Credit Libanaisd’AssurancesetdeRéassurances Credit Libanais Group sal Credit LibanaisInvestmentBank Credit Libanais Lebanese Islamic Bank * CorporateGovernance,Nominations,HumanResourcesandCompensationCommittee 99.86% Committee CGNHRC General Manager

Credit Libanais Investment Bank sal Lebanon Credilease Chairman sal * -Group sal sal sal sal 99.83% Committee Risk Lebanese Islamic Bank sal Committee 92.82% Audit Credit International sa - Senegal Limassol Branch Cyprus Credit Policy Credit Policy Committee 99.26%

Credilease sal 47.00%

Soft Management sal Credit International All subsidiariesareincorporatedinLebanon,exceptforCreditInternational 99.99% Corporate BankingandFinancialInstitutions

Hermes Tourism and Travel sal Senegal Treasury, GlobalMarketsand Retail BankingandBranches Wealth Management Electronic Banking Legal sa -CISA 66.97% Credit Libanais d’Assurances et de Réassurances sal Manama Branch Bahrain

Group Business Lines 98.62% ISO ExecutiveCommittee Security Committee Banking GroupInformation Committee Business ContinuityPlanning Development Committee Sales andBusiness Foreign EntitiesCommittee and TrainingCommittee Human Resources Technologies Committee Group Information Basel Committee Investment Committee Credit Committees Credit Committee Financial Institutions Committee (AML/CFT) Laundering Group Anti-Money and LiabilityCommittee Group Asset Management Committe Business Development Center sarl sa , whichisincorporatedinSenegal. Representative Office 98.00%

Capital Real Estate sal Canada

Group Support and Control Functions Risk ManagementandStrategy Operations andSupportServices Human ResourcesManagement 99.26% Information Technologies Foreign Entities

sal Internal Audit

Cedar’s Real Estate Compliance Finance Erbil Branch Baghdad Branch Corporate Governance Iraq 44.94%

43 42 Collect sal Corporate Governance

Board and Management Committees

Board of Directors Chairman General Manager

Management Committee

Group Asset and Liability Committee (ALCO)

Financial Institutions Credit Committee

CGNHRC* Committee Investment Committee

Audit Committee Basel Committee

Risk Committee Credit Committees

Credit Policy Committee Group Anti-Money Laundering and Counter-Financing of Terrorism Committee

*Corporate Governance, Nominations, HR & Compensation Committee Group Information Technologies Committee

Banking Group Information Security Committee

Foreign Entities Committee

Sales and Business Development Committee

Human Resources and Training Committee

Business Continuity Planning Committee

ISO Executive Committee

44 Annual Report 2012 Credit Libanais Group 45 Corporate Governance

Organizational Chart

Legal Board of Directors Chairman General Manager

- Branch Audit - IT Audit - CLIB Audit Internal Audit - Head Office Audit - Back Office Audit - Overseas and Affiliates Audit - Credit and E-Banking Audit - LIB Audit - Quality Assurance & Improvement

- Risk Policies and Strategy / ICAAP - Market, FI and Country - Information Security Risk - Risk Mgt Project Office /Credit Risk Management Management Risk Management and Strategy Portfolio Mgt / Credit Risk Models - Operational Risk Management - Business Continuity Planning - Credit Risk Management Control Functions - Anti Money Laundering / CFT Compliance - Regulatory Compliance CGNHRC* Committee - Financial Control - BDL Subsidies - Cards Business Accounting - Financial Management - Performance and Budget Finance - Central Accounting - Reconciliation Control Audit Committee ** - Regional Branch Management - Marketing and Business **Riad El Solh Retail Banking and Branches - Consumer Banking and Retail Products Development - Insurance Services Hamra Risk Committee - Commercial Retail Lending and Kafalat - Information Department Kaslik Bekaa and South - Corporate and Medium - Global Business North Business Unit Development - Corporate Projects Credit Policy Committee Corporate Banking and Financial Institutions - Financial Institutions and - Recovery and Publications Correspondent Banking - Public Relations

*Corporate Governance, Nominations, HR & - Treasury Management Treasury, Global Markets and - Private Banking and - Middle Office Treasury Compensation Committee - Foreign Exchange Management Business Lines Wealth Management and Global Markets Wealth Management - Global Markets

- Cards Administration - Merchant Relationship and Operations - Customer Relationship - E-Banking Cards Systems, Electronic Banking - E-Channels and Management (CRM) Applications and Development Customer Service

- Recruitment and Evaluation Human Resources - Compensation and Benefits - Training and Development

- Administration and Support Services - Methods and Procedures - Quality Management - Engineering - Automated Payments - System Implementation Operations and Support Services - Trade Finance - Treasury and Global and Support - Central Processing Markets Back Office

- IT Infrastructure - Implementation and - Network and Communication Support - Regulatory Reporting

Information Technologies Support Functions - Software Development - MIS Reporting

- Cyprus - Iraq - Bahrain Foreign Entities - Canada - Senegal

46 Annual Report 2012 Credit Libanais Group 47 03 Core Banking Activity

Retail Banking 50

Electronic Banking Services 58

Corporate Banking 68

Investment Bank (clib) 74

Group Treasury, Capital Markets and Private Banking 80

Close to our customers, we offer a myriad of products and services designed to make their banking experience best fit to their needs and lifestyles. Core Banking Activity

Retail CL Retail Banking Strategy Credit Libanais’ focus on development continued to Since our establishment more than 50 years, we to sustaining business activities, economic growth and Banking be interpreted in such a way as to meet the needs of continuously endeavor to achieve growth targets job creation. the present, without compromising the ability of future without compromising portfolio quality, in parallel with The quality of life of future generations, the generations to meet their own needs; emphasizing sustainable profitability. In 2012, we pursued this vision enhancement of all stakeholders’ value and social sustainable development principles that mitigate future and further innovated solutions that meet the 24/7 responsibility have always constituted key factors on risks while developing an enabling environment with needs of our individual and SME customers throughout which CL’s sustainable development in the market is better living standards for future generations became a their life cycles. We also focused our efforts on building based. si ne qua non condition for the Bank’s development, in an environment that respects the delicate balance line with our contemporary banking policies. between nature and society while contributing

Strong Foundation Clear Vision We are one of the most solid Lebanese banks We enjoy a stable and diversified funding base. To maintain a long-term sustainable ROE. We enjoy long term strategic and efficient We have a track record of sustainable profitability and To be the leading bank for individuals and SMEs. management practices return To be the best bank in Lebanon for customer We have an extensive branch network of 70 branches We have superior asset quality with low non experience and satisfaction. all over Lebanon and beyond, backed by integrated performing loans delivery channels We enjoy a potential of high loan growth thanks to We offer pioneering and innovative banking activities low loans/deposit ratio and leverage. that shape the Lebanese market.

We aim to remain the most dynamic and admired retail bank, one that constantly delivers outstanding customer experiences.

50 Annual Report 2012 Credit Libanais Group 51 Core Banking Activity

2012 in Review needs: housing loans showed a healthy 23.62% growth; Commercial Retail Lending and the competitiveness of SME businesses such as Iskan loans increased by 10.36%; personal loans by Kafalat subsidized loans, Banque Du Liban “incentive loans”, The Retail Banking Division, the core activity of the 10.45%; military Iskan loans by 21.58%. and Kafalat loans. Bank, has once again achieved continued growth and The Commercial Retail Lending and Kafalat department good performance in 2012 in spite of more complex and Consumer products followed a tailored strategy within constitutes the lending arm of the Bank responsible for We join forces with our widespread geographical deteriorating local, regional and international conditions. the current market conditions which mainly targeted small and medium sized businesses. In the Lebanese network of branches that reach SME customers the activities of existing customers and renewed economy, this segment accounts for the biggest market wherever they are in the country. Our efficient team of The generated total lending of the retail banking division partnerships only with counterparties that ensured the share. account managers and heads of units understand well (including commercial lending and products) contributed minimum strategic return. This process led to a more the business needs, which enables them offer suitable to over 54% share of the total Bank, similarly to the selective basis for guaranteeing quality and profitability We aim to create value for SME customers with our facilities and speak the same language as the SME previous year. More specifically, total retail products rather than broadening the customer base in the extensive and geographically widespread branch customers. represented over 41 % of total lending of the Bank while continuing current economic contraction. Consumer network and our skilled team of heads of units and retail commercial lending represented 12% of the total loans and car loans followed the same pattern thus account managers, dedicated to understanding the 2012 in Review lending of the bank, with specific focus on the public improving profitability at a time of economic contraction needs of the SME customers and to offering the best The year 2012 was a challenging year due to the sector. where profit margins of banks are substantially suited facilities and products to meet their needs and complicated political environment in the region; we eroded. In parallel, appropriate actions were taken to ultimately create value to their businesses. followed a prudent lending strategy by focusing on The growth continued to be the expression of the further explore new areas and potential new strategic selective well performing sectors in the economy. The equilibrium in composition of all presumed strategic We conduct our business based on core values, which customers. retail commercial lending department thus achieved consist of providing our customers with quality services, business lines in the current prevailing market a growth of 8% in outstanding funded facilities and by understanding their business needs and offering conditions: net banking income contribution to the Based on the centricity of the customer at the core 24% in outstanding un-funded facilities, supporting tailored products to match those needs in an effective Group continued to be the significant share of 36.4% of the Bank activity, above results were recorded documentary credits, and letters of guarantee. while engaging 19.8% of total assets. domestically owing to the focused management of and proactive service, with the objective of achieving portfolio quality, and the channeling of services across mutually beneficial and lasting relationships. Bancassurance The strong lending activity was boosted by a growth of the Group’s extensive network of 66 branches in deposit of 10.62% higher than that of the banking sector Having value creation as our ultimate objective, we Majorly supported and provided by retail banking Lebanon. In fact, average percentage of total sub- of 8.46%. strive to provide SMEs with the best fit facilities to activity as the origination channel, bancassurance standard but not doubtful products combined recorded expand their contribution in the economy. Tailored products continued to witness sustainable growth in 0.94% of total portfolio, while NPL continued to remain In parallel, commercial lending or Small and Medium packages oriented towards agriculture, manufacturing, 2012, namely deriving from total fee and commission well below the industry standards, due to the efficiency Enterprise (SME) outstanding portfolio increased by wholesale activities and tourism are created, following a income. in tight monitoring and controlling embedded in the 4.2%. careful analysis of customers’ needs. activity as a whole. On the other hand, retail lending In an effort to deliver insurance products to customers On the products front, with a global increase of 9%, NPL reached 3.51% of total retail portfolio, of which The Commercial Retail Lending and Kafalat department through the Group’s numerous distribution channels, the Bank continued to confirm its leadership on the 93% are covered by provisions. is also dedicated to offering long term loans destined to we actively engage our branches and alternative market through the satisfaction of customers’ primary expand the production capacities and improve distribution channels to offer insurance products to

52 Annual Report 2012 Credit Libanais Group 53 Core Banking Activity

customers to cover risks surrounding their assets, We adopt an effective and delivered by the sales force team thus ensuring purchases with their cards, and as a result, one of our health, life, payment and savings. proper delivery of cards and enhancing the relationship valuable customers won a trip for 2 persons to spend approach to serve our between customers and the Bank through direct contact 4 magic days in London and attend this big sporting In 2012, in addition to the consumer banking segments, and cross selling. event. we made major strides toward launching insurance customers, by using sales, products to SMEs, commercial and corporate segment Loyalty Program and Visa The lucky Credit Libanais winner received his prize customers. services and solutions Campaigns during special celebrations held at Credit Libanais Bank, in the presence of the General Management. Marketing and Business techniques delivered In order to reinforce customer loyalty, Credit Libanais’ Development throughout the Bank’s loyalty program offers its card users the tremendous Customer Relationship Management opportunity of being rewarded by earning points each Strategy (CRM) various distribution channels. time the card is used at a point of sale. We strive to deliver an outstanding customer Credit Libanais’ main strategy is based on a market segmentation analysis that enables it to target niche experience based on excellence in sales, services and New merchants joined Credit Libanais’ loyalty program markets that exhibit similar needs and purchase solutions. We also developed an effective approach Sales Force Team cardholders with the purpose of offering exceptional behavior. This strategy is applied by creating consistent to serve retail and corporate customers, by using By implementing a sales strategy based on Credit privileges and rewards for every purchase made with customer interaction through an integrated and innovative sales techniques through the Bank’s Libanais’ lines of products and the economic sectors their cards. With our loyalty program, customers can intelligent tool such as the Customer Relationship various distribution channels, to further enhance the financial needs, the sales force team carried out in travel for free anywhere, anytime, and with any airline Management (CRM). Throughout the continuous customer experience at Group level. We consistently 2012 the development of the sales activity to improve company; select valuable gifts from famous retailers; Marketing/CRM campaigns based on precise database and predictably support sales and profit goals through the cross selling ratio and satisfy the growing market benefit from insurance services; or settle their bills with segmentation of public and private sectors, the Group efficient efforts and constant creation of new streams of needs. Productivity and effectiveness are supported the accumulated points. The loyalty scheme motivated products portfolio increased and a comprehensive products. by a segmentation approach by region and product. cardholders to use their cards more frequently and picture of customers’ responses is built. Marketing In 2012, the sales force team’s increased contribution resulted in an increased redemption rate of 29% In view of deploying our strategy, we develop and campaigns using the CRM/CMS tool and targeting retail to the Group’s sales results was satisfying, taking into in 2012. With a view to playing an active role in maintain a sales management system that allows our customers with personal, Iskan, housing, or car loans consideration the global market uncertainties. While developing the usage of cards, Credit Libanais once representatives to efficiently conduct their visits and and with deposit accounts resulted in more than 1500 focusing on corporate customers leading to a significant again took part in a new campaign launched by Visa achieve their targets. Also, by maintaining a business classic, gold and platinum credit cards being issued; evolution in corporate lending through the Sales force International from January 5th till March 5th 2012 aimed environment that develops pride in the Bank and in 20% of personal and car loans being renewed; Team. at increasing card usage. Every time cardholders used confirms the value of long-term relationships, we give and more than 400 customers being approached for Credit Libanais Visa cards during the promotion period each individual the opportunity to better achieve their commercial loans. The sales force team also maintained the ongoing at any point of sale across Lebanon or abroad, they got professional goals. Teamwork and cooperation among credit cards campaigns targeting private and public the chance to enter a draw and win a trip to the 2012 divisions and departments are our values to deliver The Public Sector sectors customers with salary domiciliation at Credit Olympic Games in London. superior quality services. Libanais, granting a pre-approved Vantage card based Credit Libanais attained a high volume of salary on specific criteria. More than 1,500 cards were issued Such a move motivated Visa cardholders to settle their domiciliation as a result of its medium and long term

54 Annual Report 2012 Credit Libanais Group 55 Core Banking Activity

Relying on our muti channel delivery network, we ensure a two-way communication with our existing and potential customers.

marketing strategy as well as its extensive domiciliation by supporting the implementation of a Medical Center Relation Management (CRM), internal and external stations which allowed us have easier access to campaigns that covered most of the Lebanese territory dedicated to the Lebanese Army and by the installation research partners. Based on this continuous gathering the largest number of listeners. We also reserved a and which mainly targeted the ISF, the Lebanese Army, of compounds destined for the women’s police force of data and information, several reports are regularly considerable amount of advertising space in the printed the General Security and other Military Institutions. unit. We also initiated the development of special credit produced and distributed to various business units. media and online advertising and maintained a strategic These campaigns enhanced Credit Libanais’ market cards with exclusive designs for our armed forces, with strong presence in the public sector market by means share in the public sector in general and in the military profit sharing features enabling the military institutions Customer Educational Activities of marketing partnership campaigns. institutions in particular where the Bank occupies a to benefit from an important contribution to the families Whether looking for value or flexibility, our youth have In 2012, in order to enhance and reinforce our brand leading position. of martyrs. unique banking needs: in 2012, Credit Libanais put perception we redesigned our ads layouts to reflect the at their disposal innovative online self-assessment In 2012, Credit Libanais has designed a special Bank’s dynamic corporate identity. Mystery Shopper and Social Audit and learning courses, thus preparing them to face the personal loan offer targeting public sector employees, Program challenges of their daily life. Customers only needed to with higher limits, longer repayment periods and We remain very concerned with our corporate social The Marketing division continued its mystery shopper hit the Facebook “Like” button to become fans of Credit reduced interest rates. The offer was a success and responsibility and endeavor to communicate our policy in all Credit Libanais branches with new waves Libanais Bank and then fill out an application form to was promoted to public sector entities as well as products and services with good responsible practices that focused on new products. The received feedback access e-lessons for free and receive certificates. This military institutions. The personal loan portfolio granted and community development in mind. constitutes a regular source of information of customer initiative was dedicated to supporting learning and to the public sector registered a y-o-y evolution of 85%. experience, enabling us to further enhance our knowledge development in the fields of communication, We also launched the implementation of the new service levels. The mystery shopper effect during the innovation and creativity, along with time management. e-payment gateway project targeting all Lebanese waves also encourages staff to enhance their product It is worth mentioning that Credit Libanais, at the residents in order to facilitate the payment of their dues knowledge and sales skills, to become more involved initiative of the Training and Development department, to the Ministry of Finance through online settlements, and motivated, and to improve customer service. was the first bank in Lebanon to launch a full-scale in collaboration with Net Commerce. Credit Libanais e-learning program for all the Bank’s employees at all also teamed up with the Management and Exploitation Marketing Intelligence Unit levels in 2011. of Beirut Port to offer practical services to individuals The Marketing Intelligence Unit’s main mission is to and institutions dealing with the Port of Beirut, primarily, present informed reports to support CL marketing Customer Communication Strategy maritime cargo agents and import and export traders. decisions; by regularly organizing, storing, retrieving Relying on various advertising techniques and our multi- This new service launched in 2012 provides customers and analyzing relevant data and information gathered channel delivery network, our Bank’s communication with a convenient means of paying port fees, mainly from various sources, internally and from the strategy aims at delivering added-value to all existing bills of lading, through Credit Libanais electronic competitive environment. The unit utilizes several and potential customers. In fact, we maintained a banking services or at any Credit Libanais branch tools, among which competitive intelligence, media high presence in the media by adopting efficient and across Lebanon. monitoring, collection of news, materials and other pertinent information, customer satisfaction campaigns consistent above the line advertising on major local As part of our social responsibility, we contributed (NPS), accounts follow-ups, and so on; backed by data TV stations during strategic and diversified prime-time towards enhancing the capabilities of military institutions collected from the mystery shopper program, Customer slots. We were also present on the main radio

56 Annual Report 2012 Credit Libanais Group 57 Core Banking Activity

“With our SMS alert service our customers can detect improper use of their cards and be advised of transactions on Electronic their deposits and current accounts.” Banking Services

Strategy Payment Cards and Points of Sale Mobile Payment Services (Pay In our electronic interconnected world, we seek to introduce new and (POS) Solutions Mobey) improved e-Banking services that position Credit Libanais Group as a leader We deliver a full range of products and services related State of the art payment services enabling customers in the banking sector. By promoting products and services in a segmented to card-based electronic payment transactions, added to make transfers from mobile to mobile and pay and targeted manner, we retain the Bank’s customer base with innovative to a variety of solutions for merchants, acquirers and merchants via their mobile phone. Pay Mobey applications that ensure further interactions and generate more value. issuers, be it banks or financial institutions. incorporates innovative and advanced voice recognition

The range of cards includes Debit, Credit, charge in its customer verification technology. The service is Our portfolio of e-banking banking solutions includes: and prepaid products under the Visa and MasterCard embedded within our E-banking services.

Customer Service Centre brands. Our portfolio includes Platinum cards as well as Gold and Classic. All our non-prepaid Visa products Mobile Banking We operate an advanced Customer Service Center undertaking both are now issued with secure EMV/Chip technology CL has specially designed a mobile application for outbound marketing and inbound customer assistance. Using a combination embedded. Our cards also come with our generous iPhone, Google Android and Blackberry, to facilitate full of human operators and IVR Technology, our call centre offers a full range Loyalty Points program enabling customers to select mobile banking to customers “on the go”. of telephone banking services. In addition, operators are equipped to from a wide number of awards proportional to their card communicate with our customers using online chat, Facebook and Twitter and spending. We also work with partners to ensure they SMS Transaction Alert service for blogs. get the right advice and optimum support to enjoy a Cards and Accounts rapid return on investment. With our SMS alert service our customers can Online Banking detect improper use of their cards and be advised of We provide advanced internet banking solution for personal and corporate Merchant Acquiring Services transactions on their deposit and current accounts e.g. customers enabling them to access their accounts online, make transfers and We deliver efficient, competitive and secure payment salary payments, bill payments etc. payments and review their balance and transactional information. card merchant services, including our advanced Merchant Online service which enables merchants to E-system for Paying Beirut Port ATM Network review their card transactions online and reconcile their Charges We operate a network of some 84 ATMs located throughout the Group payment card activities. To pay and remit storage, customs and clearing branches. All our ATMs feature advanced anti-skimming and fraud charges and other related fees. technologies. Our Network is characterized by an overall uptime in excess Electronic Payment Gateway of 99.5% ensuring that our machines are always available wherever and Solutions whenever needed. We also provide Switch ATM Solutions ensuring an We facilitate the acceptance of electronic payments for excellent service to banks and financial institutions. online transactions ensuring fast and secure internet- based shopping.

58 Annual Report 2012 Credit Libanais Group 59 Core Banking Activity

2012 in Review Libanais’ customers by handling and following up on Digital Hotline (1518) customers’ queries and complaints in a professional Credit Libanais 4-digit Hotline connects customers to a state-of-the-art IVR system allowing The year 2012 witnessed the following improvements manner. on our e-banking platform and services: them to access all our banking services at any time. In 2012, with a view to continuously improve the We developed and implemented a new service for quality of service, we reorganized the E-Channels and With a simple phone call, CL Phone Banking technology enables customers to navigate CL cardholders: the Card Activation Terminal (CAT), Customer Service Department to ensure timely and through a variety of options and perform operations related to their accounts and credit a flexible and secure system installed in branches to accurate delivery of tailored services to customers. cards. speed up the card delivery process. CAT and Chip Card Pin Change on the ATMs enable cardholders to Online internet banking was taken a step further with Customers may also talk to one of our Customer Service Representatives from Monday to create or change their chip card PIN code at any CL the mobile internet banking that accords accessibility Saturday, from 8 am to 8 pm. branch, giving them the flexibility to set the same PIN to customers who can now handle financial on many cards. transactions even while on the move, in a secure and

efficient manner. To our privileged customers, we launched the Visa Banking Cards Services Platinum Debit Card and the Titanium Card. CL strategy of staying “Close to You” has again been Strategy emphasized by the Bank’s presence on Social Media We also obtained the M-Chip certification, allowing Credit Libanais offers a multitude of payment card services customized for our customers channels such as, Facebook, LinkedIn, Twitter, Flickr us to issue Chip MasterCards. and merchants. We have a wide range of services to provide our customers with efficient etc. This enables us to interact with customers and and secure card management, control and fraud monitoring. To allow our private banking customers have real create more connections by interacting with our time access to their portfolio, we enhanced our online community thereby increasing the number CL Wide Array of Cards systems to offer the following services: followers. Credit Libanais offers customers a wide range of convenient features for debit, credit, gift, - Checking the open position at the time of request. The newly redesigned Credit Libanais website was Euro and internet cards usage. An array of cards that suit our customers’ preferences and - Viewing the pending orders. specially conceived to be user-friendly with featured demands are offered through the prestigious Titanium, Platinum, Gold, Classic, Vantage - Obtaining the transactions and the last valuation content to provide customers with the most accurate and Bankernet cards, and the recently launched Platinum debit scheme, under the well- statements. product information. known Visa and MasterCard brands. In addition, we highlighted the existence of the CL E-Channels and Customer Service Our Visa Euro card conveniently facilitates purchases while travelling in Europe. Strategy Group on the web by launching the official website of our affiliated company, Credit Card Management For those with more trendy tastes, we recommend the Cadeau Card. And for our female We constantly innovate our services to facilitate the (CCM). customers, the Ladies First card comes loaded with special privileges and benefits. safe and secure banking experience of our increasingly demanding and mobile customers. The e-Channels and Internet shopping is rapidly growing throughout the world. We offer several convenient Customer Service department assists in attracting new and secure ways to purchase using the internet through our pioneering Net Cruiser customers and maintaining the loyalty of existing ones; and Internet MasterCard products. Our state of the art Verified by Visa (V by V) and in close collaboration with the concerned branches and Mastercard Secure Code features minimize our customers’ risks while shopping online departments, we ensure the satisfaction of Credit using their Credit Libanais cards.

60 Annual Report 2012 Credit Libanais Group 61 Core Banking Activity

Our secure and reliable services, based on innovative technological platforms and our staff know-how, dedication and continuous training are key factors which support our ongoing growth in the card services arena.

For teenagers and university students, we offer Ukrd technological platforms and our staff know-how, and University Smart Card. dedication and continuous training are key factors

which support our ongoing growth in the card services Our prestigious and exclusive Platinum black cards arena. In addition, the growth of our business in are carefully designed to suit our VIP customerele. Visa Platinum Debit future is ensured by continuous innovative marketing We also have several co-branded products with programs run independently and in conjunction with the specially selected retailers and other organizations. major international card brands. These make sure that On the merchant acquiring side, we provide our our business as a whole remains at the leading edge of merchant customers with complete card solutions, the industry in Lebanon. ranging from strategic consulting and business planning onscreen keyboard instead of using a physical to cards program development, loyalty programs, Loyalty Programs Cards Fraud Management and Control keyboard, thus protecting customers against malicious issuing and acquiring and smart card technological To ensure CL cardholders enjoy a rewarding shopping key logger programs. innovations, based on advanced equipment and experience, Credit Libanais empowers customers with a Strategy programs, in strategic alliances with international card world of choices so they can redeem their reward points To cater to the growing card usage and reliance, we industry leaders. Our Bank acquires a multitude of for gifts of their choices. are more and more vigilant on protecting our customers CL “Verified by Visa” and “MasterCard international and local cards such as Visa, MasterCard against fraud. We continuously reinforce our security Customers may fully or partially redeem their Secure Code” services enable an accurate and American Express. Our pioneering role in the features, enhance our fraud detecting systems, loyalty points for tickets, travel packages and hotel Lebanese market in issuing, acquiring and merchant and strive to raise fraud awareness by conducting identification of the online buyer, thus accommodations at Credit Libanais subsidiary “Hermes services depends on the trust of our customer base awareness sessions for merchants and customers. Travel and Tourism”. providing cardholders with safe means to which we have nurtured over many years. This ensures securely shop on the net. the sustainable growth of our payment card business. They may also redeem them to settle their bills 2012 in Review domiciled at Credit Libanais or exchange them for 2012 in Review Card usage is becoming the dominant factor in insurance products from our insurance subsidiary payments these days; however this increase is In 2012, while protection of our customers against Visa International figures for 2012 reaffirm CL’s position “CLA”. accompanied by skimming and fraudulent activities. frauds remains our diligent priority, we continued to as the leading player in the Lebanese market in the In addition to the EMV technology which adds more Moreover, points may be redeemed online from a enhance the following processes and procedures: acquiring business and merchant services in terms secure features to our cards, the SMS alerts proved to large choice of gifts and a wide selection of travel of total market share, (outlets, volume and number of be a convenient way to halt fraud at very early stages. our online fraud detection software was updated to transactions) across the country. Our ATM network is tickets, home appliances, decorative items, personal detect fraudulent transactions in a real time manner. one of the largest and most widespread in Lebanon with accessories, electronics, vouchers, and much more. On the online front, the “Verified by Visa” and the majority of the magnetic stripe cards were a total of 84 ATMs. The number and monetary volume “MasterCard Secure Code” services enable an accurate In 2012, redemption volume increased by 46.7% replaced with EMV chip enabled cards for enhanced of transactions being handled through our ATM network identification of the buyer, thus providing cardholders compared to 2011. security features. continue to rise as convenience and 24-hour availability with safe means to shop online securely. We also become more important to our customers. implemented the Virtual Keyboard technology in all CCM points of sale were made Visa and collaboration with VeriSign providing a safer way to MasterCard EMV capable to accept and process chip Our secure and reliable services, based on innovative perform Online banking operations by using an issued cards.

62 Annual Report 2012 Credit Libanais Group 63 Core Banking Activity

risk management issues further continued to be or agencies to introduce new ways to improve fraud EMV (Europay, MasterCard and Visa) is the global standard for credit and debit card payments. based on analyzing, identifying, and reporting detection.

operational risk to the bank’s risk division. In-depth EMV cards feature an embedded microprocessor chip that stores and protects encrypted research and reconciliation of chargeback cases investigations of suspicious financial activities and continue to be conducted in compliance with account user data. suspected money-laundering actions were taken. allocated time frames, international and local laws EMV is a proven technology: chip cards that have been used in Europe and North America for skimming and ATM Fraud were identified, and control and regulations. measures were put in place. years have proven to dramatically reduce fraud. We shall continue to join efforts with all stakeholders, we continued to coordinate investigative efforts with including our staff, customers, merchants, peer banks law enforcement officers and attorneys. and the police to deter fraud and safeguard the awareness sessions were conducted for businesses interests of all. We continuously reinforce our securities features, enhance our fraud detecting systems, and strive to raise fraud awareness by conducting awareness sessions for merchants and customers. NetCommerce www.netcommerce.com.lb

The Payment Gateway for Internet Credit Card Processing NetCommerce sal has been a leading provider of Internet payment gateway services since 1999, enabling merchants to authorize, settle and manage online in real time Visa and MasterCard transactions for credit or debit cards Easy to Integrate worldwide. NetCommerce offers several options for linking Web sites to the payment gateway. Web merchants can choose the NetCommerce provides complete, simple and secure online payment gateway services and e-business solutions to way that best suits their business needs. Technical documents for integration are available. websites, with real time credit card transaction validation. This enables the websites to transact and accept payments Netcommerce operates through its own technical platform that can be customized at the merchants’ request and online and in real time. according to their needs. The Company’s forecast and expectations for the years to come is to continue gaining significant market share by We are dedicated to serving the industry. acquiring new business markets, and remaining in line with technology by providing payment solutions for high tech emerging businesses such as tablets and mobile technologies. The Best Solution for Selling Online

NetCommerce payment gateway provides complete, simple and secure online payment services with real time credit A Reputation You Can Trust card transaction validation. More than 800 merchants trust Netcommerce to manage their payment transactions. We are the largest payment gateway in Lebanon and are experienced in handling millions of transactions securely and reliably. We process NetCommerce is proud to be PCI DSS (Payment Card Industry Data Security Standard) compliant since March 2010. thousands of US dollars worth of transactions every day for a growing portfolio of Lebanese merchants, from various Submitting transactions over the Internet can be as secure as paying by credit card or by check in person. All parties operating industries. involved in the processing of payment transactions should be vigilant about protecting customer payment information.

NetCommerce sal has managed the submission of payment transactions to the processing networks on behalf of its Verified By Visa and Master Card Secure Code merchant customers, for the past 15 years. NetCommerce has adopted and implemented the latest Verified by Visa and Secure by Master Card security protocols NetCommerce today supports Visa and MasterCard and was among the first 100 payment gateways worldwide to for the most advanced online e-payment security. have adopted and implemented the latest Verified by Visa and Secure by Master Card security protocols for the most The Verified by Visa and MasterCard Secure Code are credit card security protocols for a cardholder’s identity advanced online e-payment security. authentication. They are designed to increase consumer and merchant confidence in electronic commerce and reduce NetCommerce will very soon support American Express as well. transaction disputes, thereby contributing to the growth of online sales.

64 Annual Report 2012 Credit Libanais Group 65 Core Banking Activity

Credit Card Management sal (CCM) www.ccm.com.lb

CCM is the largest processor for card payment acceptance and issuance in Lebanon. We offer a single point of contact for all merchants looking to accept international card brands such as Visa, MasterCard and Amex on all point of sale solutions, in store top counter POS to wireless and mobile POS. We also offer merchants proprietary loyalty and gift card programs that are customized to their needs and businesses. We always strive to better serve our customers and provide them with the appropriate services that will help them build their businesses profitably. In view of the above, we launched a new CCM website in 2012 which provides useful information and contains descriptive and informational sections regarding CCM services to banks and merchants. Online services are also proposed to existing customers; with a user name and password, they can access their POS information, manage their proprietary cards schemes in terms of card issuance requests, turnovers and earnings and also generate accounting and management reports. A help desk was also created so as to provide all merchants with a single point of contact for all their queries and needs whether technical or business related, in order to centralize, monitor and ensure a quick and efficient response to all their needs. The help desk was positively received by merchants who were pleased to call a single number for all their queries and were satisfied with the professionalism of the help desk team, the speed of their response and the clarifications received. The assisted over the phone guidance in terms of the daily operational tasks of the CCM POS was also positively received. A targeted effort was made with CCM merchants in various businesses in order to design and create a successful proprietary card scheme for them. CCM gave particular support, assistance, and guidance, as well as a very competitive price, high level of service, and product customization to fit the merchants’ needs in an effort to help them create a profitable gift and loyalty card that will boost their sales and reinforce customer loyalty. CCM invested in a new series of POS from Ingenico, the Telium series ICT 220 and iWL 220 that are more flexible and compatible thanks to an open platform, and deliver a range of wired and wireless connectivity options. These terminals were successfully certified and deployed in the market.

General inquiries +961 1 901 230 Website www.ccm.com.lb Help desk +961 1 899 915 Email [email protected]

66 Annual Report 2012 Credit Libanais Group 67 Core Banking Activity

Corporate Banking

Corporate banking at Credit Libanais has become the cornerstone of the In parallel, the Bank’s specialized banking professionals developed its existing products and services to provide Bank’s expansion strategy in both the local and international markets where keep abreast of the latest financial regulations and financing in compliance with BDL Circular #185 and we are active. economic events. They understand every sector’s the new circular 313 which enables us provide soft and dynamics and offer added value to their corporate subsidized loans with appropriate tenors that meet the Despite the high competition on the local market, combined with regional customers. In turn, the Bank constantly seeks to needs of our diversified customers in all sectors of the turmoil and instability, results have greatly improved as we have diversified develop their technical skills and competencies through Lebanese Economy. our portfolio of customers while maintaining our loyal customers and assisting seminars and workshops. them in their business and expansion projects while keeping a close eye on Arab Trade Finance Program (ATFP) all inherent risks and devising the means of mitigating them. The corporate division’s competitive advantages are In contribution to the development of the Lebanese based on the following solid principles: and Arab Economies, we have maintained our line of We have continued to offer a wide array of conventional corporate banking fast decision-making processes and operations credit of USD 20 Million with the ATFP for the purpose products including working capital facilities, trade finance products and cash which are the result of our Group’s strategy of having of promoting the trade of goods of Arab origin and management solutions as well as term financing of medium to large-sized experienced Relationship Managers with industry/ associated services as well as encouraging Lebanese projects, providing customers with a better access to markets and a greater sector experience and a fast decision-making exporters and importers to increase their business ease of execution. structure in the credit process. transactions with the Arab World. the segregation of the corporate department into Corporate Banking Strategy geographical business units, thus yielding a secure Structured Loans for Corporations Our strategy revolves around the four pillars of customer orientation, market presence and a quick and efficient response to our This loan is designed to meet the needs of enterprises outreach, risk control, and our strong team dynamics. customers’ needs. who are interested in improving their business by our established experience in the field that allows us increasing their fixed assets financing in order to In brief, we achieve our goals by: to offer customers tailor-made facilities and high- expand their business or start new projects. staying close to our customers and increasing exposure with selected quality services. Syndicated Loans existing customers. efficient 24-hour regional banking mainly through the enhancing cross selling in the corporate portfolio. internet and telephone banking systems that support We have participated in several syndicated loans to maintaining a strong presence in the market and attracting new eligible our customers’ banking activities. finance projects in Lebanon and other Arab countries customers. through the Bank’s network. maintaining the quality of the portfolio, taking into account the global We offer our corporate customers tailor-made solutions Overseas Financing financial and political turmoil. to meet their business needs, including: increasing our fee-based business by increasing the penetration of our Credit Libanais has continued to expand its credit commission products: Subsidized and Soft loans portfolio overseas in affiliation with the Group’s entities - Letters of credits Credit Libanais took advantage of Banque Du Liban in Iraq / Senegal / Cyprus and Bahrain. - Letters of warranty (BDL) incentives related to extending credit against a - Documentary collection decrease in required reserves. The Bank, therefore,

68 Annual Report 2012 Credit Libanais Group 69 Core Banking Activity

Corporate Banking, a Strong Pillar for Growth 2012 in Review Credit Libanais maintained its strong presence in The corporate division posted a solid performance On Corporate banking has continued its evaluation Moreover, corporate banking posted remarkable growth corporate banking activities with the support of a during 2012, despite the negative impact of the program for relationship managers based on a scientific in utilized funded facilities by roughly 27.34% for the diversified loan portfolio covering selected companies in local and regional turmoil. Over the past year we system for performance measurement. In this context, year 2012 compared to 33% for the previous year Lebanon. Over the recent years, the Corporate Banking concentrated on strengthening our fee based business as in the past few years, three relationship managers showing a consistent and sustainable year on year loan portfolio witnessed a significant growth justified by by focusing on trade finance activities which increased were rewarded based on their outstanding performance performance. our focus on financing selective high performing sectors on a year-on-year basis by 35.86%, as well as on LCs during 2012. We were able to safeguard our successful risk rating, in the local market. for commodities and LGs issued at the international Despite the local uncertainties of the past years, as per Banque du Liban (BDL) risk classification for level. Key objectives of corporate banking in 2012 mainly the division exceeded its pre-set budget, and also corporate loans where more than 95% of our funded included: We also focused on strengthening structured loans to maintained a highly secured portfolio. utilities fall within the most secure risk category. focusing on building a solid and diversified customer highly profitable industries, whereby in this respect our base in highly performing industries. portfolio distribution per industry became as follows: retaining talents and skills while constantly improving staff capabilities to enhance overall performance.

Portfolio Distribution by Industry Distribution of Portfolio by Type of Risk

BDL Supervisory BDL Supervisory Agriculture 1.1% Classification Description

Industry 20.6% 35.00% Risk 1 1 Normal 30.00% Risk 2 Contracting and building construction 19.9% 25.00% 2 Follow up Whole sale trade 31.1% 20.00% Risk 3 3 Watch and Settlement 15.00% Retail trade 13.9% 10.00% Risk 4 4 Substandard 5.00%

Agriculture Industry Contracting and building construction Whole sale trade Retail trade Services Individuals Risk 5 Services 11.7% 0.00% 5 Doubtful

Risk 6 1.7% Individuals 1.7% 1.1% 6 Loss 11.7% 20.6% 19.9% 31.1% 13.9%

70 Annual Report 2012 Credit Libanais Group 71 Core Banking Activity

Lending Partnerships Foreign Entities 2012 in Review Strategy 2012 was a very particular year, marked by rising political turbulence in the Middle East on the one hand Alleviating the burden of borrowing for corporate and retail customers alike, Credit Libanais entered into several The Foreign Entities department continuously strives and the lagging European economic crisis on the partnerships with the following international and regional bodies to provide customers’ with beneficiary entailments. to expand CL’s footprint across lucrative and growing other. There were opportunities to be seized, and we These partnerships include: markets where we can reach out to serve Lebanese managed to navigate and remain on course with our The Arab Trade Financing Program (ATFP): the Bank has an agreement with the ATFP, a specialized financial and other Arab communities, with an aim to reinforce strategy and expansion plans. The successful opening institution established by the Arab Monetary Fund to develop and promote trade among Arab countries. ATFP our Group brand name abroad, and positively contribute of 2 branches in Iraq (Baghdad and Erbil) was very provides financing to Arab exporters and importers by extending lines of credit at concessionary rates to accredited to the profitability of CL franchise. significant in terms of our entry into a new market banking institutions, such as Credit Libanais, which are referred to as “National Agencies”. The Bank then provides The values that we uphold beyond our borders are characterized by high GDP growth expectations (8.6% direct financing to the borrowers at competitive rates based on theATFP concessionary rate plus 50 to 100 basis the same values we nurture at home: customer focus, average growth expected during 2013-2016). This points. There are presently 17 National Agencies in Lebanon, including the Bank. teamwork, quality and performance are the driving was in conjunction with steady oil prices, an improved The European Investment Bank (EIB): the Bank has entered into an arrangement with EIB to offer eligible Lebanese engines behind our confidence in going after business operating environment, and a rise in confidence in the firms competitive financing for projects in the industrial, tourism-related, and other various economic sectors. opportunities and continuously challenging the way banking sector. All these factors are expected to widen The International Finance Corporation (IFC): the Bank has entered into an arrangement with IFC to offer eligible we do business; being attentive and responsive to the our customer base, both corporate and retail, and Lebanese firms competitive financing for projects in the industrial, tourism-related, and other various economic markets and to customers’ needs; being creative and impact our performance / results in the years ahead. sectors; The Global Trade Finance Program under IFC aims to enhance trade between Lebanon and other innovative by leveraging the full capabilities of the Bank While our Bahrain and Cyprus branches achieved countries of the world in imports and exports. through effective communication and networking in order to deliver creative solutions; being reliable and modest growth in assets and profits, our subsidiary The International Finance Corporation (IFC) Risk Participation Agreement: its purpose is to originate and administer trustworthy; and adopting and practicing the highest bank in Senegal continued to cater to the Lebanese SME loans to private borrowers conducting business primarily in Lebanon. standards of discipline and conduct. diaspora and Senegal nationals’ needs for banking The Inter Arab Investment Guarantee Corporation(IAIGC): the Bank has entered into an arrangement with IAIGC to services, through international banking activities, trade facilitate trade amongst Arab countries by providing insurance guarantees for investment and trade. To deploy our strategy, we invest in up to date IT and finance and documentary credits, and other services. operational systems, offer ongoing training on product The Islamic Corporation for Insurance of Investment and Export Credit (ICIIEC): the Bank has entered into an knowledge as they develop, and provide adequate and Global Business Development arrangement with ICIIEC to guarantee, in affiliation with the Islamic Bank, exports from Islamic countries worldwide. ongoing head office support. Our quarterly business The Global Business Development Desk’s objective The Saudi Fund for Development (SFD): the Bank has entered into an arrangement with SFD the goal of which is to performance reviews ensure that we observe and is to identify and vet selected groups of Lebanese, finance the trade of Saudi Arabian goods and services by Lebanese importers. practice every country’s compliance and applicable regional and international companies and financial laws and regulations. Our periodic internal and external The Cooperative Housing and Finance (CHF/USAID): the Bank has entered into an arrangement with CHF/ USAID institutions. In 2012, we actively contributed to the audits help us stay informed and vigilant towards IT to subsidize the micro finance scheme Ameen, which is geared towards a specific segment of very small enterprises development of relationships with banks and companies security threats, money laundering as well as other which often encounter difficulties in financing their projects through Lebanese banks. in Lebanon and the MENA countries. business and risk exposures. The Bank also offers Murabaha financing in collaboration with major regional players in the Islamic banking industry. This new unit communicates with all officers of the Group to create synergy, growth and expansion. Its strength is rooted in the staff experience, exposure and banking culture, all of which are invested to realize the institution’s strategy.

72 Annual Report 2012 Credit Libanais Group 73 Core Banking Activity

Investment

Banking Board of Directors Chairman General Manager

(CLIB) Audit Committee Legal Advisor Group Head of Internal Audit

Risk Committee Group Chief Risk Officer

Deputy General Manager

A Service Level Agreement with Credit Libanais sal covers various operational and support services to CLIB and Control Department Internal Audit IT Department IT Legal Department Securitization and Credit Department Corporate Finance, Corporate Finance, Structured Finance Credit Administration Advisory and Research Advisory Finance and Accounting

Credit Libanais Investment Bank, 99.83% owned by Strategy Credit Libanais, acts as the investment banking arm of CLIB strives to consolidate its market positioning among Credit Libanais. Established in 1996, Credit Libanais Credit Libanais Investment Bank (CLIB) provides its its peers in Lebanon, with its strategy pivoting around Investment Bank currently offers a plethora of services customers with a wide array of advisory and financing strengthening its role in project financing and advisory and investment banking activities in accordance with solutions ranging from term lending to highly structured services and continuing to provide a comprehensive legislative decree number 50, dated July 1983. and specialized products across the investment banking bouquet of investment banking services through: spectrum. During the year 2012, CLIB analyzed and A complete set of medium and long term investment Core Values participated in several local and regional mandates, plans. Credit Libanais Investment Bank’s dedicated team of Financial services. such as securitization and loan syndication deals which professionals are constantly on the lookout for new Participating and arranging loan syndications. generated sizeable revenue streams for the group. In business opportunities and non-organic growth ventures Structuring and managing a family of mutual funds. this context, net profits deriving from investment banking on behalf of the Group, as well as for local, regional, Extending medium and long term loans, and activities under CLIB’s umbrella accounted for 29.41% and international private and institutional customers. Corporate finance and advisory services. of the Group’s consolidated net profits for the year 2012.

74 Annual Report 2012 Credit Libanais Group 75 Core Banking Activity

2012 in Review various economic sectors including the real estate Mergers and Acquisitions competitive sides of the Bank’s expansion projects The year 2012, similar to its predecessor, was sector, the construction and telecom sector, the banking through a top-down approach. This includes offering comprehensive assistance to sector, etc. In addition, the department analyzed and tarnished by a strained internal political scene coupled The Economic Research Unit’s Weekly Market Watch participated in several asset-backed securitization customers seeking to merge with or acquire other with the ongoing turmoil in the Arab region, a fact schemes on behalf of pertinent local corporations. The private or public enterprise(s) in the same line of highlights and analyzes the performance of main which was reflected by a slump in economic activity. advisory department of CLIB successfully completed business (acquisitions) or in a complementary line macroeconomic indicators, monetary metrics, and Notwithstanding the economic downturn, CLIB several due diligence exercises, including equity of products (wrapped as a joint venture). CLIB gets financial sector indicators. The Unit also releases in- succeeded in expanding its commercial and investment valuations in prospective acquisitions. involved in every step of the transaction including: depth industry-specific research, casting light on the banking portfolios, while preserving a healthy asset Preparation of the sale. Credit Libanais name in the media. quality. In details, CLIB managed to improve its position Finally, the department diligently analyzed a few Determination of the strategy. in 2012 among its Lebanese peers, assuring a growth regional expansion opportunities during the year 2012, Due diligence and company valuation. Core Values of 15.96% in medium and long-term commercial loans, whether Greenfield or in the form of acquisitions, yet Road show. Credit Libanais Investment Bank’s Economic Research 12.90% in housing loans, where the collateral value the sustained turmoil in the region since the outbreak Determination of the best financing structure. Unit remains in a continuous pursuit of hot new topics does not fall below 60% of the loan amount at any time, of the Arab Spring was a blocking stone to the Bank’s Equity / debt raising and closing of the deal. to be tackled whether in the Weekly Market Watch or in and 16.09% in customer deposits that are blocked for expanding its foothold. separate research publications in an attempt to gain a 6-months. Consequently, CLIB’s total balance sheet Recapitalization and Strategic competitive edge vis-à-vis its local peers. registered an annual increase of 16.12% in total assets Financial Advisory Advisory in the year 2012. The Corporate Finance department at CLIB is well The restructuring of a company’s capital structure, most 2012 in Review positioned to extend corporate customers and the Apart from conventional commercial banking services, often with the aim of making a company’s debt/equity CLIB’s Economic Research Unit continued to widen its Group’s affiliates with a set of financial solutions CLIB offers its customers an array of investment mix more attractive and financially robust. scope of coverage throughout 2012, covering a new designed to meet the strategic and organizational banking services including funding for project finance, set of economic and financial indicators, while adding needs of institutional customers. This includes financial direct equity participations, underwriting services, Debt Syndications topics, and reports to its weekly newsletter. The Unit assistance to institutions in need of: raising capital, the marketing of investment funds, Structuring, pricing, and raising of term debt financing also enjoyed a growing readership base, broadening its Evaluating the financial performance of their financial intermediation, corporate advisory and to large corporate customers under a consortium of subscriber database and weaving additional alliances business. valuation services, and economic research, to name but banks. CLIB also participates in loan syndications lead with prominent financial portals and newswires around Assessing the viability of an expansion / investment a few. managed by renowned international banks, subject to the globe. It is worth noting that the Weekly Market alternative. satisfactory due diligence. Watch was welcomed in a new format in 2012 to Seeking financial reengineering / turnaround. Corporate Finance and Advisory commemorate Credit Libanais’ 50 year anniversary. Opening their capital to prospective investors. In spite of the harsh macroeconomic and security The Economic Research Unit Merging with / acquiring another business unit. In parallel, Credit Libanais Investment Bank’s Economic environment that characterized the year 2012, the Strategic alliances and partnering transactions. Strategy Research Unit responded to persistent requests and Corporate Finance department at CLIB continued to Credit Libanais Investment Bank’s Economic released an update to its widely praised real estate spot and analyze new investment opportunities in the Debt and Equity Placements Research Unit remains ever-determined to preserve coverage publication dated October 2008, “The region, with a particular emphasis on participating Services include advising customers to help them make its outstanding reputation among local, regional, and Lebanese Real Estate Sector – Research Update –”, in loan syndications on behalf of multinational more informed decisions pertaining to their capital international readers, publishing one of the most in August 2012. Said research update revisited the corporations. structure, locating debt and equity financing sources, rigorous weekly economic newsletters in Lebanon in sector’s demand and supply factors, price trends and The department broadened the Bank’s exposure to a as well as negotiating and positioning their companies both English and Arabic, in addition to periodic industry- affordability, rental yields, lending packages, and impact diversified pool of large corporate borrowers grouping more favorably among competition. specific reports. The Unit also covers the economic and on the country’s economy, while spotlighting

76 Annual Report 2012 Credit Libanais Group 77 Core Banking Activity

new projects in the pipeline. The Unit also drafted a In this context, the Economic Research Unit The Research Unit also distributed internal weekly The Economic Research Unit continued to spot the publication entitled “The Lebanese Television Industry” strengthened its positioning in the media, with its reviews on the prospects of international currencies performance of the Beirut Stock Exchange through the which included an overview of the Lebanese media publications often being quoted in national newspapers, and commodities throughout the year 2012, keeping daily calculation of the values of its three stock market sector and facts and figures related to the performance bulletins, and television programs. The Unit was also the concerned parties abreast of the performance indices (the Credit Libanais Aggregate Stock Index of the local TV industry (i.e. operational scheme, interviewed on many occasions by local and foreign of the related financial assets and instruments, thus (CLASI), Credit Libanais Financial Sector Stock Index production, viewership, seasonality, advertising, newspapers, magazines, and TV stations, on such assisting them in making sound and rational investment (CLFI), and Credit Libanais Construction Sector Stock sponsorship, and program grids, among others). hot topics as the real estate sector, the spillover of the decisions. In addition, the year 2012 was marked by the Index (CLCI)). Arabic Spring, the drawbacks of the Syrian crisis, and Unit’s release of a set of market studies on various local debt dynamics, to name but a few. industries to which the Bank has a direct exposure.

Credilease The trend followed by all three indices since inception and throughout the year 2012 is illustrated in the following section: Indices Performance

Credilease is a financial institution affiliated to Credit Libanais sal, which extends a range of credit facilities to Inception Date Inception Value Value on 1 Value on 31 % Change in % Change Year High customers, in a fast and personalized manner. Solutions brought are efficient, confidential and competitive; most of all, January 2012 December 2012 2012 since Inception they are specifically designed to meet individual and corporate needs of each and every customer. CLASI Oct-06 1,000 1,017.68 1,017.68 -0.06% 1.77% 1,069.75

At Credilease, we understand the financial challenges each business faces. For this reason, we strive to provide CLFI Oct-06 1,000 1,170.48 1,218.31 4.09% 21.83% 1,261.70 financial alternatives to respond to all customers, who are becoming more and more demanding, in our competitive CLCI Oct-06 1,000 776.61 702.51 -9.54% -29.75% 795.48 world.

Credilease Major Activities include Leasing operations such as rent to own: machinery, transport, industrial and hospital equipment, etc ...; Credit facilities such as car loans, personal loans, housing loans, subsidized loans. Credit Libanais Aggregate Stock Index Credit Libanais Construction Sector Stock Index Credit Libanais Financial Sector Stock Index Consumer finance loans as well as credit facilities to household and consumer appliances sectors; 2,400 Since Inception Performance Since Inception Performance Since Inception Performance Credilease is also ready to extend investment and private banking activities including equity and wealth 2,200 2,000 management services. 1,800 1,600 Professionalism and Customer Servicing 1,400 1,200 A highly trained and professional Credilease team is always available to develop the best suitable personalized service 1,000 Index Value needed. Our employees are knowledgeable and skillful, and equipped with the latest technological tools to provide you 800 with a fast, reliable and confidential service. 600 400 CLASI 1.71% CLCI 29.75% CLFI 21.83% Sofil Center - Charles Malek Avenue - Ashrafieh 1100 2811 - Beirut, Lebanon 961 1 326 873 -961 1 325 401 200 0 P.O.Box16-6729 - Sofil, Lebanon [email protected]; [email protected] 18-Oct-06 - - 08-Apr-07 27-Sep-07 - 17-Mar-08 - 05-Sep-08 - 24-Feb-09 - 15-Aug-09 - - 03-Feb-10 25-Jul-10 - - 13-Jan-11 - 04-Jul-11 - 23-Dec-11 - 12-Jun-12 - 01-Dec-12 18-Oct-06 - - 08-Apr-07 27-Sep-07 - 17-Mar-08 - 05-Sep-08 - 24-Feb-09 - 15-Aug-09 - - 03-Feb-10 25-Jul-10 - - 13-Jan-11 - 04-Jul-11 - 23-Dec-11 18-Oct-06 - - 08-Apr-07 27-Sep-07 - 17-Mar-08 - 05-Sep-08 - 24-Feb-09 - 15-Aug-09 - - 03-Feb-10 25-Jul-10 - - 13-Jan-11 - 04-Jul-11 - 23-Dec-11 - 12-Jun-12 - 01-Dec-12

78 Annual Report 2012 Credit Libanais Group 79 Core Banking Activity

Considered as the trusted advisor to high networth Treasury and Foreign Exchange Our professional trading desk offers a combination of Group Global individuals in Lebanon and the region, excellence and excellent financial services supported by an efficient integrity represent the main guiding principles of all of Our Group Treasury continued to develop its communication and execution channels on foreign Markets our activities. capabilities by stressing on the diversification of its exchange and money markets instruments and funding operations and effectively managing risks products. and Wealth 2012 was another challenging year. Amidst the national amidst financial markets turmoil. The development of and regional turmoil, we closely followed our proprietary synergies throughout the Group enabled us to closely During 2012, our foreign exchange and money markets Management and customer’s portfolios and took appropriate select investment opportunities in various markets and business experienced excellent results with record measures to limit exposures. This has resulted in optimize our Asset/Liabilities management model. customer volumes, positively affected by a period of a positive growth in both results and assets under exceptional volatility and customers hedging needs. management, mainly driven by increased volumes and The Group Treasury and Foreign Exchange desk attraction of new customers. supports the activity coverage of our growing network of The risks inherent to these activities are related to branches, subsidiaries and affiliates both domestically interest rate and foreign exchange. Our primary market and internationally. In parallel, our group Treasury risk is mainly represented by our exposure to fluctuation diversifies its customer’s base and products sales of US Dollars and Lebanese Pounds interest rates. offering a variety of services related to interest rates We actively manage these sensitivity risks through and foreign exchange markets. simulations and stress test analysis that enable us identify interest rate exposures according to changes in Our diversified Treasury business includes deposits, market conditions and management strategy. foreign exchange lending, and raising money to fund assets and to cater for specific transactions.

High standards of ethics and deontology principles are respected, with an objective to maintain and build a strong reputable level of clients servicing.

80 Annual Report 2012 Credit Libanais Group 81 Core Banking Activity

Global Markets Our trading volume and our market share witnessed a professionals enjoying extensive knowledge and as well as portfolio management and brokerage remarkable increase especially for US equities while expertise in the field. High standards of ethics and services, including equities, fixed income and foreign Fixed Income Markets investors acted more prudently towards European deontology principles are respected, with an objective exchange trading, multi-asset class investment funds, Our Global Markets Division combines the sales, markets thus affecting related revenues. Furthermore to maintain and build a strong reputable level of clients exchange traded funds (ETFs) and hedge funds, trading and structuring of a wide range of financial investors were more inclined to invest in ETFs servicing. structured products with various underlying instruments, markets products including bonds, equities, equity- (Exchange traded funds) in view of a more diversified capital protected products, Sharia’a-compliant linked products, commodities and securitized approach towards equity markets. Consequently, Our target is to become a leading player in local and investment products, custody services and safekeeping instruments. we witnessed additional demand on ETFs building regional markets. Our aspiration is to become the of various types of financial instruments. The Bank also up during the year and covering various economic private banking of choice and become an industry provides its private banking customers with continuous Our proprietary trading activity focuses on fixed income sectors, as well as different geographical exposures, leader in terms of customer satisfaction, employee updated perspectives pertaining to market trends trading where Credit Libanais acts as a Market-Marker and commodities. A gradual increase of the demand on engagement, profitability and growth. and economic forecasts. The Credit Libanais private on the Lebanese Eurobond market and covers all major Mutual Funds has also started to be seen in the third banking and wealth management team is reinforced by international and regional fixed income markets, which During 2012, our Financial Advisors diligently quarter of the year, with investors becoming inclined an in-house research unit that regularly communicates increases our capacity to satisfy customers’ transaction mitigated the impact of difficult markets conditions towards medium term investments while benefiting from to customers, markets reports and updates to assist needs. on our customers’ assets, as we anticipated equity markets rally. them in making better assessment regarding their future and aligned our investment strategies to such a Our fixed income trading desk performed well in 2012 investments. During 2012, the Beirut Stock Exchange (BSE), in challenging environment. Our advisory team assisted despite difficult market conditions. A solid income which Credit Libanais holds a member seat through customers to develop investment strategies, identify stream has been generated and our market share We believe that the private banking and wealth its subsidiary Credit Libanais Investment Bank, appropriate investments opportunities and monitor increased in terms of volumes and geographical management activities continue to have good long- represented once more a good interest for investors such investments on an on-going basis. Our primary coverage. term growth prospects, especially after that the effects despite that the Lebanese Equities have experienced concern remains the allocation of the most appropriate of the crisis, witnessed a couple of years ago, have an important correction same as other regional equity investments to each type of investor in order to meet his Risks inherent to our proprietary activities are managed started to gradually dissipate, thus offering a multitude markets, due to the prevailing geopolitical turmoil. specific requirements and investments objectives. according to strict investment policies and our of investments opportunities that could be positive exposures are closely followed-up through a system of Our comprehensive service includes tailor-made throughout the coming few years. continuous monitoring of position limits and sensitivities Private Banking and Wealth investment products, innovative solutions in terms of analysis on all portfolios. Management assets and products allocation as well as geographical Our private banking and wealth management team Equity Markets diversification. Our investment proposal takes into offers a personalized wealth management and consideration our customers’ risk tolerance, in investment advice to high net-worth individuals in In 2012, investors acted more prudently towards the addition to pre-set diversification objectives, risk/return addition to young entrepreneurs with good financial markets and diversified their portfolio to cover various expectations and portfolio constraints. economic sectors, as well as different geographical prospects. Our wealth management multi-disciplinary exposures and commodities. team is formed of highly trained and qualified The Bank offers a broad range of investment solutions,

82 Annual Report 2012 Credit Libanais Group 83 Sustainable Growth 04 and Development

Our People Capital 86

Internal Audit 94

Compliance and AML/CFT 100

Risk Management and Strategy 106

We voluntarily integrate sustainability criteria in all aspects of our business operations and our interaction with all stakeholders. Sustainable Growth and Development

The HR Management strives to create a working environment that promotes employee engagement as well as motivation Our People and retention. Capital

During 2012, the Human Resources team looked for ways to better address Performance Management Recruitment the increased competitive pressures of the Lebanese market and economy, in an effort to quickly respond to changing work conditions especially with the Our new practices aim at capitalizing on work related One of our main challenges in 2012 consisted of launching of our new banking system in August 2012. experiences in order to help implement the Bank’s retaining our existing talent and finding ways to develop overall strategy thus leading to high morale, increased their careers and give them more responsibilities. We designed and implemented several HR practices and processes so as to motivation and the creation of a positive work allow for a smooth transition to the new system without affecting our customer environment. The Recruitment and Evaluation department focused on service and operations. All the HR team worked closely with the various the internal redeployment of our high potentials, where branches as well as with the organization and planning, IT, and operations Positive results were greatly reflected in the several candidates were selected to move to positions departments in order to ensure that training is given in the most suitable and performance appraisal and management system where of higher responsibility, thus preventing stagnation effective way to guarantee the successful launching of the system. objectives were achieved accurately and in a timely and job boredom by making them take part in the manner. Our high potential people were rewarded for Bank’s success and growth. This practice allowed us to their efforts and dedication during the year 2012 with decrease our turnover rate by 1%. promotions and greater responsibilities, in preparation for the future. In line with our objective to enhance our working practices and environment, all new recruits go through an We also identified employees who were lacking in introductory session where a full overview of our vision, certain areas and assign them to training/learning mission and practices, core values and code of ethics are programs in order to fill these gaps and then redeploy presented, to facilitate their integration within our team. them in a way to best use their strengths and therefore achieve our Bank’s ultimate objective.

86 Annual Report 2012 Credit Libanais Group 87 Sustainable Growth and Development

Training and Development Talent Management Department

The HR Management strives to create a working 1 2 3 4 environment that promotes employee engagement as Identifying (10 days) Matching (5 days) Confirming (5 days) Profiling (10 days) well as motivation and retention, all the while being fully Human Resources Department (on HR will send the Heads of Divisions HR will carry on the annual Every name on the list will pass aware that talent management is what drives the Bank a yearly basis) will prepare a list of the names on the list to check and “potential Talent Pool” to the through a profiling assessment. forward and allows us to reduce our turnover rate to potential employees. comment. Career Management Committee. remain competitive in the market. In case the job is identified for The list shall be based on strategic HOD shall match the names on the CMC will confirm on the final the potential candidate then the 58 participants enrolled in the ICP Program of 2011 /12 vision of the Bank and on scientific list with their nominees and reply names taking into consideration profiling is done on the job and if and were distributed among branches and departments. criteria and will be systematically withing 5 days. serveral factors like strategic needs not then the profiling is done on During the first phase, all the candidates passed a generated. and gaps. “manager”. profile assessment test in order to reveal any potential In case there is any additional name conflicts that the candidate may experience or cause A manual look up will be executed or names then HR will make sure Final list of names will be Results will be communicated with and this provided us with the interview questions of the by the HR Division. they match the criteria. generated. the candidates and will be classified second phase. 23 out of 31 of the ICP Departments and Statistical Report will be generated. Each HOD shall be ready for a in the HR Division, personal files 19 out of 28 of the ICP Branches remained. “persuading debate” if names are and will be used for training and The names on the list are kept development purposes. There are 4 major stages to the talent management confidential. to be added. process. Each stage has a number of activities that result in tangible outputs.

ICPs / Career Management (24 months)

88 Annual Report 2012 Credit Libanais Group 89 Sustainable Growth and Development

Training Initiatives at CL E- Learning 2012 The three main categories that are implemented Training activities are distributed between During 2012, we introduced Banking and Behavioral As part of our learning strategy, all employees were and continuously monitored at the Training and departments and branches per category. Significant courses which were delivered in both English and required to take their assigned courses. For 2012, we Development Department consist of: accomplishments were realized in 2012: 23,282 French. Our library now includes more than 400 selected two core mandatory banking courses and one Standardization hours of refresher sessions on banking operations, banking courses, with the necessary spreadsheets and technical course, (designed, developed and tailored for Education including Equation core banking system for branch tables, and more than 450 behavioral courses with the Credit Libanais) as follows: غسيل األموال ومتويل االرهاب / Continuation and department staff, 800 hours on risk management essential summaries and action tips to apply to work. Anti Money Laundering including a seminar on “Standard Credit Presentation” Certificates are now available for staff who successfully (English and Arabic). For the purpose of achieving the Company’s strategic (76 trainees) and a “perception rating workshop” (30 complete their courses. Products and Services of Financial Institutions. targets, of developing and increasing the level of trainees), 693 hours for auditing and finance including a Corporate Image at Credit Libanais. efficiency at CL, the Training and Development Courses are divided as follows: seminar on “Fighting Money Laundering” (81 trainees) department gives priority to its employees’ training a. Core Courses - All bank employees. and one on “KYC: standards and applications” (37 process and therefore by organizing internal/external b. Functional/ Departmental Courses and trainees). One of our main challenges and overseas seminars for CL staff. Certificates. c. Level Courses. in 2012 consisted of Traning Activities Per Action For 2012 (25,736 hrs) retaining our existing talent

Leadership & Auditing & Information Marketing & Banking Risk and finding ways to develop Languages Management Finance Technology Sales Operations Management 250 hrs 615 hrs 693 hrs 90 hrs 6 hrs 23 282 hrs 800 hrs their careers and give them more responsibilities.

Breakdown by Training Chapter

41 18% 8% 495 1420

3%

14% 1% Leadership and Management Languages Active Sessions Active Leanning Objects

4%

Auditing and Management Banking Operations Active Learners Connections this Month 46 Information Technology Risk Management Active Training Courses

Marketing and Sales

3170

52%

90 Annual Report 2012 Credit Libanais Group 91 Sustainable Growth and Development

Training Time Allocation by Division E-LEARNING

14%

27%

Retail Banking Division Internal Audit Division

9%

Corporate & VIP Banking Division Operations & Systems Division

Investment Banking Division HR Division 11% 4%

2% E Banking Division

13%

20%

Summer Internship Summer internship is a continuous program that provides us with an early opportunity to evaluate the talents of a new generation of workers. In 2012, 276 candidates were accepted from various trustworthy universities in Lebanon.

Interns divided by Region in 2012 Number of interns during the past years

90 340 80 330 80 330 321 70 320

60 56 310 49 299 50 300

40 35 290 28 28 277 30 280 276

20 270

10 260

0 250 Regional Riad Regional Kaslik Regional Hamra Regional Chtaura Regional North Head Office Year 2008 Year 2009 Year 2010 Year 2011 Year 2012 El Solh

92 Annual Report 2012 Credit Libanais Group 93 Sustainable Growth and Development

Internal

Audit Audit Committee

Overseas and Affiliates Audit Performance Measurement

Head of Group Internal Audit Branch Audit Back Office Audit E-Banking Audit LIB Audit

Head Office Audit Credit Audit IT Audit CLIB Audit

Quality Assurance and Improvement

Mission Statement Role Internal Audit Division (IAD) has the responsibility The Internal Audit Division (IAD) provides assurance to management procedures and methodologies and the to strengthen Credit Libanais’ business risk/control the Board through its Audit Committee that: efficient functioning of the internal control framework. environment by providing comprehensive and The deployed internal controls are adequate to To complete a full coverage of the audit areas independent professional audit and consulting services mitigate risks mentioned in the audit year plan. to all divisions and entities operating within the Bank, Governance processes are effective and efficient To assign a risk control grade for each business unit and by assisting management in maintaining proper Organizational goals and objectives are met. and to monitor its improvement over time. controls over the Bank’s assets, thus adding value to the overall business performance. Objectives Other Objectives Main Objectives To provide consultancy services regarding organizing Vision To align the audit activities with the bank’s strategy. and improving the risk control framework. Internal Audit Division (IAD) strives to provide best To address risky activities and processes To stimulate objectivity, uniformity, comparability, quality of internal audit services while adding value to by providing tailored recommendations and confidentiality and transparency. all business units. implementing best practices. To accelerate and promote improvements. To add value to the business risk control To fulfill and properly handle all management environment. requests and special assignments in a timely To ensure adequate implementation of risk manner.

94 Annual Report 2012 Credit Libanais Group 95 Sustainable Growth and Development

Internal Audit Division (IAD) has the responsibility to strengthen Credit Libanais’ business risk/control To meet the auditees’ expectations and assessments. Knowledge Management Support and Development To conduct independent and objective audit reviews environment by providing and evaluations. All departments include staff who have full knowledge The Quality Assurance & Improvement Department comprehensive and To conduct adequate tests and reviews of information and expertise over the business areas they examine. within the IAD covers all aspects of internal audit systems. They are experts in their domain of specialization, activities and continuously monitors its effectiveness independent professional To appraise management regarding: capable of delivering high quality services to auditees, through developing quality assurance techniques. - Effectiveness of measures taken to assess and whether the latter are branches or centralized Quality Assurance & Improvement helps the IAD in audit and consulting services manage risks. departments. adding value, improving the Bank’s operations and to all divisions and entities - Reliability, consistency and integrity of data. providing assurance to the Board that the Internal Audit Audit Methodology and Approach function is in conformity with set the Standards & the - Measures taken to safeguard assets, documents operating within the Bank and records. The division follows a risk-based approach when Code of Ethics. - Compliance with policies, laws and regulations. auditing business units. This consists of identifying - Respect of code of conduct and the bank’s and assessing the inherent risks to the business, the 2012 in Review values. effectiveness of controls that mitigate those risks, and The IAD staff assisted in the migration process from the the residual risks remaining after these controls are old banking system “ICBS to the new core “Equation” at The following factors are the key components of an in place. Based on this risk approach, emphasis and branches’ level and central departments, and helped in effective internal audit function: priority is placed on the business areas where the identifying all risks and errors that occurred during this highest risks are considered. critical phase. Moreover, the IAD team coordinated with Head Office Audit Organizational Structure of the IAD the responsible parties and tried to solve all issues and This department covered all centralized departments The IAD is business-centric, and is composed of Professional Staff problems immediately. as scheduled in the year plan of 2012 and conducted specialized audit departments that have gained Sufficient technical and on-the-job trainings are on-site missions among the different business divisions sufficient experience in the business and can provide performed to allow our team to excel in their missions. Branch Audit and support functions. best services and recommendations to improve the Personal development plans are performed for every All branches are risk rated according to the level of activities of business units. These departments include auditor. Training and education is part of the personal internal control exercised by branch management and Credit Audit Branch Audit, Head Office Audit, Credit Audit, E-banking development plan in order to maintain proficiency. to operational risks inherent to their activities. Based on Periodic risk-based audits, credit processes and Audit, IT Audit, Back-Office Audit, Overseas Audit Auditors are encouraged to enroll for the CIA (Certified the risk rating assigned to them, corrective measures portfolios are undertaken by the Credit Audit (Limassol, Bahrain, Senegal), other affiliated banks Internal Auditors) certification to enhance their are taken to enhance branches’ risk profiles and to Department. Audits include consideration of the (Credit Libanais Investment Bank and Lebanese Islamic professional knowledge and skills. In that respect, address the observations and deficiencies raised in the adequacy and clarity of credit policy, procedure Bank). Department Heads enjoy sufficient expertise to 5 members have already started attending the CIA audit reports. manuals; in depth analysis of a sample of accounts. manage a team composed of senior and junior auditors, courses, in addition to the E-learning courses that and to deliver high quality audit and consulting services. were made available to all audit staff to enhance their Our reports contributed in the issuance of new IAD covered credit assignments as scheduled in the They report hierarchically to the Head of IAD (Chief technical knowledge and continuously improve their procedural Notes and Policies that improved the year plan of 2012 which encompassed retail products, Audit Executive) who in turn reports to the Board of professional skills. internal control framework and enhanced management retail and corporate commercial facilities and credit risk Directors, through the Audit Committee. oversight over branch operations. management processes.

96 Annual Report 2012 Credit Libanais Group 97 Sustainable Growth and Development

Overseas Audit Special Assignments Quality Assurance and Improvement IAD covered the audit of overseas branches’ operations Special assignments were performed by the IAD at Department Review reports are being submitted to management (both Limassol and Bahrain) during 2012. The reports the request of the General Management and different The timely follow-up conducted by this department on and to the Audit Committee on a quarterly basis issued were discussed with local management and issues that needed additional investigation and proper all audited businesses, to ensure that all observations showing the major audit findings that might affect the communicated to the regulatory authorities. follow-up were tackled. raised in the internal audit reports are well implemented realization of the Bank’s objectives, in addition to a within the timeframe agreed-upon, showed a significant briefing showing the compliance of auditees with the Back-Office Audit Affiliated Banks/Subsidiaries improvement during the year 2012. audit recommendations and their current status. The IAD exercises an off-site review over the MIS and Resident auditors are assigned to review the operations exception reports, operations and activities of branches, and activities of the affiliated banks (CLIB and LIB). and exchanges inquiries with branch management Internal Audit reports issued based on an approved for particular deficiencies. IAD closely liaises with the year plan for 2012 were duly submitted to their Key Indicators in 2012 branch audit function that performs on-site visits to respective Audit Board Committees. Introduction of new tools and techniques to better manage and properly allocate the audit In addition to the above, an audit field visit was branches, thus complementing the oversight function resources and to enhance the internal audit function within the Group. exercised by the IA Division and improving the overall performed at Credit International SA (Senegal) covering internal audit function. all activities of the Bank. Standardization of the audit reports, including the introduction of a systematic rating The IAD covered during 2012 the non banking methodology of audit observations and the assignment of an overall audit rating for the IT Audit subsidiaries in accordance with regulatory auditees. requirements. Over the course of the year, the department performed Audit coverage includes all branches and central departments within the last 2 years (Audit several reviews over data migrated from the old core Cycle). system into the newly acquired system, and issued Sufficient technical and reports that contributed to the enhancement and 800 training hours were invested in our audit team through attending internal and external strengthening of controls pertaining to the migration on-the-job trainings are sessions pertaining to relevant business and banking topics.In addition, many auditors are process. Several audit assignments were performed on performed to allow our team preparing for the CIA certification (certified internal auditors). the IT functions which covered various applications and The Audit Committee met on a regular basis (4 times a year) to discuss the major activities processes applied at the Bank level. excel in their missions. and findings that occurred during the internal audit assignments.

98 Annual Report 2012 Credit Libanais Group 99 Sustainable Growth and Development

Compliance and AML/CFT

A Compliance Culture Regulatory Compliance of and compliance with regulatory requirements, the Regulatory Compliance function has established a At Credit Libanais, we strongly believe that compliance is neither an option Regulatory Compliance is a key component of our reference library arranged by topic as well as type nor a duty, but rather the only way to conduct business securely within a risky business, and the guardian of CL good practices and of regulator. Soft and hard copies of all circulars and and complex financial environment. sound business. directives issued are centralized to ensure easy access With respect to the financial community’s integrated principles such as As part of our ongoing efforts to address the Bank’s and referral for follow-up and implementation purposes. Corporate Governance, Business Integrity, Transparency, Fight against supervisory compliance and enhance sound practices, Moreover, a continuous up-date is ensured to keep the money laundering and counter financing of terrorism (AML/CFT); the the Regulatory Compliance function supervises the library dynamic. compliance culture surpasses the sole responsibility of its dedicated staff and implementation of applicable laws, circulars, codes compliance officers, to become every employee’s concern at the Bank. and standards required by local and foreign regulators AML/CFT where the Bank is present through subsidiaries, The AML/CFT function’s primary target is to provide At our Bank, compliance is the norm, locally and across foreign entities. The branches or affiliates. Regulatory Compliance concerns tools and procedures in order to deter and detect financial business conduct at the Bank respects highly recognized standards everyone at the Bank and is viewed as an integral part financial crimes – including fraud, computer crimes, and rules. of the Bank’s business activities. identity theft, money laundering, and the financing of terrorist activities. The AML/CFT function’s goal at Our compliance policy is tailored to set out the Bank’s mechanisms and The main function of the Regulatory Compliance Credit Libanais is to implement the latest sophisticated procedures in view of: function is to manage, monitor and ensure that the Minimizing the exposure to irregularities. directives of the regulators (Banque du Liban, Banking mechanisms and procedures and the concept of Identifying, reporting, and resolving potential irregularities. Control Commission, and Special Investigation the RBA (Risk Based Approach) and Country Risk Maintaining efficient AML/CFT compliance procedures and compliant Commission/Fighting Money Laundering, as well as considerations. Our Group has successfully integrated business strategies in respect to legal and regulatory frameworks. other supervisory bodies and foreign central banks) these AML/CFT procedures within the AML/CFT are fully complied with at the Bank. In addition, we framework and internal procedural process. All stakeholders, including shareholders, directors, management, suppliers, analyze said directives and assess their impact on the government, employees, and the community are concerned with the safety The Compliance function is also concerned with Bank’s procedures to ensure that adequate policies and of the Financial Institutions’ interests and give utmost importance to a sound adjusting internal policies and ensuring that staff procedures are duly and timely put in place to ensure education and professional training are duly performed AML/CFT culture. In its normal course of business, any bank may face a efficient compliance. multitude of threats exposing it to reputation, operational and legal risks. To and regularly kept up to date. counter these risks, the AML/CFT Department has developed a strict body The Regulatory Compliance function communicates The AML/CFT function is entrusted with the following of procedures and rules of good conduct that comply with the international, with all the Bank’s central departments, divisions, duties: regional and local banking regulatory standards. subsidiaries and affiliates to support their needs with developing a corporate anti-money laundering regards to all regulatory circulars and memos. Internal Audit ascertains on a regular basis that efficient AML/CFT controls are program which includes documented policies and implemented on the Banking Group level. In view of ensuring timely and efficient implementation procedures, the designation of compliance officers

100 Annual Report 2012 Credit Libanais Group 101 Sustainable Growth and Development

and a training and education program for the Bank’s compliance procedures and guidelines, promptly compliance risk assessment and testing. This Our AML/CFT compliance officers have substantial employees; following up on any identified deficiencies and includes performing spot checks to test compliance knowledge in the relevant AML/CFT regulations and monitoring activities in order to identify transactions formulate proposals for amendments. with policies and procedures, making enquiries legislative authority; they apply AML/CFT carefully, that are unusual or suspicious or outside the risk profile providing guidance and advice to staff in cooperation regarding deficiencies and/or breaches and carrying continue to re-evaluate processes and controls; and parameters either set by legislation or in accordance with the Legal Department and relevant business out investigations. are responsive to internal and external auditors’ with the Bank’s risk assessment policies; and units on the appropriate implementation of the recommendations. reporting unusual or suspicious transactions to the relevant laws, rules and standards through internal AML/CFT Compliance Officers In a nutshell, compliance responsibilities are not only Central Bank’s Special Investigation Commission policies and procedures; Misconduct, fraud, and money laundering are just limited to compliance officers but are shared among all (SIC) investigating the details surrounding the assisting Management and line managers in a few of the many challenges that officers of the staff members. AML/CFT tasks and duties involve the suspicious transactions and documenting the educating staff on issues of compliance, and act Compliance Division face. A successful Compliance commitment of all Bank units and divisions. resolution. as a contact point within the Bank for compliance Officer is a qualified delegate that abides by the Bank’s identifying, documenting and assessing compliance queries from staff members; corporate culture, places emphasis on compliance, and risks associated with customer’s activities on a pro- providing technical expertise to AML/CFT delegates possesses the ability to manage compliance risks while active basis; by administrating in – house and external trainings. permitting business development. assessing the appropriate adequacy of the Bank’s monitoring compliance by performing sufficient

AML/CFT Procedural Framework Know Your Customer (KYC) is the due diligence that financial institutions must perform to identify their customers and establish related exercising an on-going monitoring on customers’ profiles and customers’ transactions throughout the course of the information relevant to doing business with them; KYC aims at preventing banks from being used intentionally or relationship. unintentionally by criminal elements for committing financial frauds, transfer or deposits of funds derived from criminal updating of customers profiles and establishment of a clean Database enabling as well the customer’s identification activity or financing terrorism. and verification processes as the assignment of adequate banking services and products to the right customers for business relationship enhancement. Establishment of Customer Identity The Bank establishes and maintains relationships exclusively with those customers whose source of wealth and funds, Establishment of Beneficial Owner as well as the nature of business activities undertaken with our Bank, can be reasonably established as legitimate. For Whenever the Bank is required to identify a customer, the ultimate beneficial owner(s) are also effectively identified. this purpose the Bank exercises due diligence on each prospective customer before entering into any relations with him or her and continuously monitors the legitimacy of customers’ businesses while providing banking services. In the Establishment of Account Purpose process of customer acceptance, the use of one or more internal and/or external applications for name checking is Prior to opening an account for a customer, the Bank gathers sufficient information from the customer concerning the mandatory. purpose and reasons for the opening of account.

Moreover a reasonably designed Risk Based Approach framework and methodology for customer identification and Enhanced Customer Due Diligence verification is applied when assessing the degrees of potential Money Laundering risks associated with customers Enhanced customer due diligence is performed on those customers identified with a higher risk profile, additional and transactions which represent higher risks to our Bank. In this respect Credit Libanais operates an Enhanced Due inquiries are made or information is obtained from those customers. Diligence (EDD) in customer screening and monitoring which relies on the following steps: application of appropriate Due Diligence when entering into relationship with customers.

102 Annual Report 2012 Credit Libanais Group 103 Sustainable Growth and Development

About the Foreign Account Tax AML/CFT Committee 2012 in Review Compliance Act (FATCA) The AML/CFT Committee ensures that crucial the head of AML/CFT. In doing so, the AML/CFT Special AML/CFT Assignments at CL compliance issues are coordinated and communicated Committee ensures coordination of the Compliance entities abroad function’s activities with the legal unit, risk control, throughout the Bank. Its main goal is to reflect the Those encompassed Cyprus, and Bahrain branches, Background: Under US law, US persons have always internal audit and other entities involved in compliance involvement of the whole bank’s Management in the as well as Credit International sa Senegal (CISA), been obligated to declare and pay taxes on all their at the Bank. The AML/CFT Committee also serves decision making process regarding AML/CFT issues. and the newly opened Iraq branches. Assignments assets including those held abroad. Its responsibilities are to determine the priorities of as the vehicle for informing and advising the Bank’s are conducted according to regulatory requirements Overview: The Foreign Account Tax Compliance the AML/CFT Compliance function and approve a Management Committee on essential and critical of related central banks, supervisory authorities, in Act (FATCA), enacted in 2010 as part of the Hiring compliance program on the basis of a proposal from compliance matters. addition to the Credit Libanais Group Policy of Anti- Incentives to Restore Employment (HIRE) Act, is Money Laundering and Counter Financing of Terrorism. an important development in U.S. efforts to combat All AML/CFT policies, procedures and related manuals tax evasion by U.S. persons holding investments in Compliance Management Tools are published on the Group Intranet portal and made offshore accounts. The latest tools are accessible to the AML/CFT function operation to facilitate the documentation and verification available to CL staff. Those include a set of rules Under FATCA, U.S. taxpayers with specified foreign for more efficiency and effectiveness. Those are: of AML (Anti-Money Laundering) KYC (Know Your to ensure a consistent level of protection against financial assets that exceed certain thresholds must Customer) and EDD (Enhanced Due Diligence) money laundering and the financing of terrorism report those assets to the IRS. In addition, FATCA will The AML/CFT Reporter compliance efforts. across CL Group, taking into account the special require foreign financial institutions to report directly At Credit Libanais Group, we have adopted the AML/ recommendations of GAFI (Groupe d’Action Financière to the IRS information about financial accounts held CFT Reporter, an automated activity monitoring The Alert Management and Check sur le Blanchiment de Capitaux), and incorporating strict by U.S. taxpayers, or held by foreign entities in which system designed to mitigate reputation and regulatory Surveillance Tool within AML/CFT Reporter measures to control operations and transactions, in U.S. taxpayers hold a substantial ownership interest. risk. In conjunction with the Bank’s AML/CFT The AML/CFT Reporter is implemented at both the line with the rules and regulations followed by financial In order to with these new reporting regulations, an program, the software helps meet the requirements branch level and the AML/CFT Compliance Unit institutions all over the world; AML/CFT/CFT policies FFI will have to complete the FATCA registration on of local regulators, as well as assists in meeting the level. An online system allows both ends to monitor put in place are in full compliance with applicable laws the IRS portal and enter into a special agreement international FATF and (Financial Action Task Force) accounts and analyze alerts when an unusual activities and regulations. and now MENAFATF (Middle East & North Africa suspicious customer profile breaks the expected client’s with the IRS. As per the latest IRS Notice, FATCA Following the latest requirements for future registration portal is projected to open by August Financial Action Task Force) recommendations. profile. implementation of the recently issued Foreign Account 19, 2013. The IRS intends to issue GIINs as FATCA AML/CFT Reporter is utilized to examine expected The Designated Name Filtering System Tax Compliance Act (FATCA), Credit Libanais has registration are finalized in 2014 and will post the account activity against actual transactions for the (DNFS) amended related KYC forms and performed enhanced first IRS FFI list by June 2014. To ensure inclusion detection of suspicious activities and the prevention This is an automated filtering tool that can assist the Due Diligence in response to the new FATCA US on the June 2, 2014 FFI list, an FFI must finalize its of money laundering. AML/CFT Reporter determines bank in comparing our customer database and funds requirements. Procedures are being amended to registration by April 25, 2014. Under the agreement profiles and activity expectancies to detect trend breaks transfer activity to International black listed names comply with the regulatory obligations leading to a “participating” FFI will have obligations to undertake and abnormal transactional behaviors. meeting all deadlines set in this respect. a series of complex identifications, due diligence and the ones provided by the Special Investigation procedures with respect to its accountholders and The AML/CFT Reporter software provides an analysis Commission (SIC), and other lists of undesirables certain payments processes and reporting to the IRS. of account activities, funds movements, and relations of published globally. The scanning process can be fund movements which can be emphasized on high-risk performed on several lists at the same time and keeps entities and geographies. The AML-Reporter software a complete record of its operation to maintain a detailed provides for customized and exportable reports and is history to support evidence of compliance with internal used maintains complete record of its monitoring requirements and international and local regulations.

104 Annual Report 2012 Credit Libanais Group 105 Sustainable Growth and Development

The Basel III package aims at strengthening global capital for Risk Management the purpose of promoting a more resilient banking sector. and Strategy

Board of Directors Chairman - General Manager

Risk Committee Risk Management and Strategy Chief Risk Officer Risk Policies and Strategy / ICAAP Risk Management Project Office / Credit Portfolio Management / Credit Risk Models Credit Risk Management Market, Country and Financial Institutions Risk Management Operational Risk Management Information Security Risk Management Business Continuity Planning

Risk Management and Strategy Risk Appetite Framework Enterprise-wide Risk Management The Risk Management and Strategy function is fully independent from the Our Group applies the following six overarching Framework (ERM) commercial lines of business; reporting directly to the Chairman - General principles in the identification, monitoring and Pursuant to the BCC Circular No. 242 dated June 30, Manager and the Board through the Board Risk Committee, the Risk management of risk throughout the organization: 2004, the Bank implemented a comprehensive ERM Management and Strategy covers all entities of CL Group locally and abroad. balancing risk and reward is achieved through (a) Framework that is appropriately scaled to recognize its aligning risk appetite with the Bank’s overall business size, complexity and risk profile. Under ERM, the Board The Risk Management and Strategy Division involves the management of strategy, (b) diversifying risk, (c) pricing appropriately is responsible for confirming the risk appetite/tolerance, major activities through an integrated strategic risk planning and process for risk, and (d) mitigating risk through preventive and monitoring compliance to risk management review. controls; processes. Management is responsible for identifying, evaluating, mitigating and reporting on risk exposures. The Bank’s management of risk is supported by sound risk management management of risk is shared at all levels of the practices and effective risk management framework. The cornerstone of the organization; framework is a strong risk management culture supported by a robust set effective decision making is based on a strong Basel II/III - Solvency Supervision of policies, as well as procedures and limits, managed by risk management understanding of risk; and Capital Adequacy Framework professionals and other functional teams. all business activities are conducted with a view of The Basel III new requirements are complementary not risking the Bank’s reputation; to the Basel II Accord. New capital and liquidity ensuring that provided services are suitable for and requirements were issued by the BCBS in December understood by the Bank’s customers; and 2010 and were revised in June 2011, covering capital applying appropriate judgment as a mandate adequacy, capital buffers, and liquidity risk management throughout the organization for the management of to be applied on a cross-border level, thus applicable risk.. to Group Credit Libanais local and foreign entities. In January 2013, the oversight body of the Basel

106 Annual Report 2012 Credit Libanais Group 107 Sustainable Growth and Development

Committee on Banking Supervision endorsed a the guidelines for enhancing Risk Management Risk Policies and Strategy / ICAAP business continuity plans; the outsourcing of services; package of amendments to the formulation of the practices and emphasizing the responsibilities of the the internal controls; the internal audit; monitoring and Liquidity Coverage Ratio announced in 2010. CRO and (b) updating on April 21, 2011, the BDL Basic ERM Policies Board reporting requirements. The Bank develops and implements appropriate and Circular No.106 relating to Corporate Governance, the The Basel III package aims at strengthening global prudent ERM policies, including the following: Market Risk Management BDL Basic Circular No. 118 setting guidelines for Board capital for the purpose of promoting a more resilient Market Risk Management’s fundamental parts include and board-level committees charters and the BDL Basic banking sector. Through its reform package, the Basel Capital Management implementing a policy that addresses the authorized Circular No. 77 setting guidelines for internal controls Committee also aims at improving Risk Management Capital Management’s fundamental elements include types, limits and concentration of investments, system. On December 7, 2011, the BDL announced, and Governance, as well as strengthening Banks’ implementing a policy that addresses the quantity, other financial instruments, and assets; the defined in its amended Basic Circular No. 44, a substantial transparency and disclosures. quality and composition of capital needed which reflect and prudent levels of decision-making authority; strengthening of existing capital requirements to be the Bank’s inherent risks and support the current and identifying, measuring, providing for and recording The BDL and the BCC immediately reacted to the first gradually implemented between 2012 and 2015. On planned operations; the distribution of dividends and market impairments; monitoring and Board reporting o set of requirements by: (a) issuing the BCC Circular January 29, 2013, the BCC issued Circular N . 275 redemptions of capital instruments to shareholders; requirements. No. 262 dated December 15, 2009 which set related to the Principles for liquidity risk management. monitoring and Board reporting requirements. Asset and Liability Risk Management Following are the ratios and deadlines introduced by the local regulatory authorities (more conservative than the Basel Credit Risk Management Asset and Liability Risk Management’s fundamental III requirements) Credit Risk Management’s fundamental components basics include implementing a policy that addresses include implementing a policy that addresses the the limits on the balance sheet mix and maturities of authorized types and classes of credit instruments; capital, deposits, loans and investments; criteria for As at 31 December 2012 2013 2014 2015 the limits or prohibitions on credit exposures including pricing of deposits and loans; limits on the exposure concentration; the assessment criteria and credit to Foreign Currency Risk; limits on the exposure to Common Equity Ratio 5% 6% 7% 8% risk mitigants for each authorized credit instrument; changes in interest rates; use of appropriate techniques Tier 1 Equity Ratio 8% 8.5% 9.5% 10% an effective credit assessment process; defined for measuring the Bank’s Asset and Liability Risk and and prudent levels of decision making authority for evaluating the potential impact under current and Capital Adequacy Ratio 10% 10.5% 11.5% 12% approving credit exposures; the management of reasonably foreseeable scenarios; the use of analysis delinquent and impaired loans; monitoring and Board and appropriate consultation for the purchase of BDL adopted a capital conservation buffer of 2.5% to be effective in 2015 and which is incorporated in the above reporting requirements. derivatives for hedging purposes; monitoring and Board ratios. Group CL performed capital stress tests which proved the Bank’s capacity to comply with the above new reporting requirements. Operational Risk Management regulatory ratios. Operational Risk Management’s fundamental Liquidity Risk Management constituents include implementing a policy that Liquidity Risk Management’s fundamental features addresses the defined and prudent levels of decision- include implementing a policy that addresses the limits making authority; the security and operation of the on the sources, quality and amount of liquid assets Management Information Systems; the technology to meet normal operational, contingency funding development and maintenance; the safeguarding of the for significant deposit withdrawals and regulatory Bank’s premises, assets and records of financial and requirements; monitoring and Board reporting other key information; the disaster recovery and requirements.

108 Annual Report 2012 Credit Libanais Group 109 Sustainable Growth and Development

Internal Capital Adequacy Assessment Process Risk Profile Capital Structure and Regulatory allowances which may be included as part of Tier 2 o Pursuant to the BDL circular N . 119 dated July 21, Capital Ratios Capital. 2008, the BDL has long held the view that banks should Based on the detailed analysis of the different types of The Bank is being supervised on consolidated and on operate with capital positions well above the minimum the Bank’s risks, the Bank considers that there is a low The Bank ensures that its capital levels at all times stand-alone basis and, as such, receives information on regulatory capital ratios, with an amount of capital risk of the Bank encountering difficulties in the future, exceed the Minimum Capital Requirements (MCR) the capital adequacy of, and sets capital requirements that is commensurate with each bank’s risk profile. considering its overall medium-low inherent risk, its established by the regulatory guidelines, according to for, the Bank as a whole. Individual branches and Banks should demonstrate to the BCC that they have acceptable internal governance and risk management the international standards of the BIS. The definition subsidiaries are directly regulated by their local banking robust, forward-looking capital planning processes, and control that are appropriate with its activities. The adopted by the BIS in its latest paper entitled “Basel supervisors, who set and monitor their capital adequacy which account for their inherent risks and that permit Bank is not concentrated on specific business areas, III: A Global Regulatory Framework for more Resilient requirements and monitored at Credit Libanais continued operations during times of economic and except mainly to the Lebanese Sovereign, which is a Banks and Banking Systems”, dated December 2010 Head Office level, which conducts fully consolidated financial stress. characteristic shared by most of the Lebanese Banks and revised on June 2011, distinguishes between two regulatory reporting. and its economic, and financial position (balance sheet types of capital: On October 20, 2010, the BCC issued memo 9/2010 to and income statement) reflects no weaknesses in terms Tier 1 capital consists of common shareholders’ Effective strategies and policies are being additionally provide a forward-looking approach for the evaluation of of either liquidity or profitability. equity and non-cumulative perpetual preferred shares established and reviewed periodically by the Bank, the Internal Capital Adequacy Assessment Processes keeping the predominant of Tier 1 capital as common with the aim of maintaining adequate levels of both (ICAAP) to ensure that banks hold adequate capital The Bank is deemed to have acceptable internal shares. Goodwill and other intangible assets should individual capital and own funds. governance, as it is reflected in its oversight from the to maintain ready access to funding, continue be deducted from common equity Tier 1; and Board and senior executive management, the policies operations and meet their obligations to creditors Tier 2 capital consists of the surplus of non- and procedures which ensure that all material risks and counterparties, and continue to serve as credit cumulative perpetual preferred shares, those not are appropriately identified, measured, monitored and intermediaries, even under adverse conditions. The eligible for inclusion in Tier 1 capital, the eligible CL Group implemented a controlled, the good level of capital commensurate with BCC requires all banks to submit an annual Internal portion of subordinated debentures and the eligible the risks, the Banks’ strategic focus and business plan comprehensive Enterprise Capital Adequacy Assessment Report (ICAAR) for its general allowance for credit risk. review. Banks submitted the first yearly ICAAR, on and the internal controls put in place to ensure integrity Risk Management a consolidated basis, to the BCC in 2011. The BCC of process. Group Credit Libanais maintains an actively managed evaluated this report across the following main areas of capital base to cover risks, inherent to the business. Framework appropriately Based on the review of all types of risk, the Bank’s supervisory consideration: (1) internal governance; (2) The adequacy of the Bank’s capital is monitored overall risk profile is ranked medium-low with some scaled to recognize its size, measurement of risks and quantification of the capital using, amongst other measures, the rules and ratios increasing trend, due to the unstable political and needed to cover them; (3) aggregation of the capital established by the BDL and the BCC. economic environment in Lebanon and the potential complexity and risk profile. needs; (4) capital planning; and (5) program of future future expansion plans into new markets. Noting that, Various limits are applied to elements of the capital measures. the level of Capital Adequacy Ratio is much higher than base: (i) qualifying Tier 2 Capital cannot exceed Tier 1 The Chairman - General Manager, the Board Risk the minimum regulatory requirement. Furthermore, the Capital; (ii) qualifying term non-equity preference share Committee, the ALCO, the Risk Management and quality of capital (Tier 1 ratio), the approved capital capital may not exceed 50% of Tier 1 Capital; and (iii) Strategy Division, and senior executive management target including the buffers and the capital planning, total of convertible and non-convertible preferred shares participated in the preparation and the review of the reflect appropriate levels. Therefore, the assessment of should not exceed 49% of Tier 1 capital. There are also ICAAR under audit supervision. solvency is ranked good. limitations on the amount of collective impairment

110 Annual Report 2012 Credit Libanais Group 111 Sustainable Growth and Development

Regulatory Capital Structure

2012 2011 2012 2011

Tier 1 Capital resources Tier 2 Capital Resources

Share capital 257.400 257.400 Medium to long-term subordinated debt instruments 113.063 113.063

Share premium account Preferred shares qualifying as Tier 2 instruments

Legal reserves and reserves for unspecified banking risks 138.482 118.717 Real estate revaluation approved by the BDL and qualifying under Tier 2 Capital 7.828 7.828

Other reserves 229.868 161.017 50% of the unrealized profit of the portfolios classified under the FVOCI 8.647 4.993

Retained earnings 123.963 115.269 (Other Tier 2 Capital Deductions) 36

Minority Interest 418 Total Tier 2 Capital 129.574 125.883

Profit and loss account (taking into account interim net losses) (Total capital investments and subordinated debt holdings deductible from Total capital base)

Foreign Currency Position (886) Total Capital 872.217 766.413

(Investment in own shares) Total Risk Weighted Assets 6.353.402 5.414.756

(Total unrealized losses arising from FVOCI portfolios) (3.052) Common Equity Ratio 11.69 % 11.83 %

Common Equity 750.131 648.465 Tier 1 Equity Ratio 11.69 % 11.83 %

Deductions from Common Equity Capital Adequacy Ratio (CAR) 13.73 % 14.15 %

(Intangible assets including goodwill) (4.971) (4.934)

(Significant minority investments including insurance organizations) (3.000) The above four ratios are by far higher than Basel II and Basel III regulatory requirements, so the Bank is considered (Excess over limits of articles 152 and 153 of the Code of Money and Credit) as well capitalized. (Shortfall in Provisions)

(Other Common Equity Deductions) Pillar 1 Minimum Capital Requirements (MCR)

Losses on Financial Assets held at FV OCI (2.517) The tables below set out the Minimum Capital Requirements and associated risk weighted assets for Group Credit Libanais with separate disclosures for the credit risk, market risk and operational risk requirements. Common Equity After Deductions 742.643 640.530

Non-cumulative perpetual preferred shares

Non-cumulative perpetual preferred shares premium account

Additional Tier 1 Capital

(Other Tier 1 Capital Deductions)

Total Tier 1 Capital 742.643 640.530

112 Annual Report 2012 Credit Libanais Group 113 Sustainable Growth and Development

Minimum Capital Requirements Market risk: Standardized Approach Disclosure of the level of Market Risk in terms of capital requirements and risk weighted assets as per the Standardized Approach. 2012 2011

Minimum Capital Requirements 2012 2011 Credit risk 463.900 391.342

Market risk 8.202 8.415 Equity Position Risk C/V millions LBP Operational risk 36.170 33.423 Interest Rate Risk 5.205 5.740

Total Minimum Capital Requirements 508.272 433.180 Foreign Exchange Risk 3.177 2.675 C/V millions LBP Commodity Risk Credit Risk: Standardized Approach by Exposure Class Total Capital Requirements for Market Risk 8.203 8.415 Total Risk Weighted Assets for Market Risk 102.535 105.191 Disclosure of the amount of exposures subject to the Standardized Approach of Credit Risk and their related risk weighted assets and capital requirements. Operational Risk: Basic Indicator Approach 2012 2011 Disclosure of the level of Operational Risk in terms of capital requirements and risk weighted assets as per the Basic Exposure Risk Weighted Capital Exposure Risk Weighted Capital Indicator Approach. Value Assets Requirement Value Assets Requirement

Central governments and central banks 6.642.366 2.504.311 200.345 5.917.502 2.270.103 181.608 2012 2011 Public Sector Entities (PSEs) 5.104 5.104 408 4.277 4.277 342

Banks 1.204.815 319.640 25.571 1.240.886 314.910 25.193 Capital Requirements for Operational Risk 36.170 33.423 Corporates 1.279.100 1.433.970 114.718 959.698 997.209 79.777 Risk Weighted Assets for Operational Risk 452.121 417.792 Small and Medium Enterprises (SMEs) 722.808 489.312 39.145 611.858 321.288 25.703 C/V millions LBP Retail 428.144 303.178 24.254 505.123 380.840 30.467 The capital calculated in this section, which is the Residential Mortgage Loan 963.102 337.086 26.968 854.810 299.183 23.935 Internal Capital Required (Pillar 1 + Pillar 2) Internal Capital Required, is the sum of the following Claims secured by Commercial Real Estate 36.715 36.715 2.937 43.437 43.437 3.475 risks: Securitization positions standardized approach 1.508 1.131 90 0 0 0 This section of the ICAAP relates to the identification and individual quantification of the different risks to For the assessment of Pillar 1 risks in the ICAAP (i.e. Non-performing loans 33.174 30.832 2.467 19.697 15.863 1.269 which the Bank is exposed and their subsequent credit, market and operational risks), the Bank uses the Other 571.723 337.468 26.997 470.552 244.662 19.573 aggregation. approach and result obtained under Pillar 1; and for Total for Credit Risk 11.888.559 5.798.747 463.900 10.627.841 4.891.773 391.342

114 Annual Report 2012 Credit Libanais Group 115 Sustainable Growth and Development

the remaining risks to be taken into account in the targets for the distribution of capital among the various capitalized, the management ensures that: and escalation, well beyond increasingly demanding ICAAP such as the qualitative requirements for credit, significant legally independent institutions, considering the Bank properly identifies and measures the risks regulatory requirements now leading to Basel III. The market and operational risk, and the quantitative and the individual risks of each entity, and specifically to which it is or will be exposed; ultimate objective remains to optimize the allocation of qualitative requirements for concentration, interest rate indicating the policy and capital targets of the Group. the process that states capital adequacy goals capital and reduce uncertainty, thus the cost of capital. risk in the banking book, liquidity, strategic, business Group Credit Libanais sets its capital targets that are with respect to risk, takes account of the Bank’s The newly started projects encompass: and reputational risks, the Bank makes its own the result of the ICAAP, which includes: strategic focus and business projected growth assisting in the implementation of the Board- estimates. Internal Capital Required calculated above; and all anticipated expansion plans locally and approved Code of Corporate Governance at all the the Bank’s future capital needs, for projected growth; internationally; Group entities level; Group Credit Libanais’ Internal Capital Required managing the Corporate Governance and Risk and and rigorous, forward-looking stress testing is under the ICAAP is the sum of the two following Management Committees’ agendas, documentation, the Bank’s strategic buffer of 2% addressed in its incorporated in the capital planning exercise. capital charges, required under Pillar 1 and Pillar 2 capital planning; and follow up on the implementation of related respectively: Based on the capital planning, the Bank projects the decisions; Minimum Capital Requirements under Pillar The aforementioned targets are compared with the capital needed to cover all the activities and their Head of Risk Management acted as the senior 1 provides the amount of the total regulatory capital effectively available at the Group level at the related risks, and then proactively takes the appropriate project sponsor for the implementation of the capital, which is the sum of the regulatory capital reporting date, stating any available own funds in decisions to enhance its capital base through steady Equation – core banking system which went live in requirements under Pillar 1, for credit, market and excess or shortage of the limits. earnings retention ensuring the following: 2012. This included a full review and reengineering of operational risk. It only covers their quantitative maintaining the regulatory and economic capital ratio, all the bank processes and internal controls/ security embedded within the bank’s operations; regulatory requirements; Capital Planning covering both Pillar 1 and Pillar 2 (plus additional contribution to the upgrading of the data warehouse Total Pillar 2 qualitative and quantitative capital The Bank ensures that it operates in a safe and sound strategic buffer); the latter includes a proper for timely database risk aggregation at the Group charge reflects the aggregate amount of internal manner and that it holds sufficient capital and reserves coverage of the planned growth and expansion of the level; capital which is the sum of the quantification of the against inherent risks to its business, and therefore, Bank; qualitative and quantitative capital required, to cover the Bank considers not only the current situation, but abiding by the Basel III requirements, as required by Credit Portfolio Management the risks faced by the Bank not covered under Pillar also projected business and regulatory developments. the local regulatory authorities; The Bank’s approach to controlling various risks begins 1. This required additional capital is based on the In addition, what calls for efficient capital management maintaining a balance between the Capital Adequacy with optimizing the diversification of its commitments. methodologies used by the Bank to determine capital is the Bank’s ambitious expansion plans in general Ratio (CAR) and the return expected from the The management criteria set out in its internal policies for the various risks; and and the strategic decision in particular where solvency shareholders, in particular the Return on Equity and procedures include measures designed to maintain The Internal Capital Required is considered in the prevails over profitability. (ROE); and a healthy degree of diversification of credit risk in its capital planning, and is finally used to determine the supporting the Bank’s strategy as approved by the In light of the new Basel III requirements and Group portfolios as set out in the BDL Basic Circular No.48, Capital Target, since the Bank should, in the present Board. Credit Libanais’ expansion plans locally and abroad, dated August 13, 1998 and its amendments. These and also in the future period covered by its capital a semi-annual 5-year capital planning exercise is instructions are mainly reflected in the application of plan, hold a level of capital tailored to its risks and an Risk Management Project Office prepared, on a consolidated and stand-alone basis, various limits on the scope of its commitments. appropriate buffer in excess of its MCR under Pillar 1. which is presented to the Board after being approved by In 2012, Risk Management launched several internal The criteria established for portfolio diversification the ALCO and the Board Risk Committee. projects or organizational improvements aiming at a and the specific limits set for economic, industrial or Capital Targets proper measurement and management of risks within a geographical sectors are based on the findings of Group Credit Libanais indicates its policies and Upon assessing whether the Bank is appropriately governance structure ensuring timely information sector-based studies and analyses conducted by

116 Annual Report 2012 Credit Libanais Group 117 Sustainable Growth and Development

the Risk Management and Strategy Division at Group credit facilities granted to a business or individuals (e) ensuring that appropriate plans and procedures for location, currency and maturity; (c) credit approval level, and are approved by the Credit Policy Committee. engaged in activities inconsistent with generally CRM are in place. authority at various hierarchy levels including authority Continuous analyses are performed to anticipate accepted standards of ethical behavior in the for approving excesses and exceptions; (d) limit problems with a sector or borrower before they community. Credit Risk Tolerance/Appetite setting; (e) loan rating, classification and related materialize as defaulted payments. The Bank has in place a Board-approved statement of pricing criteria; (f) eligible Credit Risk Mitigants (i.e. Credit Risk Management Credit Risk Management credit risk appetite. collaterals, guarantees, credit derivatives); (g) detailed Framework and formalized standard credit evaluation process; Our credit risk management principles are guided by The Credit Risk Management (CRM) Framework Credit Strategy (h) risk identification, measurement, monitoring and the six overall risk management principles discussed in is broadly categorized into the following main The first purpose of the Bank’s credit strategy is to control; (i) risk acceptance criteria; (j) procedures the Risk Management overview section. In particular, components: (a) the Board, its Risk Committee, the determine the risk appetite of the Bank, and to develop for credit origination, credit administration and loan the following two principles are complemented by the Credit Policy Committee, Credit Committees and senior a plan to optimize return while keeping credit risk within documentation; and (k) the guidelines on management items below with respect to credit risk management. executive management’s oversight; (b) organizational of problem loans including the loan loss provisioning The effective balancing of risk and return is achieved predetermined limits. The Bank gives due consideration structure; and (c) systems and procedures for and impairment policies. through: to its target markets. The strategy provides continuity identification, acceptance, measurement, monitoring ensuring that credit quality is not compromised for in approach and takes into account the cyclic aspect and control of risks. In order to be effective, these policies are clear and of a country’s economy and the resulting shifts in growth; disseminated to all the concerned parties in the composition and quality of overall credit portfolio. While diversifying credit risks in transactions, relationships Credit Risk Governance Bank. In case of any significant deviation/exception the strategy is reviewed periodically and amended, and portfolios; to these policies, the latter is communicated to Board Oversight as deemed necessary, it is viable in the long term and using our credit risk rating and scoring systems, senior executive management, which is responsible Pursuant to the BCC circular 242 dated June 30, 2004, through various economic cycles. policies and tools; to take the appropriate corrective measures and to it is the overall responsibility of the Board to approve appropriate pricing of the credit risks taken; report deficiencies to the Board and its delegated the Bank’s Credit Risk strategy and significant policies Credit Risk Policy applying consistent credit risk exposure committees in particular the Credit Policy Committee relating to credit risk and its management. This should Credit Risk Management contributes together with measurements; and and Risk Committee. It is the prime responsibility of be based on the Bank’s overall business strategy which senior executive management to develop and establish mitigating credit risk through prevention and early senior executive management to ensure effective detection controls. is reviewed by the Board, at least once annually. The credit risk policies and credit administration procedures, implementation of the Risk policies approved by the responsibilities of the Board include: (a) delineating as part of the overall CRM Framework. Such policies Board. Our business activities are conducted in such a way as the Bank’s overall risk tolerance/appetite in relation to and procedures provide guidance to the staff on various to avoid any reputational risks. The Bank has selective credit risk in the Bank strategy; (b) ensuring that Bank’s types of lending including corporate, SME, retail lending Limit setting lending criteria in this respect, such as avoiding: overall credit risk exposure is maintained at prudent products, corporate finance, etc. granting credit to entities subject to economic levels and consistent with the available capital; (c) Limits are used to ensure the portfolio is well diversified sanctions; ensuring that senior executive management as well The policy includes (a) the roles and responsibilities of and within the risk tolerance/appetite, as approved credit transactions that facilitate illegal activity, or as individuals responsible for CRM possess sound units/staff involved in CRM such as credit origination, by the Board. The credit limits are established at the contribute to misleading financial statements or expertise and knowledge, to accomplish the CRM credit analysis, credit approval, credit administration following levels to ensure adequate diversification and regulatory reporting; function; (d) ensuring that the Bank implements sound and credit review; (b) credit portfolio distribution by to reduce concentration risk: credit transactions involving undocumented fundamental principles that facilitate the identification, customer segments (i.e. commercial, consumer, real entity; agreements, disbursements or funds transfers; and measurement, monitoring and control of credit risk; and estate, etc.), products, economic sectors, geographical one single group of interconnected obligors;

118 Annual Report 2012 Credit Libanais Group 119 Sustainable Growth and Development

The Bank ensures that it operates in a safe and

sound manner and that it holds sufficient capital Commercial Loans Corporate and Retail Commercial), RM/AM is responsible for the daily monitoring and performance and reserves against inherent risks. For commercial loans, the Bank’s credit approval of the facilities, as well as ensuring that the funds are process is either initiated by a relationship manager used for the purpose stated in the loan application. (RM) for corporate clients with a turnover above US$ economic sector; conducting comprehensive studies on the environment Regular visits are made to the borrowers’ premises, 2 million or total aggregate facilities exceeding US$ type of product and segment; to test the resilience of the loan portfolio. and every borrower is submitted for at least one annual 500,000- and by the branch or the account manager term loans; review and assessment of its facilities by the RM/AM to (AM) for Retail Commercial clients (SMEs) with a currency; Credit Origination the respective credit committees. Review and renewal turnover below US$ 2 million or total aggregate facilities geographic (country and region); and of facilities are subject to the same approval process The Bank operates within a sound and well-defined below US$ 500,000-. Credit presentations are prepared credit risk mitigation limits. as the original granted facilities. The respective Credit criteria for new credits, as well as for the expansion and submitted by the RM/AM based on the bank’s Departments are also responsible for monitoring the of existing credits. Credits are extended within the Standard Credit Presentation (SCP) including spread Credit Risk Management Functions markets in which the Bank’s borrowers operate, in target markets and lending strategy of the Bank. and proposed internal rating based on the Moody’s order to foresee any significant changes that might To maintain the overall credit risk exposure within the Before approving any credit facility, the Bank makes model, to the relevant Credit Committee members affect, either adversely or favorably, the borrowers’ parameters set by the Board, the Bank established a an assessment of the risk profile of the customer/ and in parallel to the Credit Risk analysts, at least 48 performance and provides adequate recommendations sound risk management structure to facilitate effective transaction. This includes (a) credit assessment of the working hours prior to the Credit Committee meetings. for corrective actions as deemed appropriate. management oversight and proper execution of CRM borrower’s industry, and macroeconomic factors; (b) the An independent credit risk review is performed by the and control processes as follows: purpose of credit and source of repayment; (c) the track Credit Risk analysts and recommendation is provided Retail Lending Products record/repayment history of borrower; (d) assessment/ to be taken into consideration by the Credit Committee Credit Risk Management For Retail Lending Products, the Bank’s credit initiation evaluation of the cash flow and repayment capacity of members prior to taking a final decision. The Bank’s Credit Risk Management, fully independent the borrower; (e) the proposed terms and conditions process begins at the branch level or at the dealers from the commercial lines of business, and reporting and covenants; (f) adequacy and enforceability of Once approved, all reviewed or new files, whether level, where applications are submitted based on a directly to the Chief Risk Officer, ensures clear collaterals; and (g) approval from the appropriate related to a corporate or retail commercial facility, are standard application form. segregation of functions. Responsibilities of the authority in the Bank. In case of new relationships, submitted to the respective Credit Administration and The credit application information is replicated on the Credit Risk Management include: (a) following a consideration is given to the integrity, reputation and Control Department for review before disbursement FICO system, in order to generate a risk score for the holistic approach in management of risks inherent in creditworthiness of the borrower or counterparty, as after having been completed by RM/AM, in order to loan in a standardized manner to assist in the decision the Bank portfolio and ensuring that the risks remain well as its legal powers to assume the liability. However, monitor that all the required terms and conditions as process. within the limits established by the Board;(b) ensuring the Bank does not grant credit simply on the basis of approved by the Credit Committee are duly satisfied, that business lines comply with risk parameters the fact that the borrower is perceived to be highly and the credit file is prepared in line with the BCC The respective Retail Lending Unit reviews the and prudential limits established by the Board; (c) reputable, thus name lending is discouraged. Upon circular 238. CAC Department ensures that in the event application, performs the preliminary credit assessment establishing systems and procedures relating to structuring credit facilities, the Bank appraises the of any eventual deviations, approvals are obtained and forwards the application with the recommendation risk identification, Management Information System, amount and timing of the cash flows, as well as the from the appropriate authorities prior to disbursement to the respective delegated Credit Committee for monitoring of loan/investment portfolio quality, early financial position of the borrower and purpose of the of facilities and input of the credit limits into the Bank’s decision. Decisions are based on the Lending products warning signals and impairments; (d) working out funding. Due consideration is given to the risk reward computer system. standard criteria approved by the Bank. remedial measures when deficiencies/problems are trade–off in granting a credit facility and credit is priced identified; and (e) undertaking portfolio evaluations and to cover all embedded costs and return on Equity. Once disbursed, the Credit Department (at both

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Credit Administration past due loans. Moody’s Financial Analyst and Risk Advisor has been approved by authorized credit committees. Credit Risk Mitigation, according to the BDL Basic used and constantly upgraded by the Bank since 2003, In line with the BDL Basic Circular No.58 as amended The Credit Administration Function is an essential Circular No.121 and the BCC Circular No.261, which as an internal system for credit rating. This international monitoring part of the credit granting process and is a technique used to reduce credit risks associated system allows the Bank to assess and rate borrowers on April 27, 2011, banks must have an internal risk performs the following major functions: with an exposure through the application of Credit based on the following levels: financial results and rating system mapped to the BDL classification. The a. Documentation Risk Mitigants. The Bank uses the comprehensive projections, risk rating, facility rating and probability of internal risk rating system should consist, at a minimum, b. Credit Disbursement approach for the treatment of collateral, which default. Such rating tools combine automated scoring often ratings. The following table maps the BDL c. Credit Monitoring allows fuller offset of collateral against exposures, techniques and qualitative assessments, ultimately classification versus Moody’s risk rating: d. Loan Repayment by effectively reducing the exposure amount e. Maintenance of Credit Files by the value ascribed to the collateral. Partial f. Collateral and Security Documents collateralization is recognized in this approach. BDL Supervisory Classification BDL Supervisory Description Moody’s Loan Grading Moody’s Loan Grading Description Mismatches in the maturity of the underlying Credit Risk Measurement exposure and the collateral are also allowed, with 1 Normal 1 Excellent Consistently with Basel II guidelines, our credit risk haircuts, under this approach. 1 Normal 2 Strong exposures are classified as corporate, small and medium enterprises (SME), and retail products Internal Risk Rating 1 Normal 3 Good portfolios. The Credit Risk Rating is a summary indicator of the 1 Normal 4 Satisfactory Bank’s individual credit exposure. An internal rating 2 Follow up 5 Adequate Capitalization under Pillar 1 system categorizes all credits into various classes on In the calculation of the Credit Risk capital requirements the basis of underlying credit quality. 3 Watch and Settlement 6 Marginal for Group CL, the following guidelines are adopted: 3 Watch and Settlement 7 Vulnerable effective 2008, Group CL has adopted the Credit Libanais uses Moody’s for Credit Risk Rating Standardized Approach, according to the BDL of commercial facilities and Fair Isaac Incorporation 4 Substandard 8 Substandard Basic Circular No.104. In addition to preparing for (FICO) for credit scoring for Retail Lending Products. 5 Doubtful 9 Doubtful the adoption of the Foundation IRB Approach in the future (starting Credit Risk Rating System 6 Loss 10 Loss the Bank is in the process of collecting data on The corporate and SME Credit Risk Rating System is ratings and defaults, in order to conduct a calibration designed to measure and identify the risks inherent and validation exercise, in line with the Basel in our credit activities in an accurate and consistent Credit Risk Scoring System requirements and calculate the respective Probability manner. Each obligor is assigned a borrower rating of Defaults (PDs); (BR), reflecting the probability of default (PD), after an Credit Libanais implemented in January 2011 the easier to ensure compliance with the Bank’s Credit Risk distribution of Loans portfolio, according to the BDL assessment of the credit quality of the obligor. Fair Isaac Corporation (FICO) system that provides a Policy parameters, by deploying automated business Basic Circular No.115, which classifies the credit Generally, the key risk factors assessed include industry, single, flexible, accessible and consistent way of rapidly rules and scoring processes. The FICO solution exposures as Retail, SME, Corporate, Residential markets, firm competitiveness, company strategy, processing credit applications related to retail lending facilitates the use of risk-based decision- making as a and Commercial Real Estate portfolios, as well as management quality and financial performance. products. Implementing the FICO system makes it tool, thus enabling the Bank to be more risk oriented in

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its customer selection. the life of the credit risk rating and scoring systems to as per facility terms, the adequacy of provisions, the prescribed limits. It also defines the authorities for The following credit risk enhancements are highlighted ascertain the applicability of the systems to the Bank’s overall risk profile is within the limits established by unsecured credit while remaining within the BDL limits, below: portfolios after their testing phase. The validation management and compliance of regulatory limits. approvals of disbursement in excess of limits and other origination decisions are automated, with minimal process provides confirmation that the systems Establishing an efficient and effective credit monitoring exceptions to credit policy. human intervention; properly identify factors that help discriminate risks, system helps senior executive management monitor credit risk and credit policies are consistently applied, appropriately quantify them, produce measures of risk the overall quality of the total credit portfolio and its Managing Problem Credits and controlled; that respond to changes in the macroeconomic and trends. Consequently, the management fine tunes or The Bank establishes strict systems and policies to reassesses its credit strategy/policy accordingly before exception and override rates are decreased, i.e. credit environments, and are consistent with regulatory identify and follow up on problem loans in line with the encountering any major setback. decisions which require “manual override” are requirements and the bank’s rating philosophy and guidelines specified in the BDL Circular No.58 and its minimized; account acquisition is increased with policies. The Bank’s credit policy explicitly provides procedural amendments. Once the loan is identified as problem, cross product selling; guidelines relating to credit risk monitoring. It lays down it is managed under a dedicated remedial function profitability is increased with up-selling and down- The Bank ensures that there is proper segregation of procedure relating to: (a) the roles and responsibilities independent of the originating business lines. The selling; responsibilities between (i) a transaction origination of individuals responsible for credit risk monitoring; (b) resources, expertise and more concentrated focus of acceptance rates are increased; and approval which takes place within the business the assessment procedures and analysis techniques for this function improve collection results. credit decisions are made in a prompt and efficient segments, and (ii) design, development and individual loans and overall portfolio; (c) the frequency The problem loan management process encompasses manner with a standardized process; maintenance of the risk rating methodologies. of monitoring; (d) the periodic examination of collaterals the following elements at least: analyses and reporting processes are effective and and loan covenants; (e) the frequency of site visits; and a. Negotiation and follow-up: a proactive effort is timely; Validation of the Credit Risk Rating (f) the identification of any deterioration in any loan. taken in dealing with defaulting obligors to implement delinquency rates are reduced and monitored; any Credit risk models must provide a robust assessment remedial plans, by maintaining frequent contact potential changes to Credit Policy may be tested and of the obligors within a portfolio. In order to build and Delegation of Authority and internal records of follow-up actions. Rigorous applied promptly; test such models, the Bank needs objective measures The Bank establishes responsibility for credit sanctions efforts made at an early stage prevent the Bank from competitive advantage arises due to improved speed of the credit quality of comparable obligors to provide and delegates authority to approve credits or changes litigations and loan losses. of processing; and one or more performance measures. The performance in credit terms. The Board approves the overall lending b. Workout remedial strategies: sometimes potential increase in revenue may be anticipated due measure of choice is whether an obligor defaults on its authority structure, and explicitly delegates credit appropriate remedial strategies such as restructuring to expected increase in customer base. commitments within a year of the credit assessment. sanctioning authority to senior executive management of loan facility, enhancement in credit limits or The proven FICO methodology allows the Bank to and the Credit Committees. Lending authority assigned reduction in interest rates help improve obligor’s improve and streamline the scorecard development Credit Risk Monitoring and Control to officers is commensurate with the experience, ability repayment capacity. However, this depends upon process, which translates into tangible business Credit risk monitoring refers to continuous monitoring and personal character. The Bank develops risk-based business condition, the nature of problems being benefits. Implementing new scoring models into the of individual credits inclusive of off-balance sheet authority structures where lending power is tied to the faced and most importantly the obligor’s commitment origination process, will lead to an improvement of the exposures to obligors, as well as the overall credit risk ratings of the obligor. The Bank adopts multiple and willingness to repay the loan. overall credit decision-making process. portfolio of the Bank. The Bank enunciates a system credit approval levels for the credit origination such as c. Review of collateral and security document: Risk Rating and Scoring Systems that enables it monitor the quality of the credit portfolio credit ratings, risk approvals etc. to institute an effective the Bank ascertains the loan recoverable amount by on a day-to-day basis and take remedial measures as system of checks and balances. The Credit Risk Policy marking to market the values of available collateral Validation Process and when any deterioration occurs. This enables the specifies the escalation process to ensure appropriate with formal valuation. Security documents are also Adequate validation testing is being conducted over Bank to ascertain whether loans are being serviced reporting and approval of credit extension beyond reviewed to ensure the completeness and

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enforceability of contracts and collateral/guarantee in the economic sector or the country where the loans believes that it has satisfied all related requirements. interest”. The BDL considers a loan to be “Non- hand. are used, rescheduled loans more than once since On the other hand, the Bank has already started Performing”, if partial or full provisions are required in d. Status Report and Review: problem credits are the date of granting, 10% excess over limit and the preparations to comply with the terms of the BDL accordance with the BDL’s loan rating regulations (i.e. subject to more frequent reviews and monitoring. The customer has non-performing loans at other banks. Intermediary Circular No.256 dated April 27, 2011, loans rated as “substandard,” “doubtful” or “loss”). A review updates the status and development of the These loans are reviewed on a semi-annual basis; which amended the BDL Basic Circular No.58 and loan loss provision is constituted based on loan defaults loan accounts and progress of the remedial plans. 4. loans rated “substandard” represent non-performing which become compulsory by 2012. and the cash flow expected from the value of any Progress made on problem loans is reported to the loans with deteriorating creditworthiness and collateral. The Bank periodically reviews the entire loan portfolio Recovery Committee, including all the proposals for witnessing unpaid facilities or excesses exceeding 90 and allocates provisions for loans assessed as doubtful o impairment and provisioning in accordance with the days and below 180 days overdue repayment. For With reference to the BDL Circular N .50 dated October or inadequately secured. In addition to the BCC’s recovery progress. these classified loans, all interest and commissions 15, 1998, and its amendments, Banks are required to periodic reviews, the Bank’s external and internal maintain, on an annual basis, a general reserve (which are reserved and no longer recognized in the income auditors conduct an annual review of the Bank’s loan Policy and Tools for the Monitoring is included in Tier 1 Capital and charged against net statement of the Bank; portfolio, and provide recommendations for allocation and Recovery of Impaired Assets profits) for unspecified risks of an amount equal to a 5. loans rated “doubtful” represent loans that display of additional or new provisions, in case not taken by o minimum of 0.2% and a maximum of 0.3% of a Bank’s The BDL Basic Circular N .58, amended on April 27, most of the criteria of “substandard loans” albeit the respective business owners or CRMD. A general total RWA, as determined with reference to the BDL’s 2011, requires all Banks and Financial Institutions in with a higher degree of severity. Partial principal provision for retail product loans is based principally capital adequacy requirements. This reserve is required Lebanon to rate loans in six categories as follows: provision should be allocated against the loans after on delinquencies, historical loss rates and the overall 1. loans rated “normal” represent loans that an impairment review taking into consideration the volume of the retail lending portfolio. to reach 1.25% of RWA, at the end of the tenth fiscal systematically respect all engagements and expected cash flow to be generated from any existing year and 2% of RWA, at the end of the twentieth fiscal conditions relative to granted lines, they are reviewed credit risk mitigants. All interest and commissions Retail Lending Products are automatically assigned a year, which the Bank is in compliance with. on an annual basis; are reserved and no longer recognized in the income BDL rating 3 and interest is reserved when they have 2. loans rated “follow up” represent loans that show statement of the Bank; and a delinquency rate above 90 days and 120 days for Settlement Risk some reduction in profitability, have missing 6. loans rated “loss” represent loans that display most home loans. As for all other Commercial facilities, they Our trading activities may give rise to risk at the time of documents, are not in full compliance with the BDL of the criteria of “doubtful loans” and denote a very immediately receive a non-accrual status if, in the settlement of those trades. Settlement risk is the risk of and the BCC Circulars and have been overdue for limited or non-existent capacity of reimbursement. opinion of the Bank’s management and related credit loss due to the failure of the counterparty to honor their review for more than six months. They are reviewed Full provisions should be allocated against these committee, principal or interest is not likely to be paid, obligations to deliver cash, securities or other assets as on an annual basis; loans and all interest and commissions are reserved in accordance with the terms of the loan agreement, contractually agreed. 3. loans rated “watch and settlement” represent loans and no longer recognized in the income statement of or when principal or interest is 90 days or more past For many types of transactions, we mitigate the for which repayments are between 60 and 90 days in the Bank. due. Effective as of the date on which a loan receives a arrears, show a decline in cash flows and profitability, non-accrual status, interest income (including interest settlement risk by closing the transaction through a weakness in the solvency of the customers which are Full compliance with the BDL Basic Circular No.58 accrued but not collected) ceases to be accrued in the clearing agent, who effectively acts as a stakeholder for highly leveraged, deteriorating conditions of became compulsory in July 1999, and the Bank statement of income and is allocated as “unearned both parties, only settling the trade once both parties

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have fulfilled their sides of the bargain. Where no Social and Environmental without significantly affecting the market price because exposed to in its banking book is assessed from both, such settlement system exists, the simultaneous Management System (SEMS) of inadequate market depth or market disruption. In the net interest income and the economic value of commencement of the payment and the delivery any trading activity, market risk arises from both, open equity (EVE) perspectives using a number of methods, parts of the transaction is common practice between The Credit Risk Management has developed the (unhedged) positions and from imperfect correlation including interest rate re-pricing gap analysis according trading partners (free settlement). In these cases, we SEMS with the basic objective of ensuring that the between market positions that are intended to offset to the BCCL circular no 250 dated May 23, 2006 may seek to mitigate our settlement risk through the environmental and social implications of a potential one another. The overall objective of managing market and duration gap analysis required by the regulatory execution of bilateral payment netting agreements. customer are identified and assessed early in the risk is to avoid unexpected losses due to changes authorities on stand-alone and consolidated levels. On Acceptance of settlement risk on free settlement Bank’s planning and decision making process and that in market prices and to optimize the use of market the other hand, the management of interest rate risk in trades requires approval from the Financial Institutions these environmental considerations are incorporated risk capital. The Bank manages these potential the trading book is achieved through mark-to-market, Credit Committee, either in the form of pre- approved into the preparation and approval of facilities. The exposures on a daily basis within pre-defined limits limit establishment, exposure and sensitivity analysis. settlement risk limits, or through transaction- specific procedures outline how the Bank incorporates these for each of the major types of market risk established Group Credit Libanais’ interest rate risk positions are approvals. We do not aggregate settlement risk objectives into its overall appraisal process and, during within the Bank’s policies and commensurate with monitored by Treasury and Market Risk Management, limits with other credit exposures for credit approval implementation, at a practical level. The procedures the risk appetite defined by the Board of Directors. and hedging strategies are used to ensure positions are purposes, however, we take the aggregate exposure summarize the nature of environmental appraisal and Furthermore, the Market Risk Management function maintained within established limits. into account when we consider whether a given monitoring activities undertaken during the different conducts identification, quantification and management One of the principal objectives of Group Credit Libanais settlement risk would be acceptable. stages of a project life cycle and the responsibilities reports on a periodical basis, in order to gain timely and Market Risk Management of non-trading portfolios is to for carrying them out. The purpose of such procedures accurate exposure understanding. optimize net interest income. In order to manage this Environmental and Social Risks is to improve the decision making process and to risk optimally, the function is under the supervision of ensure that the loan under consideration is socially and Interest Rate Risk in the Trading The Bank continuously endeavors to ensure effective the Group Asset and Liability Committee (ALCO). environmentally sound and sustainable. and the Non-trading (Banking) Book Social and Environmental Management practices in all When the behavioral characteristics of a product differ Group Credit Libanais defines interest rate risk as the its lending activities and seeks to effectively manage from its contractual characteristics, they are assessed Market, Country and Financial risk that the interest income of the Group changes and mitigate environmental and social risks in the to determine the true underlying interest rate risk. Institutions Risk Management due to a change in interest rates and that the change projects they finance. Group ALCO regularly monitors all such behavioral in value of the Group’s financial assets in the banking Market Risk Management assumptions and interest rate risk positions, to ensure book, representing financial assets other than those International Finance Corporation Market risk is defined as the risk residing in the they comply with interest rate risk limits. categorized as trading assets does not match the (IFC) movements of financial market prices that will therefore change in value of the Group’s liabilities due to a Group Credit Libanais is directed by its agreement impact the value of the Bank’s trading portfolios. Group Sensitivity of Net Interest Income change in interest rates. Interest rate risk arises with the IFC to adhere to sound banking principles and Credit Libanais is exposed to market risk through primarily from the fact that the re-pricing period of the A principal part of the Group’s management of market promote the full range of its activities in environmentally its trading activities, which are carried out both for Group’s assets typically exceeds the re-pricing period of risk in non-trading portfolios is to monitor the sensitivity and socially reliable developments. The Bank customers and on a proprietary basis. There are the Group’s liabilities (maturity mismatch). of projected net interest income under varying interest addresses this mandate and its general principles by several major sources of market risk including interest rate scenarios (simulation modeling). The group aims, ensuring that all loans granted to customers undergo rate, foreign exchange, equity price, commodities, credit Treasury activity and mismatches between the re- through its management of market risk in non-trading environmental and social appraisal along with the spread, volatility risks and correlation risks. Market risk pricing of assets and liabilities in retail and commercial portfolios, to mitigate the impact of prospective interest financial, economic and legal analysis of customers includes market liquidity risk, which is the risk that the banking operations account for most of the non-trading rate movements which could reduce future net interest prior to granting any facilities. Bank cannot easily offset or eliminate a position interest rate risk. The interest rate risk the Bank is income, while balancing the cost of hedging such

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activities on the current revenue stream. committee (ALCO). Foreign exchange differences Throughout the consist of cash and balances with Central banks, The change in interest income is calculated over a arising from the translation of foreign operations are deposits with banks and financial institutions less 1-year period. The impact also incorporates the fact recognized directly in equity together with the effective international market deposits from banks and financial institutions and that some monetary items do not immediately respond portion of foreign exchange differences arising from deposits that mature within one year. In addition, The to changes in interest rates. This lag in response time hedging instruments. turbulence, the Bank’s Central Bank imposes that the Bank’s loan to deposits is estimated based on historical relationships and ratio does not exceed 70% and that net foreign The Bank is allowed to hold a net trading position not stress testing program is reflected in the outcome that sensitivities to rate currency liquidity over the Bank’s Liabilities should be increases are different than those to rate decreases. exceeding 1% of its net shareholders’ equity, as long as is still applied and its no less than 10%. The frequency of the measurement of the interest rate the global foreign position does not exceed 40% of its Moreover, the Bank is abiding with the new Liquidity risk in the banking book of Group Credit Libanais is set net shareholders’ equity, and that at the same time the components softly Coverage Ratio (LCR) and Net Stable Funding Ratio to one month. Bank is abiding in a timely and consistent manner with the required solvency ratios (the BDL Basic Circular defined. (NSFR) as required by the Basel III framework. No.32 dated April 24, 1997). Foreign Exchange Risk (Currency Stress Testing Risk) Equity Position Risk The Bank introduced extensive stress testing as an Non-trading currency risk derives from the Group’s anticipatory measure to the unprecedented strains that The bank has established a comprehensive transaction obligations when they become due, without incurring investments in overseas subsidiaries, associates and started in 2008 which have confirmed the validity of and position based limits framework against which unacceptable losses. The Market Risk Management branches. Credit Libanais does not maintain material the Bank’s proactive efforts at this level. Throughout regular monitoring is performed. Department in coordination with the Treasury non-trading open currency positions in line with local the international market turbulence, the Bank’s stress regulatory requirements, other than the structural Department submits its proposals for the optimization of The Group sets tight limits on equity exposures and testing program refinement is still being applied and its foreign currency translation exposures arising from the structure of assets and borrowed funds and on risk the types of equity instruments that traders are allowed components are being softly defined without neglecting its investments in foreign subsidiaries and associated mitigation through the diversification of funding sources, to take positions in as part of the Investment Policy. bank-wide risk concentrations. For Credit Risk undertakings and their related currency funding. aiming at maintaining a healthy balance of cash, cash Nevertheless, depending on the complexity of financial Management purposes, the Bank performs stress tests equivalents, and liquid instruments. to assess the impact of changes in general economic Credit Libanais applies various hedging strategies to instruments, equity risk is first measured in cash conditions on the Bank’s credit exposures as well as the manage and minimize adverse effects arising from terms, such as the market value of a stock, in index The Liquidity Risk Management Policy establishes impact on the creditworthiness of the Bank’s portfolio. these exposures. The Bank’s policy in relation to position, and also in price sensitivities, such as the specific gap limits and includes cash flow projections Among other things, the results of these stress tests structural positions is to selectively hedge the structural sensitivity of the value of a portfolio to changes in the and emergency funding mechanisms. The monitoring enable the Bank to assess the impact of significant foreign currency exposure arising from net asset value, underlying asset price. These measures are applied and control of liquidity risk is established on an ongoing changes in the frequency and/or severity of operational including goodwill, pertaining to foreign subsidiaries, to an individual position and/or to a portfolio of equity basis and involves balance sheet ratio analysis and risk events. equity accounted investments and branches, except products. the measurement of the cash flow gaps and stress where doing so would materially increase the sensitivity positions. In accordance with the Central Bank of For Liquidity Risk Management purposes, the Bank of the Group’s regulatory capital ratios to currency Liquidity Risk and Funding Lebanon circulars, the ratio of net liquid assets to performs stress tests and scenario analyses to evaluate movements. The policy requires structural and capital Management deposits and commitments in foreign currencies and the impact of sudden stress events on our liquidity ratio foreign exchange positions to be reviewed Credit Libanais defines liquidity risk as the risk arising Lebanese Pounds should not be less than 10% and position in response to a specific or general market regularly by the Group Asset and Liability Management from the Group’s potential inability to meet its 40%, respectively. The highly liquid net assets liquidity crisis. Several stress testing scenarios are

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established through quantitative analysis of the liquidity limits are already assigned and approved by the has been established, and has the responsibility of several considerations, including the country’s risk impact of such an event. The Bank keeps a liquidity Financial Institutions Committee, and those with which following-up the existing relationships of the Bank with rating and the Bank’s appetite for risk. A Sovereign buffer to mitigate liquidity risk through the provision of the Bank intends to establish a relationship. It also its financial counterparties; this unit fulfills the following Credit Presentation covering each country to which standby liquidity in the form of unencumbered assets, covers, Banks and Financial Institutions of all exposure main roles: Group Credit Libanais is exposed or will be exposed Central Bank eligible instruments and short term types, in the form of Nostro Accounts, Money Market inputs the approved limits of Financial Institutions into to under any potential exposure, has been established placements with credible correspondent Banks. Term Placements, FX Spot, FX Forward, Fixed Income the core system and regularly monitors these limits and will be emphasized further during year 2013. securities, Equities, LCs, Acceptances and LGs. for any possible breaches; The capital adequacy and profitability stress testing maintains monitoring and follow-up on the process Operational Risk Management which is being gradually conducted shows how the In 2012, the Bank initiated the implementation of of documentation of Banks and Financial Institutions Bank’s profits would be impaired if the interest rate Operational risk is defined as “the risk of loss resulting Moody’s Scorecard Rating Methodology to determine according to the BCC Circular number 238; rose and how the Group’s capital adequacy would from inadequate or failed internal processes, people internal Local Currency Deposit / Debt and Foreign ensures that at each review of a credit facility, a decrease as a result of any political instability in the and systems, or from external events. When controls Currency Deposit / Debt ratings for Banks and Financial new documentation checklist is issued, updated and country which would be reflected in a downgrade of fail to perform, operational risk can cause damage to Institutions. By using this rating methodology, the Bank signed; and the Lebanese Sovereign credit rating. Our analyses reputation, have legal or regulatory implications, or lead is determining the creditworthiness of all local, regional, provides the Financial Institutions Committee with show that we would be able to weather such economic to financial loss. In this regard, the Board is responsible and international financial counterparties, whether monthly statistics related to the monitoring of limits developments. Interest Rate Risk Stress Tests are also for ensuring that a strong operational risk management rated or unrated. Internal ratings contain evidence and any eventual excesses. in place to examine how changes in Interest Rates of the private information that Group Credit Libanais culture exists throughout the whole Bank. could affect the bank’s earnings and economic value. possesses or intends to focus on, and distinguishes Country Risk Management them from public ratings, which are mainly based Three Lines of Defense Financial Institutions Risk Group Credit Libanais defines Country risk as the risk on public information. This new rating methodology The Bank’s operational risk governance relies on three of loss due to Sovereign events, economic events Management generates Deposit / Debt ratings by basing its decision lines of defense: (contagion of sovereign default to other parts of the The Financial Institutions’ Credit Risk strategy, policies on two frameworks, namely the Bank Financial Strength a. the first line of defense is business line management, economy, cyclical economic shock), cross border and procedures serve as a basis for the Financial Ratings (BFSR); and the Joint Default Analysis Ratings risks, and political events (convertibility restrictions which is responsible for identifying and managing the Institutions credit application presentation and review. (JDA). and expropriation or nationalization). Country risk can risks inherent in the products, activities, processes The Bank defined a framework and an action plan for materialize by way of credit, market and operational and systems for which it is accountable, activities with Banks and Financial Institutions in which A checklist for Banks and Financial Institutions has losses. Country limits are approved and reviewed at b. the second line of defense are the Group internal credit risk is inherent and has set the criteria for risk been finalized including all the documentation and Asset and Liability Management Committee (ALCO) control functions, which primarily consist of Risk acceptance and the guidelines followed in the FI Risk information necessary for each Bank with which Group level. Management and Strategy, Anti-Money Laundering/ Management process. The key objective behind the Credit Libanais deals. All Financial Institutions credit To effectively control the level of risk associated with Counter-Financing Terrorism (AML/CFT), Regulatory Financial Institutions Risk Management function is to files are being reviewed to include the sections required international activities, Group Credit Libanais has a Compliance, Business Continuity Planning, assess, independently from business lines, the inherent under the BCC Circular No.238. The Bank is in the Risk Management process that focuses on the broadly Information Security Risk Management, Finance, risks with specific Banks and Financial Institutions and process of putting in place a procedure that governs defined concept of Country risk. A sound Country Risk Card Fraud Management and Control, Methods and how they are mitigated. the use of a mapped rating to generate the final Procedures, Treasury Back Office and other Internal assessment of a particular counterparty. Management process includes oversight by ALCO The function covers all Banks with which Group Credit and Country exposure limits. Limits are expressed in Control Units, which complements the business line’s Libanais deals, i.e. those to which Financial Institutions A Financial Institutions Risk Administration Unit amounts and as a percentage of capital. They reflect operational risk management activities.

132 Annual Report 2012 Credit Libanais Group 133 Sustainable Growth and Development

c. the third line of defense is the Group internal audit Typical practices to control/mitigate operational risk in d. providing ORM training and advising the business Policies and Procedures which conducts an independent review and Group CL include the following: units on ORM issues. The ORM Policies and Procedures include the challenges the Bank’s operational risk management a. segregation of duties to avoid conflicts of interests Throughout 2012, the ORMD continued to further tasks performed at the ORMD, mainly: (i) Loss Data controls, processes and systems. The internal in the responsibilities of individual staff, which build a suitable infrastructure for the Operational Risk Collection and Analysis; (ii) Data Loss Reconciliation auditors performing these reviews are competent can facilitate concealment of losses, errors or Management (ORM) framework through: i) identification and Analysis of internal periodical reports received; and appropriately trained and not involved in the inappropriate actions; b. maintaining safeguards for access to, and use of, the and assessment of the Operational Risks inherent in all (iii) generation of ORM notes and follow up on development, implementation and operation of the Bank’s assets and records; material products, activities, processes and systems, cases analyzed for remedial actions with concerned Framework. c. accountability policy, where losses are to be borne by ii) monitoring critical P&L accounts, iii) analysis of Business Units; (iv) ORM reporting to senior executive periodical reports received from bank internal entities, management; (v) Risk Control Self Assessments; and Operational Risk Management the concerned employee without affecting the Bank’s profitability; iv) issuance of ORM case analysis recommending (vi) Key Risk Indicators Methodology. Environment d. ensuring that staff have appropriate expertise and corrective measures in remedy to high risks and v) Identification and Assessment training; setting/updating group-level procedures concerning Internal Loss Data Collection and Senior executive management ensures (i) the e. regular verification and reconciliation of transactions ORM and controls. Analysis identification and assessment of the operational risk with internal P&L critical accounts; Internal operational loss data provides meaningful Disclosures inherent in all material products, activities, processes f. written procedures manuals that describe the information for assessing the Bank’s exposure to The Bank’s public disclosures allow stakeholders to and systems to make sure the inherent risks and monitoring and control processes existing within operational risks and the effectiveness of internal assess its approach to operational risk management. incentives are well understood; and (ii) that there is each Business Unit / process and which is subject to controls. Analysis of loss events provides insight into an approval process for all new products, activities, continuous review; and the causes of large losses and information on whether g. insurance coverage used as an external mitigant and Operational Risk Management control failures are isolated or systematic. The Bank processes and systems that fully assesses operational which is commensurate with the Bank’s activity, both Function also finds it useful to capture and monitor operational risk. in terms of volume and characteristics. The Operational Risk Management Function (ORMF) risks’ contributions to credit and market risk related Monitoring and Reporting has a reporting structure independent of the risk losses, in order to obtain a more complete view of the The Year 2012 was highlighted by the launching of the generating business lines and is responsible for the operational risk exposure. Senior executive management implements a process new core banking system Equation. The Operational design, maintenance and on-going development of which regularly monitors operational risk profiles and Risk Management Department (ORMD) was actively In line with the BCC Circular No.252 and starting the Operational Risk Framework within the Bank. This material exposures to losses. Appropriate reporting involved prior and post go live: March 2007, the ORMD developed a procedure, function includes the operational risk measurement and mechanisms are in place at the Board, senior executive a. reviewing the system procedures, prior to their under which it launched the collection process on reporting processes, risk committees and responsibility management, and business line levels that support validation operational loss events/ probable events/near misses. for Board reporting. The ORMF challenges the business proactive management of operational risk. b. highlighting the risks they entailed and their So far, this has resulted in building up an ample lines’ inputs to, and outputs from, the Bank’s risk corresponding mitigating controls; operational risk database. The resulting financial losses management, risk measurement and reporting systems. Control and Mitigation c. assessing the performance at branches post go are being mapped within the seven loss events and The ORMF has a sufficient number of personnel skilled The Bank has a strong control environment that utilizes live and following up on the settlement of reported the eight business lines of the Basel II accord. The in the management of operational risks in order to policies, processes and systems; appropriate internal events and common mistakes in coordination guiding principle in operational risk management is effectively address its many responsibilities. controls; and appropriate risk mitigation and/or transfer with other concerned parties (i.e. IT, Operations, that management, at all levels of the organization, is strategies. E-Banking, Finance and Audit Divisions); and responsible for directing and managing operational

134 Annual Report 2012 Credit Libanais Group 135 Sustainable Growth and Development

risk. Operational risk management coordinators number of programs and tools to support line as a Operational Risk Capital addition to the previously discussed operational risk are assigned throughout the Bank to assist line structured approach that helps line management to Requirements management initiatives, a variety of mechanisms are in management in fulfilling this responsibility and to act as identify and assess risks and take mitigating actions place to support sound reputational risk management, the eye and ear of the ORMD. for risks which are identified as unacceptable. Risks As per the BDL Basic Circular No.104 and the BCC including codes of professional conduct applicable to are assessed with the assistance of facilitators, who Circular No.257, the capital charge required to cover the all staff and an appropriate training program, as well Incidents which are reported are analyzed and fed into are usually Operational Risk Management staff or Operational Risk is calculated using the Basel II Basic as various committees that assess risk whenever new a risk map also originating from other sources such as external consultants for some particular businesses. Indicator Approach (BIA). Nevertheless, arrangements products are introduced within the business units. Risk Control Self Assessments, Key Risk Indicators The Bank’s approach consists of helping the business are put in place to move towards the Standardized or audit reports. This risk map is then used as a tool and support lines to identify and assess Operational Approach for capital charge calculation. For that Information Security Risks to follow up on outstanding issues and as the basis Risk and related controls inherent in their existing or reason, accounts for booking operational losses and The Information Security Team managed to defend for reporting Operational Risk to senior executive new products, processes, activities or systems. This profits through P&L have been proposed by the ORMD Credit Libanais Group IT Environment from many management and the Board. is paramount for enhancing the internal controls at the as an achievement of a Basel II qualifying criterion. cyber-attacks by setting bold security objectives at the beginning of the year and accomplishing them. Noting Aiming at improving the Internal Loss Data Collection Bank. Business and Strategic Risks that these objectives were aligned with international process, extensive training sessions are periodically security standards “ISO27001 and PCI-DSS”. provided to the Operational Risk coordinators, in Key Risk Indicators (KRIs) Group Credit Libanais defines strategic risk as the With the coordination and collaboration of other addition to awareness programs and continuous Key Risk Indicators (KRIs) are used to monitor the main risk of current or prospective impact on the Group’s divisions, the Information Security Team achieved the communication, in order to raise awareness and drivers of exposure associated with key risks. KRIs are earnings, capital, reputation or standing arising from following objectives: promote risk culture. The training sessions proved paired with escalation triggers to warn, when risk levels changes in the environment where the Group operates increased the security awareness of CL staff to be beneficial in this regard, since the reporting of approach or exceed limits and prompt mitigation plans. and from adverse strategic decisions, improper members in different key areas and topics; Operational Losses and Near Misses increased with The ORMD identifies and develops appropriate KRIs implementation of decisions, or lack of responsiveness created, managed and maintained the access rights time. that provide management with early warning signals of to industry, economic or technological changes. We of Credit Libanais employees on Equation new core Operational Risk issues, which are primarily a selection consider it as a function of: banking application and managed all access right to from a pool of operations/control indicators identified the compatibility of the Group’s strategic goals; Risk Control Self-Assessments critical application for the Group. and tracked by various functions of the Bank on a the strategies developed to achieve those goals; (RCSA) attended security training on OS400 in order increase periodic basis and are considered to be relevant for the the resources deployed to meet those goals; and The Risk Control Self Assessments (RCSA) evaluates the security level servers running the core system of management of tracking and escalation triggering. KRIs the quality of implementation. (i) inherent risk, which is the risk before controls the Bank Equation; scorecard mainly includes the number of failed trades, are considered; (ii) the effectiveness of the control automated many security processes to increase the staff turnover rates, frequency and/or severity of errors Reputational Risk environment; and (iii) residual risk, which is the risk efficiency and minimize the response time; and omissions, number of customers’ complaints, etc. Within our risk management processes, we define exposure after controls are considered. enforced the implementation of the patch KRIs are measured based on the area of occurrence in reputational risk as the risk that publicity concerning a management which reduced the vulnerabilities and Line management needs information to enable it to line with the operational distribution of the risk appetite. transaction, counterparty or business practice involving weaknesses of the IT environment; identify and analyze Operational Risk, implement After weighing the KRIs Frequency and Impact, a scale a customer will negatively impact the public’s trust in devised a plan to implement the requirements listed mitigating measures and determine the effectiveness is allocated to each indicator, followed by a rating of its our organization. The Bank seeks to ensure that the within Banking Control Commission circular No. 272- of the latter. The Bank is looking at implementing a Frequency and Impact based on the scale. staff is constantly aware of the potential repercussions those requirements can be summarized as follows: management. These include RCSA which is defined of their actions on the Bank’s reputation and image. In - acquiring new System for branch or head office;

136 Annual Report 2012 Credit Libanais Group 137 Sustainable Growth and Development

- notifying/alerting Banking Control Commission in Business Continuity Planning operations from alternate sites. In this respect, by enhancing the operational procedures through case of incidents or events occurring at the Bank alternative workspace, technology infrastructure, the use of specialized software enabling the due to external or internal threats; Business continuity management is a whole-of- and systems are maintained and designed to be fully management of the full Business Continuity - rules of outsourcing; and business approach that includes policies, standards, operational within predefined time frames following a cycle from Business Impact Analysis to disaster - Quality Assurance and Quality Control. and procedures for ensuring that essential or important disaster declaration. management; and applied and maintained security countermeasures on activities and services can be maintained or recovered our business continuity plans ensure also meeting by starting bringing the procedures up-to-date with Credit Libanais ATMs; in a timely fashion in the event of a disruption, the Regulatory requirements whether in term of the new international standard ISO 22301 (Business safeguarded Credit Libanais Group from cyber- followed by the planned resumption of full activities. Its regulatory reporting, or compliance with circulars and continuity management systems) released during attacks and from virus threats; purpose is to minimize the operational, financial, legal, directives. 2012. implemented new security tools which increased the reputational and other material consequences arising our business continuity plans are reviewed and security defenses of Credit Libanais Group; from an eventual business disruption. tested annually to ensure appropriate enhancements During 2012, our actions were and remain a reviewed daily the logs generated from critical are implemented as technology improves, business continuation of those already undertaken to date since In this regard, we have developed and maintained applications on IT activities and security devices and processes evolve, or Regulatory requirements the inception of the program years ago. Credit Libanais written resiliency and business continuity plans to better followed with them if and when needed; reviewed change. The Bank’s plans and supporting documents was and is still committed to ensuring continuity of enable the Bank to continue critical operations on an daily the logs generated from security devices and are subject to review by both internal and external critical businesses and functions in order to protect ongoing basis and limit losses in the event of business took the appropriate actions if and when needed; auditors, as well as examination by regulators. the Bank assets and Customers’ interests, safeguard disruptions. The Bank believes it is important that its maintained PCI-DSS compliance for the Bank’s sister our business continuity plans include an essential revenues, and sustain Customer’s confidence. clients remain confident in its commitment and ability to companies: Netcommerce, IPN; and component, the Risk Assessment, which helped provide services under any circumstances. kept the findings of the internal & external IT auditors implementing several preventive measures to anticipate, face, and mitigate the identified risks, and to minimum for Credit Libanais Group and mitigated The Bank’s Business Continuity Plans address the to minimize their impacts in case of disaster. them promptly. following key areas: our business continuity plans incorporate effective our business continuity plans aim at protecting In addition to the above objectives, the Information crisis communication plans for coordinating essential information assets, processes, and customer data Security Team managed to protect the Bank from communications for crisis management leaders, from unpredictable events through preparation and extraordinary and malicious virus known as Gauss employees, customers, and key business partners testing of a comprehensive business continuity detected in August 2012. Gauss virus threatened the during a business disruption. capability. This capability seeks recovery of Lebanese financial institutions and caused nightmares our business continuity plans aim at increasing staff the technology infrastructure and information, to many banks, especially it was intended to steal awareness on emergency procedures developed to and prevention of the loss of bank or customer financial information and transactions about their preserve and ensure the safety of people in case of information and transactions. In the event of a crisis clients. The Information Security Team, due to the disasters. scenario, we will recover those functions deemed proactive approach based on ISO27001 and PCI-DSS to be critical to our business and our clients, and In 2012, the Bank pursued the development of the applied and adopted within the Group, safeguarded the strive to resume processing within predefined time Business Continuity function: Bank from infections by this virus. frames following a disaster declaration and to provide by enrolling talented people and ensuring adequate customers prompt access to their accounts. training for staff on Business Continuity international our business continuity plans include conducting standards and existing best practices;

138 Annual Report 2012 Credit Libanais Group 139 05 CSR and Sustainability

CSR and CL Business Strategy 143

Sustainability and Corporate Governance 144

Sustainability and Our People Capital 146

Sustainability in Our Commitment to Customers 147

Sustainability in Our Commuinities 149

Environmentally Responsible in Financing 152

We believe that sustainability lies at the heart of our business. Our stakeholders become our partners for mutual growth and success. Sustainable Growth and Development

Corporate

Social Corporate Social Responsibility is an opportunity for us People Sustainability Individual needs, such as those to build better relationships with all our stakeholders for health and well-being, education and cultural Responsibility by paying closer attention to how we fulfill our social, expression should be met. In the banking business, economic, environmental and ethical responsibilities. social sustainability encompasses the well-being of all (CSR) and stakeholders. As a corporate accountable citizen and a source Sustainability of major wealth creation and development, Credit Profit Sustainability occurs when development, which Libanais Group is committed to its responsibilities moves towards social and environmental sustainability, towards customers, employees, communities and is financially feasible. the environment. We believe that by balancing social (People) sustainability against economic (Profit) and Planet Sustainability requires that natural capital environmental (Planet) sustainability, our business remains unharmed. This means that the extraction of becomes integrally sustainable. renewed resources should not exceed the rate at which they are depleted, and that the absorptive capacity of the environment to absorb wastes should not be exceeded.

Founded in Beirut in 1961, Credit Libanais sal has CSR and CL Business Strategy grown to become a leading universal Bank with total In 2012, going beyond philanthropy and compliance, We believe that sustainability must lie at the heart assets reaching USD 7.948 billion. Headquartered CSR and sustainability is gaining grounds into our multi- of every business, reflecting expectations of many in Beirut, CL Group serves today more than 300,000 facets strategic planning of our responsible banking. stakeholders such as shareholders, employees, customers across its network of 66 local branches. CL At Credit Libanais, we have taken the Corporate Social customers, the government, the environment, and Banking Group employs a workforce of some 1600 Responsibly to the strategic level and shall embark the communities where we operate, so that banking employees. We do business in Lebanon, Cyprus, on implementation of initiatives according to CSR achieves long-term success, and efficiently contributes Bahrain, Senegal, Iraq and Canada. international guidelines and standards. to the well-being of society.

142 Annual Report 2012 Credit Libanais Group 143 Sustainable Growth and Development

Environment

Shareholders Employees

Clients Corporate Social Responsibility is an opportunity for us to Suppliers Community build better relationships with all our stakeholders by paying closer attention to how we fulfill our social, economic, Sustainability and Regulator Corporate Governance environmental and ethical responsibilities

Sustainability and Corporate Code of Corporate Governance environmental issues related to project financing. Transparent Procurement Governance Our system of corporate governance lays the basis for Preventing Financial Crime On the procurement side, we introduced invitations The most fundamental contribution Credit Libanais responsible and performance-oriented management to tender several years ago. Purchases are made Fighting fraud and money laundering does not only makes to the economy, the environment and society is and control, geared towards sustainable value based on a bidding call, qualifying to bid committees, adversely affect banks and financial institutions but through delivering a robust business and sustainable creation and growth. CL commitment to corporate screening committees, compliance committees and empoisons all layers of society. Credit Libanais is firmly revenues. Our structure ensures sustainability and governance has four key elements: good relations delivery acceptance committees. The installation of committed to fighting this crime in accordance with growth across all layers of our organization. with shareholders; effective cooperation between the this purchasing system several years ago allowed national and international rules and regulations. We management and Board of Directors; a system of the Bank to give an equal opportunity to all suppliers believe that financial crime prevention is not only the Board Commitment to Corporate performance-related compensation; and transparent based on the quality of their goods and services. This responsibility of the Group’s dedicated compliance Governance and timely reporting. The Bank recently introduced budget control system provides more transparency in officers, but also the duty every staff member in each more disciplined and effective governance processes the purchasing process and gives equal opportunities The Bank recognizes the paramount importance area of activity. We have clear policies, procedures and issued a new Code of Corporate Governance to suppliers while ensuring that Credit Libanais receives of corporate governance for its functioning and for and rules of good conduct in place. Control functions based on Banque du Liban Basic circular No. 106 as best quality over price ratios. the creation of an optimal operational environment. namely the Audit, AMF/CFT, and Risk Management amended on April 21, 2011 and the guidelines issued by The Board itself exercises its duties and authorities have implemented robust procedures to prevent money the Association of Banks in Lebanon in January 2011. through board committees of which the Audit, Risk, and laundering and financial crime in all jurisdictions where Corporate Governance, Nomination and Compensation A Compliance Culture the Bank operates, both to protect our reputation and Committees. Several other managerial committees are the communities where we operate. These rules are in place with clear missions and regular frequency of Credit Libanais Group aims at fully adhering to the made available to employees on the intranet and meetings with well-documented minutes of meetings international principles, guidelines and standards, disseminated to staff in numerous internal awareness and decisions. issued by worldwide bodies, such as the Basel sessions. Committee on Banking Supervision (BCBS) standards, including the new consultative requirements and the Equator Principles developed for managing social and

144 Annual Report 2012 Credit Libanais Group 145 Sustainable Growth and Development

At Credit Libanais, we have taken the Corporate Social Responsibly to the strategic level and shall embark on implementation of initiatives according to CSR international guidelines and standards.

Sustainability and our People the European e-learning Barometer issued by statistics Employee Publications and Honoring Best Performers Capital companies. Flexibility is a major benefit of E-learning Communications since it offers our staff the possibility of taking courses In addition to recognizing the performance of our CL People policy consists of improving the capability anytime anywhere from the comfort of their home To ensure an adequate communication of corporate employees every quarter through the performance and commitment of our employees to drive sustainable or office. CL E-learning program yielded excellent news amongst CL Group employees and facilitate matrix, the Annual honoring ceremony has become an high performance and growth, in the current context results; the majority of employees are registered users. top-down and bottom-up communication, Corporate awaited ritual. Every year, during the annual gathering of turmoil and crisis. In 2012, we further built on Learner satisfaction, surveys and results are extremely Projects and Publications department manages the of the Bank, Credit Libanais honors star employees performance management, learning and development high. publication of the Group internal newsletter, Observer, across the Group, based on their performance programs, as well as open communication. Our people edited in three different languages: Arabic, English throughout the year. Different criteria are used in are our most valued and important capital. Health and Safety at Work and French. Said internal communication platform the evaluation process. The aim remains to use a informs, educates and encourages our staff to share comprehensive approach that highlights the efforts Knowing that the health and safety of our workforce is Employment Opportunities views across the group, including sister companies and of devoted and efficient employees and reward them paramount to us, we have designed and successfully entities abroad. The goal of this internal publication is to accordingly, as being the Bank’s most important and We are committed to equal employment opportunity implemented an Emergency Response Plan (ERP) disseminate informative, argumentative, and financial principles and continue to develop and implement across the Group. The plan consisted of evaluating valuable assets. and economic articles to our staff. It also features CSR equal opportunity strategies to ensure that all policies, existing safety measures, collecting detailed contact initiatives, staff latest news, events, and performance practices and decisions are based on the assessment information of all staff, appointing wardens responsible Team Building Through Sports achievements as well. of individual skills and performances. Credit Libanais for staff evacuation in every location, and conducting CL Basketball and Mini-Football teams are composed does not discriminate in employment opportunities training. The ERP would be activated in case of Moreover, employees receive regular updates related to of CL employees from various divisions and regions or practices based on race, religion, gender, age or unexpected life-threatening events that may case the latest developments in the banking industry, through of the Bank. Throughout the year, tournaments and any other aspect. This policy governs all aspects of physical damage and critical operations disrupt. In the FX and Market Snapshots, Weekly Market Watch, competition games are organized, and our teams employment and career advancement: selection, job this context, fire drills simulations were conducted in Monthly Economic Wrap, and CL Indices. This plethora compete against major teams in Lebanon. Sports teams assignment, compensation, discipline, termination, each head office building to all staff, while appointed of information is communicated via various internal reinforce the group spirit and bring our people closer and access to benefits and training. Any employee staff attended first First-Aid training sessions. All e-channels. together. concerned by any type of discrimination in the Group entities were equipped with fire extinguishers workplace is encouraged to raise these issues with and medical aid kits, in addition to evacuation sets Employee Share Ownership Sustainability in our Commitment to their immediate supervisor or send an email to the distributed to wardens. Safety instruction boards and Program Customers Recruitment and Evaluation department at the Human exit signs have been installed in all branches and Citizenship starts internally. The Stock Ownership At Credit Libanais, we have always genuinely believed Resources division. buildings. Furthermore, ERP was fully documented and Program, introduced in 2006 thanks to the generous that relationships with our customers are key to dispatched to staff for use in case of need. E-Banking Training and contribution of our shareholders, has been administered our mutual success. In 2012, we continued to build by the Bank since its creation. The program consists of Development business with new retail and corporate customers. We ceding stocks to employees at a discount to book value remained the number one mortgage lender in Lebanon We are the first retail Bank in the region to implement and is so conceived, that the dividends paid cover the cost for the third consecutive year. and benefit from the E-learning process. The usage rate of debt during the first years, with employees then free competed with top companies worldwide, according to to keep or sell their shares at the end of the loan period.

146 Annual Report 2012 Credit Libanais Group 147 Sustainable Growth and Development

Our logo is designed with colors of the Lebanese flag and the cedar, which further inspires in people’s minds the Lebanese traditions and cultures

Tailored Commercial Relationships In addition, the IPN performed the successful process approach; funding of a training center for ISF women recruits. implementation of the QMS system against the system approach to management; also, to support the families of the Army and ISF In view of responding to customers’ needs and requirements of ISO 9001:2008 Standard. martyrs of Lebanon, special co-branded Titanium expectations, we grouped our commercial customers into Sustainability in our Communities MC Cards were designed, whereby a profit sharing retail commercial and corporate customers depending Following closely on the heels of this achievement, As an active player in the society where we work and scheme feeds the Army Martyrs Families Foundation, on the turnover of each business. As for individuals, another success story is in the making: The grow, we consider our contribution to the development the ISF Martyrs Families and the ISF anti-drugs we segmented our retail customers according to their management of the Credit Libanais D’ Assurance - CLA of our communities as one of our focal concerns at operations respectively. financial needs, level of working relationship with the (Sister Company) has decided to apply for the ISO Credit Libanais. This aligns with our Bank’s Strategy Bank and demographic qualities. Based on the results Certification. The journey toward the shores of success and motto “Close to you”. Our logo is designed with of this exercise, we were able to better respond to their will begin shortly. We wish the staff of the CLA the best colors of the Lebanese flag and the cedar, which further needs by offering them tailored services. of luck in this endeavor. inspire in people’s minds the Lebanese traditions and Customer Satisfaction The success of Credit Libanais Group depends on our cultures. “What is good for our national heritage is good people. We are proud of staff involvement and aware of for us too at Credit Libanais.” At CL, Customer satisfaction is one of Credit Libanais’ the commitment of top level management towards the To materialize our sustainability strategy, we support: most sought after Business Principles. Aside from the implementation of ISO requirements and the mission to economic growth in communities where we do in-house measuring and monitoring tools, such as ensure continuous improvement within the Bank. business; the employee performance matrix and the mystery initiatives that help build well-being, wealth and shopper, we advertise our complaints electronic inbox QMS is a management system to direct and control capacity; and to make it easy for our customers to reach us. A more an organization with regards to quality. QMS provides resources to promote economic self-sufficiency. sophisticated campaign to familiarize our customers us with a framework for continual improvement that with the highest levels of customer service is the use helps us achieving the quality objectives and enhance Focused Lebanese Army and Inter of courtesy campaigns regularly conducted by our customer satisfaction. Security Forces (ISF) initiatives Some of the benefits and principles of the QMS are: Customer Service Center. At Credit Libanais, we designed special retail loans improved business planning; (car, personal, housing) targeting our army and security greater quality awareness; The Quality Management System forces, in a move towards facilitating the banking improved communication; (QMS) experience of these forces. In 2012, Credit Libanais has renewed the ISO higher customer satisfaction; Certification for the third time. The SGS ISO External reduced costs of non-quality; and Moreover, we launched many CSR initiatives have been Auditors preformed the ISO Renewal Audit visit in greater control of processes and activities throughout launched in this perspective; those included: December 2012, and the results were very satisfactory. the organization. acquisition of motorcycles for the Internal Security Some of the Principles are: Forces; Also in 2012, the Quality Department, under the customer Focus; sponsoring of ISF anti-drugs campaigns, To support the families of the Lebanese Army martyrs Operations Division assisted the International Payment leadership; co-funding of a fire fighting helicopter, Network IPN (subsidiary) to obtain the ISO Certification. involvement of People; funding of a dental clinic for the Lebanese army

148 Annual Report 2012 Credit Libanais Group 149 Sustainable Growth and Development

Banking Inclusion Strategy Offering Attractive Facilities to In 2012 our areas for sponsorships encompassed the reduce energy consumption in households and following array of activities and initiatives: businesses. Credit Libanais further builds on its banking inclusion SMEs strategy to reach out to an increasing number of Credit Libanais has partnered with Kafalat national educational and academic events: we constantly Closer to our Customers in Social Lebanese in towns and remote areas across Lebanon. institution to offer subsidized loans to small and medium contribute to university and school events that aim Media While domiciling employees salaries at our Bank businesses. We believe that the right financing helps at offering professional guidance and presenting Over the course of the year, we actively participated enables the private and public sectors to easily pay our less fortunate customers start up or expand their different employers to students. CL was present in launching CL various social media channels on employees through a bank account, such procedure businesses. this year at major events held at various Lebanese Facebook, Twitter and others in view of facilitating usually reduces operating costs and boosts efficiency Moreover, Credit Libanais has contracted a line of universities such as job fairs and forums. communication and increasing electronic community of institutions. Consequently, new account holders cash credit and a credit risk sharing agreement with the public servants (IFS) training: as part of our interaction with our Bank. their salaries at our Bank and have access to a variety International Finance Corporation (IFC) to make commitment to our Internal Security Forces, we of products and services. affordable lending available to a wider segment of contributed this year to furbishing a training facility CSR and Sustainability initiatives bring us closer to our customers. designed to train new female recruits in the Internal communities and enable us leverage our partnerships Facilitating Access to Capital Security Forces. with them, thereby doubling the rewards. By helping through Lending Partnerships Actively Involved in our road security awareness campaigns, in view of them prosper, Credit Libanais prospers as well. We have partnered and continue to seek new alliances Communities sensitizing the youth to safety and security measures with international lending institutions with a view of We believe that safeguarding our culture and protecting professional conferences to encourage exchange providing access to affordable capital to increased our traditions and family values, is essential to of new developments among peer professionals segments of our communities. Such partnerships may maintaining our unique identity; by working on the and reinforce channels of communication in various be in the form of risk sharing, capital allocation or import revival of the rich Lebanese heritage, and sponsoring industries, we sponsored many a conference over guarantees. Whenever possible, we try to match these diversified cultural events organized in different regions the course of the year. funds with existing subsidies in the Lebanese market in and targeting diverse groups, we believe we are Sports and Recreation events we contributed to order to lower the cost of borrowing for our customers. contributing to strengthening ties between people in the encompass marathons, rallies, as well as basketball same city or town, encouraging social mingling among and football tournaments. Building Capacity through Micro- different regions of the country, and facilitating people cultural and Heritage Festivals CL supports music CSR and Sustainability Finance interaction. and cultural festivals organized all over Lebanese initiatives bring us closer to Very small loans are the building blocks on which cities and towns throughout the seasons, in view of people rely to earn their living. To this end, Credit Contributions and Sponsorships encouraging arts, reviving traditions and preserving our communities and enable Libanais partners with numerous local, regional and Our selected contributions to professional, educational, our unique heritage. We are a permanent supporter international agencies to make the financing of very sports, cultural and social activities have positively of the national silk eco-museum and other national us leverage our partnerships small businesses also possible within the Lebanese impacted the communities we work in and by the same associations. with them, thereby doubling economy. token, boosted our image within our communities in green loans campaigns we participated with other various remote regions and towns. peer banks and the UNPD spread awareness and the rewards.

150 Annual Report 2012 Credit Libanais Group 151 Sustainable Growth and Development

Environmentally Responsible in an environmentally and socially reliable development In this perspective, all projects requesting financing Green at Heart: Recycling Endeavors Financing across the full range of our activities. The Bank from the EIB have comply with the Environmental and Reducing Paper Consumption addresses this mandate and its general principles Survey covering both the environmental and the social Credit Libanais Group, being a socially responsible by means of ensuring that all IFC loans granted to impact of the project being financed. The environmental Paper industries are known to produce some of the corporate citizen, seeks sustainable investments in customers undergo environmental and social appraisal impact is related to the effect of the project on air, land, wastes that have an adverse effect on the environment view of maximizing financial returns while achieving along with the financial, economic and legal analysis water, nature, natural resources and built environment. and contribute to the pollution of water and air, in social and environmental good. We remain committed addition to reducing forests and green areas in nature. of customers prior to granting any facilities. The The social impact is related to the effect on health, to regularly reviewing our credit facilities granting basic objective is to ensure that the environmental safety, society and cultural heritage. In the coming processes in view securing profitable incentives for To help in the global effort or reducing paper waste, a and social implications of a potential customer are years, Credit Libanais plans to include the same the Bank while alleviating our footprint and that of our scrupulous procedure is integrated at Credit Libanais identified and assessed early in the Bank’s planning process in the assessment of its lending processes for customers and/or communities. to promote the recycling of used papers. This activity and decision making process and those environmental environmental compliance. encourages the contribution of all divisions within the Social and Environmental considerations are incorporated into the preparation and Group to separate papers that are collected at the approval of facilities. The purpose of such procedures Environmental Sustainability and Management System (SEMS) in Group level and delivered to a local recycling plant. is to improve the decision making process and to Green Products credit assessment ensure that the loan under consideration is socially and While green finance is still an industry in its infancy in To encourage environmental moves in the work place, In line with the Equator Principles and in collaboration we replaced personal printers by large departmental environmentally sound and sustainable. Lebanon, Credit Libanais weighs the importance of with the International Finance Corporation (IFC), Credit ones shared by many employees. New printers have regularly reviewing and updating its lending strategies Libanais created and adopted a tailor-made Social the features to print double sided documents, reducing Environmental Considerations and to align them with industry standards in terms of Social and Environmental Management System (SEMS) that thereby paper consumption. the European Investment Bank and Responsible Investment (SRI). Our strategy consists of assessing the environmental and social risks (EIB) centers around three priorities: and opportunities arising from customers’ business Moreover, the Bank embarked on a series of All projects financed by the Bank through the European reducing the intensity of our environmental footprint; activities. The main purpose of SEMS, embedded in environmental moves namely: Investment Bank (EIB) are also required to be promoting environmentally responsible business the credit granting process at our Bank, is to ensure a new IT project to convert the Data Centre acceptable in environmental terms. Credit Libanais activity; and that sustainability considerations are a fundamental Infrastructure to become more ecological. is in full acceptance and adherence with the EIB’s offering environmental products and services. part of the Banks’ decision-making process from credit an electronic archiving project aiming at reducing environmental objectives, namely to: assessments to portfolio analysis. In addition, the paper printing and storage places. preserve, protect and improve the quality of the The Power of Partnerships process allows for the consideration of environmental replacing existing electricity traditional bulbs with environment; In an endeavor to contribute to the development of and socioeconomic issues in a comprehensive manner economical and eco-friendly LED tubers to reduce protect human health, in relation to the environment; sustainable environmental projects, we offer, in line that goes beyond compliance with regulations, towards energy consumption and save on electricity bills. ensure the prudent and rational utilization of natural with the Central Bank’s recommendations and recently true sustainable financing. These endeavors constitute another building block resources to conserve nature; and issued Circulars, green “facilities” to fund projects in the green culture of banking we are perpetrating promote measures to deal with regional or worldwide that have a positive environmental impact. Projects Environmental Considerations throughout our Organization. and the International Finance environmental problems, notably climate change may encompass eco-friendly initiatives in Lebanon, Corporation (IFC) and access to potable water and sanitation. In doing such as green architecture and ecological ventures, so, both banks apply the principles of “prevention”, implementation of renewable energy, wind power, Through our agreement with IFC, we strive to enhance “precaution” and “polluter countries”, as embedded in solar water heating panels, energy saving lighting and adhere to sound banking principles and promote the European Community policy. systems, tiles cladding, and eco-bricks. Loans are granted at competitive interest rates and for long terms, as a token of Credit Libanais’ commitment to the planet and a step towards green banking. Through our partnership with the UNDP, the Ministry of Energy and Water in Lebanon, the Lebanese Center or Energy Conservation, and two peer local banks, we sponsored an awareness campaign aiming at promoting energy efficient solar water heaters.

152 Annual Report 2012 Credit Libanais Group 153 Financial Results 06 Credit Libanais Group

Management’s Discussion and Analysis 156

Independent Auditors’ Report 172

Consolidated Statement of Financial Position 174

Consolidated Statement of Comprehensive Income 176

Consolidated Statement of Changes in Equity 178

Consolidated Statement of Cash Flows 182

Notes to the Consolidated Financial Statements 184

In the midst of 2012 turbulences CL consolidated assets reached USD 7.948 billion with customer deposits nearing USD 6.961 billion. Credit Libanais Group

Basis of Presentation 65,504 billion (or US$ 43.45 billion) as at 31 December Management’s 2012 up from LBP 59,358 billion as at 31 December The following discussion and analysis has been 2011. Total customer deposits, including non-resident Discussion prepared based on the audited consolidated financial private deposits, held by the Lebanese banking sector statements of the Group as at and for the years ended increased by 8.46% in 2012 to LBP 192,443 billion (or and Analysis 31 December 2012 and 2011 and on selected financial US$ 127.66 billion) as at 31 December 2012 from LBP information. 177,439 billion as at 31 December 2011. In addition, the deposit dollarization rate decreased to 64.82% as at 31 of Financial The consolidated financial statements of the Group as December 2012, compared to 65.92% as at year-end at 31 December 2012 represent the financial position of 2011. Condition and Credit Libanais Group which incorporates the activities Results of of Credit Libanais SAL together with its wholly owned Analysis of Financial Position subsidiaries, Credit Libanais Investment Bank sal Total Assets Operations of (CLIB), Lebanese Islamic Bank sal (LIB) and Credit International sa – Senegal (CIB) and other companies As at 31 December 2012, the Group had total assets directly or indirectly owned by Credit Libanais sal. All of LBP 11,981.08 billion, compared to LBP 10,814.55 Credit Libanais material inter-company transactions incurred during the billion as at 31 December 2011, reflecting a year-on- Group years 2012 and 2011 were eliminated when preparing year increase of LBP 1,166.53 billion or 10.79%. This the consolidated financial statements in accordance increase in total assets, particularly in liquid assets, was with regulations and standards agreed upon for substantially matched by increases in funding, which consolidation purposes. consisted primarily of customer deposits. The average growth in total assets of the Lebanese banking sector Lebanese Banking Sector stood at 8.04% during the year 2012.

Total Lebanese banking sector assets reached The Group’s share of total assets of the Lebanese LBP 228,963 billion (or US$ 151.88 billion) as at 31 banking sector reached 5.23% at year-end 2012, December 2012, compared to LBP 211,918 billion as compared to 5.10% at year-end 2011. at 31 December 2011 (or US$ 140.58 billion), reflecting an annual increase of LBP 17,045 billion or 8.04% year-on-year. Total loans to private sector made by the Lebanese banks increased by 10.35% in 2012 to LBP

156 Annual Report 2012 Credit Libanais Group 157 Credit Libanais Group

Sources of Funding Year-on-year, foreign currency deposits were 9.70% compared to LBP 2,979.23 billion as at 31 December higher as at 31 December 2012, compared to 31 2011, reflecting a year-on-year increase of 13.06%. The following table sets out a breakdown of the Group’s sources of funding as at 31 December 2012 and 2011, December 2011, while LBP deposits increased by Over the same period, aggregate loans to private sector respectively: 11.67% over the year 2012, compared to an increase made by Lebanese banks grew by 10.35% during the of 11.52% on LBP deposits in the Lebanese banking year 2012. The growth in the Group’s loans portfolio sector. As at 31 December 2012, customer deposits As at 31 December 2012 2011 Percentage Change reflected primarily the extension of housing loans to held in foreign currencies, principally US Dollars, individuals and commercial facilities to SMEs, which are represented 53.1% of total customer deposits as at Banks and Financial Institutions 133,150 149,547 -10.96% subsidised or guaranteed by financial public institutions. such date, compared to 53.50% as at 31 December The growth in the loans volume as at year-end 2012, Demand deposits 30,078 49,511 -39.25% 2011 and marginally below the sector. This decrease in millions LBP compared to year-end 2011, consolidated the Group’s Time deposits 103,072 100,036 3.03% the Group’s dollarization rate of deposits is in line with position in the retail market, through the introduction the banking sector which decreased to 64.82% as at Customer Deposits 10,493,394 9,486,202 10.62% of new consumer lending products resulting in the year-end 2012 from 65.92% as at year-end 2011. The enlargement and diversification of its retail customer Demand deposits 1,109,142 1,000,288 10.88% Group’s deposits in foreign currency were lower than base. Time deposits 3,227,074 2,635,872 22.43% the sector’s average primarily because of the Group’s retail activities in rural areas (Bekaa region) where Sight saving accounts 253,955 233,318 8.85% The ratio of the Group’s total loans to total assets was customers traditionally use Lebanese Pound as the 28.11% as at 31 December 2012, compared to 27.55% Time saving accounts 5,903,223 5,616,724 5.10% functional currency. as at 31 December 2011. This increase stems from the Total 10,626,544 9,635,749 10.28% Foreign currency deposits are primarily comprised of improvement in our lending activities, particularly on time deposits and savings accounts. the corporate side without compromising the Group’s conservative policy in terms of the quality of our assets as at 31 December 2011 and 2012, respectively. Customer Deposits Loans Portfolio portfolio. The Group’s loans-to-deposits ratio improved Total customer deposits of the Group increased by As at 31 December 2012, savings accounts, which are As at 31 December 2012, loans and advances to to 32.10% as at 31 December 2012 compared to 10.62% to LBP 10,493.39 billion as at 31 December mostly held by individuals and have, average maturities customers (net of provisions for doubtful debts and 31.41% as at 31 December 2011 and compared to the 2012 from LBP 9,486.20 billion as at 31 December of approximately 3 to 6 months, represented the largest reserved interest) amounted to LBP 3,368.17 billion, average of 34.76% for the Lebanese banking sector. 2011, outperforming the average growth rate in total portion of the Group’s customer deposits 58.68%. The table below sets out the composition of the Group’s loans portfolio, by currency, as at 31 December 2012 and deposits of the Lebanese banking sector which stood Demand deposits, which earn the minimum balance 2011, respectively: at 8.46% during the year 2012. Customer deposits rate offered by the Group, represented 10.57% of total represent the principal source of the Group’s funding deposits; and time deposits, which are mostly held by and comprised 87.72% and 87.58% of the Group’s total businesses, represented 30.75% of total deposits. As at 31 December 2012 2011 Percentage Change The following table sets out the compositions of the Group’s customer deposits, by currency, as at 31 December 2012 and 2011, respectively: Loans by Currency Loans Loans Increase Group Sector In LBP (LBP billion) 1,272.64 1,192.92 79.72 6.68% 14.30%

In foreign currency (converted into USD million) 1,390.07 1,184.95 205.12 17.31% 9.27% As at 31 December 2012 2011 Percentage Change Total (LBP billion) 3,368.17 2,979.23 388.94 13.06% 10.35% Deposits by Currency Deposits Deposits Increase Group Sector

In LBP (LBP billion) 4,925.80 4,411.10 514.70 11.67% 11.52% Of the Group’s total loans portfolio, LBP 1,272.64 billion of total foreign currency customer deposits as at 31 In foreign currency (converted into USD million) 3,693.26 3,366.57 326.69 9.70% 6.21% or 37.78% were denominated in Lebanese Pounds, with December 2012, compared to 35.20% of total foreign Total (LBP billion) 10,493.39 9,486.20 1,007.19 10.62% 8.46% the remaining 62.22% denominated in foreign currencies, currency customer deposits as at 31 December 2011, principally in US Dollars, in exchange as at 31 December and compared to the average of 41.63% for the 2012. Loans in foreign currencies represented 37.64% Lebanese banking sector as at 31 December 2012.

158 Annual Report 2012 Credit Libanais Group 159 Credit Libanais Group

To support and reinforce the loans portfolio during the LBP 124.33 billion at 31/12/2012 and represented Lebanese government securities difficult economic conditions prevailing in the country, 3.69% of the total loan portfolio, or 91.10% of non- Credit Libanais Group improved the level of provisions performing loans. The Group continues to adopt a The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills and Eurobonds as at 31 set against non-performing loans (NPLs), increasing conservative policy in terms of provisions on NPLs, as December 2012: those by the amount of LBP 8.45 billion as provision confirmed by the amount of collections and recoveries charge during the year 2012, before deduction of the realized every year resulting in substantial provisions As at 31 December 2012 In LBP In FC Total write back provision (compared to LBP 5.15 billion written-back to the income statement for LBP 4.89 during the year 2011). Total provisions and suspended billion during the year 2012, compared to LBP 12.50 Ordinary treasury bills 2,510,793 945,847 3,456,640 interest on non-performing loans amounted to billion during the year 2011. Plus: Accrued interest on treasury bills 29,035 15,029 44,064 millions LBP

The following table sets out the composition of the Group’s loans portfolio by the borrower’s economic activity, after Total 2,539,828 960,876 3,500,704 accounting for specified loan loss provisions as at 31 December 2012 and 2011:

The average rate of return on Lebanese Pounds of treasury bills held in Lebanese Pounds aggregated Loans by Industry As at 31 December 2012 2011 Percentage Change ordinary treasury bills subscribed by Credit Libanais to 6.51% at 31 December 2012, compared to 6.70% SAL and amounting to LBP 2,535.78 billion stood at at the end of the preceding year. The average yield on Retail (personal, consumer and housing loans) 1,554,885 1,528,247 1.74% 6.51%, whereas this yield stood at 6.50% on similar bills Lebanese Government treasury bills issued in foreign Commerce and Trade 940,660 807,808 16.45% subscribed by the affiliated bank CLIB and amounting to currencies was 7.13% at 31 December 2012, compared millions LBP Industry 477,076 379,565 25.69% LBP 4 billion. The overall yield on the Group’s portfolio to 7.29% at the end of the preceding year.

Construction 296,302 159,697 85.54% The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills, by maturity, as at 31 Agriculture 54,856 54,326 0.98% December 2012:

Financial Intermediaries 44,387 49,589 -10.49%

Total 3,368,166 2,979,232 13.06% As at 31 December 2012 In LBP In FC Total

Less than 6 months 417,300 70,428 487,728 Personal, consumer and housing loans decreased the basis of 51% in Lebanese Pounds and 49% in Between 7 and 12 months 265,000 1,652 266,652 to 46.16% of total loans as at 31 December 2012, foreign currencies at 31 December 2012, compared to millions LBP compared to 51.30% as at 31 December 2011, while 49% and 51% respectively at the end of the preceding Between 13 and 18 months 15,000 45,812 60,812 commerce and trade loans increased up to 27.93% year. Between 19 and 24 months 186,000 1,239 187,239 of total loans as at 31 December 2012, compared to Between 3 and 5 years 1,150,750 277,181 1,427,931 27.11% as at 31 December 2011. The Group’s industrial As a result of the international financial crisis that loans, construction loans, agriculture loans and financial almost affected the majority of banks operating all Over 5 years 476,743 549,535 1,026,278 intermediaries comprised 14.16%, 8.80%, 1.63% and over the world, the Group reconsidered the risk Total Lebanese treasury bills 2,510,793 945,847 3,456,640 1.32% of total loans, respectively, as at 31 December exposures maintained with its bank correspondents 2012, compared to 12.74%, 5.36%, 1.82% and 1.67% and accordingly redistributed the liquidity held and of total loans, respectively, as at 31 December 2011. the credit limits granted to them in a way to avoid high concentration of liquidity with a single correspondent Investments and Marketable Liquidity and to deal with prime banks that can benefit from their Securities The Group held investments and marketable securities All investments consisted of instruments and papers As at 31 December 2012, Credit Libanais Group government’s financial support. amounting to LBP 1,485.96 billion as at year-end 2012, issued by Lebanese banks and prime local and maintained high liquidity levels which represented 75% compared to LBP 1,517.41 billion as at year-end 2011, international companies and are quoted in regulated of total customer deposits and other liabilities and 68% reflecting a decrease of LBP 31.45 billion or 2.07%. financial markets. of total assets, compared to 76% and 69% respectively, as at 31 December 2011. Liquidity was distributed on

160 Annual Report 2012 Credit Libanais Group 161 Credit Libanais Group

The following table sets out the composition of the Group’s portfolio of investments and marketable securities, by type In May 2006, Credit Libanais increased its share capital As part of its risk management policy, the Bank has of instrument, as at 31 December 2012: by LBP 154 billion through the issuance of 15,400,000 established a special purpose investment account (the new common shares subscribed in cash by its common “Sinking Fund Account”), which is funded on an annual shareholders. basis in each of the first seven years following the issue As at 31 December 2012 In LBP In FC Total date of the Series A Preferred Shares (assuming no In August 2004, Credit Libanais issued 1,600,000 early redemption) with proceeds generated from the Corporate Bonds & Other Sovereign Bonds --- 80,240 80,240 cumulative preferred shares “Series A” for an aggregate annual consolidated profits in amounts equal to one- amount of US$ 50 million with a seven-year term Certificates of deposit --- 25,544 25,544 seventh or 14.285% of the total amount of the Series millions LBP expiring on 10 August 2011. The issue was effected A Preferred Shares. In August 2011 these preferred Unquoted & quoted Equity Securities & Preferred Shares 3,872 56,132 60,004 at a nominal value of LBP 10,000 for each Preferred shares were fully redeemed at maturity with funds Certificates of deposits issues by the Central Bank 765,382 549,166 1,314,548 Share, while the aggregate share premium amounted to LBP 59.37 billion. Preferred Shares constitutes part transferred from the Sinking Fund Account. Total investment and marketable securities 769,254 711,082 1,480,336 of the Group’s Tier II capital, and earn an annual fixed Equity to assets ratio reached 7.79% as at 31 dividend to be paid to holders, out of the distributable December 2012, compared to 7.94% at year-end 2011. consolidated profits of the Group, in an amount Shareholders’ Equity equivalent to 7.5% of the total amount of the preferred Capital Adequacy Average rate of return on bonds and certificates of Shareholders’ equity is divided into core capital (Tier shares issued. The Bank has the right, in its sole During 2012, the Group conducted a quantitative impact deposit held in foreign currencies stood at 6.59% for the I) and supplementary capital (Tier II). Tier I capital discretion, to redeem the Series A Preferred Shares, study to assess the implications of the Basel II Accord year ended 31 December 2012, compared to 8.03% for comprises paid-up common share capital, reserves, in whole but not in part, on the fifth anniversary of the on the shareholders’ equity of the Group. The capital the year ended 31 December 2011. retained earnings, and reserves for unspecified banking issue date, at the issue price plus accrued and unpaid adequacy ratio stood at 13.41% at year-end 2012 risks, less any unfavorable change in fair value of dividends and an early redemption premium equivalent (compared to the minimum required 10.5%), after taking available-for-sale securities. to 50% of the value of the annual fixed dividends that would have been payable until the expiry of the term of into consideration credit, market and operational risks of The following table sets out the composition of the Group’s shareholders’ equity as at 31 December 2012 and 2011, the Series A Preferred Shares. the Group. respectively: Asset / Liability Management The Group’s consolidated balance sheet is structured in terms of percentage of total assets as shown in the table As at 31 December 2012 2011 Percentage Change below at 31 December 2011 and 2012:

Paid in capital, 23,400,000 common shares 257,400 257,400 ---

Legal reserve 75,173 66,945 12.29% Assets As at 31 December 2012 2011 Liabilities & Equity 2012 2011 millions LBP Other reserves and premiums 296,931 241,219 23.10% Cash and banks 37% 38% Due to banks 1% 1% Reserves for general banking risks 63,309 51,941 21.89% Treasury bills and Eurobonds 29% 30% Customer deposits 87% 88% Unrealised profits on available-for-sale securities 12,182 5,807 109.78% Marketable securities 2% 2% Long-term liabilities ------Subordinated debt issued 120,482 121,733 -1.03% Net loans and advances 28% 27% Other creditors and payables 4% 3% Revaluation surplus accepted as supplementary capital 15,656 15,656 --- Fixed assets 2% 1% Shareholders’ equity 8% 8% Net profit for the year 92,072 97,792 -5.85% Other debtors and receivables 2% 2% Total Shareholders’ Equity 933,205 858,493 8.70% Total Assets 100% 100% Total Liabilities and Equity 100% 100% Composed of:

Core capital (Tier I) 797,067 721,104 10.53%

Supplementary capital (Tier II) 136,138 137,389 -0.91%

162 Annual Report 2012 Credit Libanais Group 163 Credit Libanais Group

Results of Operations The Group’s interest expense is principally comprised of 6.26% as a result of the increase in total Group’s interest paid on customer deposits, as these constitute customer deposits by 10.62% as at 31 December 2012 Interest Income the primary source of funding for the Group and compared to 31 December 2011, and of the drop in the The following table sets out the principal components of the Group’s interest income, by amount and as a percentage aggregate to 87.58% of total assets at 31 December aggregate cost of deposits subsequent to the decrease change therein, for each of the years ended 31 December 2012 and 2011, respectively: 2012. The total amount of interest paid on customer in the interest rates applied on the international money deposits increased in 2012, compared to 2011, by markets during the year 2012.

As at 31 December 2012 2011 Percentage Change Net Interest Income

Financial Assets (including Lebanese government securities) 341,171 358,868 -4.93% The following table sets out the Group’s net interest income and net interest margin for each of the years ended 31 December 2012 and 2011, respectively: Deposits with banks 52,999 22,477 +135.79% millions LBP Loans and Advances to Customers 235,704 218,682 +7.78% As at 31 December 2012 2011 Percentage Change Total 629,874 600,027 +4.97%

Interest earned 629,874 600,027 +4.97%

Interest on Financial Assets represents interest earned as at 31 December 2012, compared to 6.70% as at Interest paid (440,652) (415,752) +5.99% millions LBP primarily on Lebanese treasury bills denominated in year-end 2011, and the average yield on Lebanese Net interest income 189,222 184,275 +2.68% Lebanese Pounds and Government and corporate government Eurobonds issued in foreign currencies Net interest margin (%) 1.72% 1.85% Eurobonds issued in foreign currencies (including was 7.13% as at 31 December 2012 and 7.29% as at principally US Dollars and Euro). Reflecting the Group’s 31 December 2011. significant portfolio of liquid assets that is largely The Group’s net interest income increased by 2.68% amidst the global economic downturn and the regional Interest income on the Group’s loans portfolio increased financed by customer deposits gathered through the in 2012 to LBP 189.22 billion for the year ended 31 turmoil. Another factor would be the competitive market by 7.78% during the year 2012 primarily due to the Group’s branch network, and by the capital increase December 2012 from LBP 184.28 billion for the year in terms of attracting deposits and the ensuing increase extension of additional loans to retail and corporate of LBP 154 billion that occurred during the year 2007, ended 31 December 2011. This modest increase is the in the cost of deposits, which resulted in Net Interest customers during the year 2012 which increased by Lebanese treasury bills continued to comprise the product of diminishing returns of sovereign investments Margin dropping from 1.85% to 1.72%. substantial majority of the Group’s portfolio of Financial LBP 388.94 billion or 13.06%. Assets classified at amortized cost in 2012 and 2011. Accordingly, total interest income for the year ended 31 Non-interest Income The overall yield on the portfolio of Lebanese treasury December 2012 increased by 4.97% compared to total The following table sets out the Group’s non-interest income deriving from commissions, fees and other operating bills held by the Group in Lebanese Pounds was 6.51% interest income for the year ended 31 December 2011. income for each of the years ended 31 December 2012 and 2011, respectively:

Interest Expense As at 31 December 2012 2011 Percentage Change The following table sets out the principal components of the Group’s interest expense, by amount and as a percentage change therein, for each of the years ended 31 December 2012 and 2011, respectively: Fees and Commissions income 90,328 83,595 8.05 % Fees and Commissions expense (35,635) (34,084) 4.55 % millions LBP Net Commissions 54,693 49,511 10.47 % As at 31 December 2012 2011 Percentage Change Net trading income 20,843 10,670 95.34 % Customer deposits 428,834 403,572 +6.26% Net gain on financial investments 12,125 5,828 108.05 % Deposits from banks 4,080 4,548 -10.29%

millions LBP Other operating income 3,119 3,838 -18.73 % Subordinated Debt Issued 7,738 7,632 +1.39% Share of profit of investments in equity accounted investees 1,436 1,349 6.45 % Total 440,652 415,752 +5.99% Total Non-interest Income 92,216 71,196 29.52 %

164 Annual Report 2012 Credit Libanais Group 165 Credit Libanais Group

Total net commissions, increased by 10.47% to LBP Net Operating Income Staff Expenses and Related Charges 54.69 billion for the year ended 31 December 2012, compared to LBP 49.51 billion for the year ended The group increased the provisions allocated for loan The following table sets out the principal components of the Group’s staff expenses and related charges for each of 31 December 2011. Net commissions, consisting losses by 64.30% at 2012. Allowances for loan losses the years ended 31 December 2012 and 2011, respectively: primarily of commissions and fees on accounts, fees for amounted to LBP 8.45 billion for the year ended 31 issuances of letters of credit and letters of guarantee, December 2012, compared to LBP 5.15 billion for the As at 31 December 2012 2011 Percentage Change origination and commitment fees on loans and preceding year. transaction-processing, development of retail services, Provisions written-back on loans decreased to reach Salaries and wages 63,360 55,988 13.17% electronic banking products and other non-interest an amount of LBP 4.90 billion for the year ended 31 Board of Directors’ Allowances 2,158 1,485 45.32% generated revenues such as fees from its plastic card December 2012, compared to LBP 12.5 billion for the millions LBP businesses, including the sponsoring and processing of Social Security contributions 9,209 8,047 14.44% year ended 31 December 2011. debit and charge cards such as Visa, MasterCard and Provision for end of service indemnities 4,647 5,717 -18.72% Amex, the processing of transactions made through As a result of the combined effects of the foregoing, Other allowances and benefits 14,766 12,676 16.49% its network of point-of-sale (“POS”) terminals installed the Group’s net financial income for the year ended at different locations throughout the country and the 31 December 2012 amounted to LBP 277.82 billion, Total staff expenses and related charges 94,140 83,913 12.19% cross-selling of related financial services, including compared to LBP 262.56 billion for the year ended 31 bancassurance products through the Group’s insurance December 2011, reflecting a year-on-year increase of subsidiary Credit Libanais d’Assurances (CLA). 5.81%. Total staff expenses and related charges amounted also due to the new recruitments made by the Group to LBP 94.14 billion for the year ended 31 December in order to expand current and new business activities, Net gain on Trading and Financial Investments Other operating income is the result of activities and 2012, compared to LBP 83.91 billion for the year ended and to the opening of new branches which represent amounted to LBP 32.97 billion in 2012, compared operations incurred by the Group outside the normal 31 December 2011, reflecting a year-on-year increase the substantial majority of the Bank’s employees, as to LBP 16.50 billion in the preceding year, mainly course of banking business. It is mainly constituted of 12.19%. The increase in staff expenses were largely well as increases in the Bank’s full-time employees to attributable to profit generated by financial papers of Income received on sale of assets held in recovery attributable to year-on-year salaries increase and its 1,609 as at 31 December 2012 from 1,557 as at 31 whether sovereign or those of international of bad debts amounting to LBP 1.88 billion and rental implication on the related personnel charges, end-of- December 2011. corporations. The significant increase in 2012 is the income amounting to LBP 1.16 billion. service indemnities and social security contribution and result of the sale of CD’s generating LBP 9 billion.

The Group’s non-interest income increased by 29.52% to LBP 92.22 billion at 31 December 2012, up from LBP 71.20 billion at the end of the preceding year. It contributed to 33.19% of the Group’s net financial income at 31 December 2012, compared to 27.12% at 31 December 2011.

166 Annual Report 2012 Credit Libanais Group 167 Credit Libanais Group

General Operating Expenses Profit before Tax The following table sets out the principal components of the Group’s general operating expenses for the years ended The following table sets out the Group’s pre-tax profit for the years ended 31 December 2012 and 2011, respectively: 31 December 2012 and 2011, respectively:

As at 31 December 2012 2011 Percentage Change As at 31 December 2012 2011 Percentage Change Profit before income tax 108,608 113,967 -4.70% Taxes 10,483 4,574 129.19% Income tax (16,536) (16,175) 2.23% millions LBP Premiums for the guarantee of deposits 4,585 4,019 14.08% Net profit for the year 92,072 97,792 -5.85% millions LBP Rental charges and related expenses 6,100 5,648 8.00%

Lawyers, audit and consultancy fees 4,649 3,756 23.78% The Group’s pre-tax profits for the year 2012 amounted Return on shareholders’ equity (before tax and excluding Data processing services 2,798 3,391 -17.49% to LBP 108.61 billion (or the equivalent of US$ 72.05 extraordinary items for the years 2011 and 2012) stood at Mail and telecommunication (PTT, Swift) 3,280 3,002 9.26% million), compared to LBP 113.97 (or the equivalent of 16.05% at year-end 2012, compared to 18.48% at year- US$ 75.60 million) for the year 2011, a year-on-year end 2011. Return on average assets recorded 1.01% Maintenance and repairs 4,401 3,879 13.46% decrease of 5.85%. compared to 1.13% at the end of the preceding year. Electricity, water and heating 5,556 4,381 26.82% Travel and entertainment 3,065 2,687 14.07% Profit Appropriation Transportation charges 2,379 1,992 19.43% The Group’s consolidated profits for the year ended 31 December 2012 are generated from the following entities:

Insurance premiums 2,324 2,491 -6.70%

Advertising and public relations expenses 6,122 5,601 9.30% As at 31 December 2012 Profits Before Tax Income Tax Net Profits Computer maintenance and charges 1,605 1,533 4.70% Profit from Credit Libanais sal 105,429 (14,828) 90,601 Office stationery and printing 1,792 1,701 5.35% Profit from Credit Libanais Investment Bank sal 9,771 (1,113) 8,658

Board of directors attendance allowances 2,285 2,023 12.95% millions LBP Loss from Credit International (Senegal) (207) (15) (222) Training, documentation and services fees 466 544 -14.34% Profit from Credilease sal 157 (6) 151 Other expenses 2,009 4,307 -53.36% Loss from Lebanese Islamic Bank sal (271) --- (271) Total general operating expenses 63,899 55,529 15.07% Eliminations of the inter-group dividend distributions (18,122) --- (18,122)

Profits deriving from the Group’s banking activities 96,757 (15,962) 80,795 General operating expenses increased by 15.07% from the operational costs incurred for opening new Group’s share in profits of subsidiaries and affiliated companies 11,851 (574) 11,277 to LBP 63.90 billion for the year ended 31 December branches and expanding into new lines of business. 2012, compared to LBP 55.53 billion for the year ended Net profit for the year 108,608 (16,536) 92,072 31 December 2011. The increase in general operating The Group’s overall cost-to-income ratio (excluding expenses is mainly attributed to the tax adjustments extraordinary items for 2011 and 2012) stood at 57.92% imposed by the Ministry of Finance and relating to as at 31 December 2012, compared to 56.87% for the previous years and amounting to LBP 6 billion, and year ended 31 December 2011.

168 Annual Report 2012 Credit Libanais Group 169 Credit Libanais Group

The General Assembly of Shareholders of Credit iv. To allocate an amount of LBP 1.76 billion Libanais sal convened to meet on 7 May 2013 representing unrealized profit on revaluation of approved the consolidated financial statements of financial instruments classified as FVTPL as per Credit Libanais Group as at 31 December 2012, BCC circular No 270 dated September 19, 2011. showing net profits (after tax) amounting to LBP 92.07 v. To transfer the remaining profits, after the allocations billion, and resolved the appropriation of the profits for and distributions listed above, to the retained the year 2012 deriving from Credit Libanais sal and earnings which will aggregate an amount of LBP amounting to LBP 90.60 billion as follows: 68.43 billion and to distribute out of these retained i. To transfer an amount of LBP 8.31 billion earnings an amount of LBP 35.1 billion to common representing 10% of these profits to a legal reserve shareholders of Credit Libanais sal. account as per the requirements of article 132 of the In closing, the Board of Directors of Credit Libanais Code of Money and Credit. sal would like to express its gratitude for the ii. To allocate an amount of LBP 11.35 billion to continuous enthusiasm, confidence and support of a special reserve for unspecified banking risks, our Shareholders and customers, and for the efforts computed on the basis of 2% of the total risk and devotion of the Group’s senior management and weighted assets and off balance sheet commitments employees. as at the end of each financial year, as per BDL Circ. 1439. Yours Sincerely, iii. To allocate an amount of LBP 748 million to a special reserve for real estate properties (under Dr. Joseph Torbey liquidation) held in recovery of debts. Chairman and General Manager

170 Annual Report 2012 Credit Libanais Group 171 Credit Libanais Group

We have audited the accompanying consolidated audit evidence about the amounts and disclosures in Independent financial statements of Credit Libanais sal (the “Bank” the consolidated financial statements. The procedures or “Group”), which comprise the consolidated statement selected depend on our judgement, including the Auditors’ of financial position as at 31 December 2012, the assessment of the risks of material misstatement of the consolidated statements of comprehensive income, consolidated financial statements, whether due to fraud Report to the changes in equity and cash flows for the year then or error. In making those risk assessments, we consider ended, and notes, comprising a summary of significant internal control relevant to the entity’s preparation Shareholders accounting policies and other explanatory information. and fair presentation of the consolidated financial statements in order to design audit procedures that of Credit Management’s responsibility for the are appropriate in the circumstances, but not for the consolidated financial statements purpose of expressing an opinion on the effectiveness Libanais sal Management is responsible for the preparation and of the entity’s internal control. An audit also includes fair presentation of these consolidated financial evaluating the appropriateness of accounting policies statements in accordance with International Financial used and the reasonableness of accounting estimates Reporting Standards, and for such internal control as made by management, as well as evaluating the overall management determines is necessary to enable the presentation of the consolidated financial statements. preparation of consolidated financial statements that are free from material misstatement, whether due to We believe that the audit evidence we have obtained fraud or error. is sufficient and appropriate to provide a basis for our audit opinion. Auditors’ responsibility Our responsibility is to express an opinion on these Opinion consolidated financial statements based on our In our opinion, the consolidated financial statements audit. We conducted our audit in accordance with give a true and fair view of the consolidated financial International Standards on Auditing. Those standards position of the Group as at 31 December 2012, and require that we comply with ethical requirements of its consolidated financial performance and its and plan and perform the audit to obtain reasonable consolidated cash flows for the year then ended in assurance about whether the consolidated financial accordance with International Financial Reporting statements are free from material misstatement. Standards. An audit involves performing procedures to obtain

KPMG DFK Fiduciaire du Moyen-Orient

Beirut, Lebanon 19 April 2013

172 Annual Report 2012 Credit Libanais Group 173 Credit Libanais Group

Consolidated Statement of Financial Position As at 31 December

Notes 2012 2011 Notes 2012 2011

Assets Liabilities

Cash and balances with Central banks 7 1,929,763 1,474,781 Deposits from banks and financial institutions 18 133,150 149,547 millions LBP millions LBP Balances with other banks and financial institutions 8 1,217,513 1,259,619 Deposits from customers 19 10,193,831 9,178,792

Loans and advances to customers 9 3,328,744 2,943,403 Deposits from related parties 40 299,562 307,410

Loans and advances to related parties 40 39,422 35,829 Engagement by acceptances 136,393 46,425

Debtors by acceptances 136,393 46,425 Subordinated debt issued 20 120,483 121,733

Financial assets at fair value through other comprehensive income 10 60,004 53,131 Current tax liabilities 21 15,313 12,023

Financial assets at fair value through profit or loss 11 51,894 72,116 Other liabilities 22 234,655 230,922

Financial assets at amortized cost 12 4,869,142 4,612,719 Provisions for risks and charges 23 34,972 30,942

Investments in associates 13 17,275 16,836 Total Liabilities 11,168,359 10,077,794

Property and equipment 14 139,546 108,102 Shareholders’ equity

Intangible assets 15 4,971 5,227 Share capital 24 257,400 257,400

Assets held for sale 16 44,895 45,926 Capital reserves 25 138,482 118,886

Other assets 17 141,519 140,440 Retained earnings 66,925 35,106

Total Assets 11,981,081 10,814,554 Real estate revaluation reserve 15,656 15,656

Fair value reserve 26 12,182 5,807

Other reserves 27 215,183 193,561

Profit for the year 88,192 94,309

Total equity attributable to equity holders of the Bank 794,020 720,725

Non-controlling interest 18,702 16,035

Total equity 812,722 736,760

Total liabilities and equity 11,981,081 10,814,554

The notes on pages 184 to 238 are an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board of Directors on 19 April 2013.

Dr. Joseph Torbey Chairman and General Manager

174 Annual Report 2012 Credit Libanais Group 175 Credit Libanais Group

Consolidated Statement of Comprehensive Income For the Year Ended 31 December

Notes 2012 2011 2012 2011

Interest income 28 629,874 600,027 Profit attributable to:

Interest expense 28 (440,652) (415,752) Equity holders of the Bank 88,192 94,309 millions LBP millions LBP Net interest income 189,222 184,275 Non-controlling interest 3,880 3,483

Fee and commission income 29 90,328 83,595 Profit for the year 92,072 97,792

Fee and commission expense 29 (35,635) (34,084) Total comprehensive income attributable to:

Net fee and commission income 54,693 49,511 Equity holders of the Bank 93,868 95,647

Net trading income 30 20,843 10,670 Non-controlling interest 3,880 3,483

Net gain on financial investments 31 12,125 5,994 Total comprehensive income for the year 97,748 99,130

Net loss on disposal of subsidiary --- (166) The notes on pages 184 to 238 are an integral part of these consolidated financial statements.

Other income 32 3,119 3,838

Total operating income 280,002 254,122

Net (impairment) recovery on loans and advances 33 (3,555) 7,356

Net impairment losses on financial investments (60) (264)

Net operating income 276,387 261,214

Personnel expenses 34 (94,140) (83,913)

Depreciation and Amortisation 14,15 (11,176) (9,154)

Other expenses 35 (63,899) (55,529)

Total operating expenses (169,215) (148,596)

Share of profit of investments in equity accounted investees 13 1,436 1,349

Profit before income tax 108,608 113,967

Income tax expense 36 (16,536) (16,175)

Profit for the year 92,072 97,792

Other comprehensive income, net of income tax

Net change in fair value of financial assets at fair value through 26 5,676 1,338 other comprehensive income

Other comprehensive income for the year, net of income tax 5,676 1,338

Total comprehensive income for the year 97,748 99,130

176 Annual Report 2012 Credit Libanais Group 177 Credit Libanais Group

Consolidated Statement of Changes in Equity For the Year Ended 31 December 2011

Share Capital Share Capital Premium Issue Real Estate Capital Retained Fair value Non-controlling - Common - Preferred - Preferred Revaluation Other Reserves Profit For the Year Total Total Equity Reserves Earnings Reserve Interest Shares Shares Shares Reserve

Balance at 31 December 2010 234,000 16,000 59,375 96,700 (3,815) 15,656 9,612 171,577 117,062 716,167 15,004 731,171

Impact of adopting IFRS 9 at 1 January 2011 ------(186) --- (5,113) (2,620) --- (7,919) --- (7,919) millions LBP Restated balance at 1 January 2011 234,000 16,000 59,375 96,700 (4,001) 15,656 4,499 168,957 117,062 708,248 15,004 723,252

Total comprehensive income for the year

Profit for the year ------94,309 94,309 3,483 97,792

Other comprehensive income, net of tax

Net change in fair value of financial assets at fair value through ------1,338 ------1,338 --- 1,338 other comprehensive income

Total other comprehensive income ------1,338 ------1,338 --- 1,338

Total comprehensive income for the year ------1,338 --- 94,309 95,647 3,483 99,130

Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank

Increase of share capital 23,400 ------(23,400) ------

Transfer to retained earnings ------117,062 ------(117,062) ------

Transfer to reserves ------22,221 (50,461) --- (30) 27,209 --- (1,061) --- (1,061)

Redemption of preferred shares --- (16,000) (59,375) ------(75,375) --- (75,375)

Dividend distributed to preferred shareholders for the period ------(2,214) ------(2,214) --- (2,214) from 10 August 2010 to 31 December 2010

Dividend distributed to preferred shareholders for the period ------(3,439) --- (3,439) --- (3,439) from 1 January 2011 to 10 August 2011

Prior year adjustment ------73 ------73 --- 73

Dividend distributed by subsidiaries ------(988) (988)

Tax on previous year inter group dividends ------(468) ------(468) (71) (539)

Allowances to directors ------(1,485) ------(1,485) --- (1,485)

Difference of exchange ------(35) ------(336) --- (371) --- (371)

Total contributions by and distribution to owners 23,400 (16,000) (59,375) 22,186 39,107 --- (30) 23,434 (117,062) (84,340) (1,059) (85,399)

Changes in ownership interests in subsidiaries

Acquisition of non-controlling interests without a change in control ------1,170 --- 1,170 (1,170) ---

Difference of exchange ------(223) (223)

Total transactions with owners of the Bank 23,400 (16,000) (59,375) 22,186 39,107 --- (30) 24,604 (117,062) (83,170) (2,452) (85,622)

Balance at 31 December 2011 257,400 ------118,886 35,106 15,656 5,807 193,561 94,309 720,725 16,035 736,760

The notes on pages 184 to 238 are an integral part of these consolidated financial statements 178 Annual Report 2012 Credit Libanais Group 179 Credit Libanais Group

Consolidated Statement of Changes in Equity For the Year Ended 31 December 2012

Real Estate Capital Retained Fair value Non-controlling Share Capital Revaluation Other Reserves Profit For the Year Total Total Equity Reserves Earnings Reserve Interest Reserve

Balance at 1 January 2012 257,400 118,886 35,106 15,656 5,807 193,561 94,309 720,725 16,035 736,760

Total comprehensive income for the year millions LBP Profit for the year ------88,192 88,192 3,880 92,072

Other comprehensive income, net of tax

Net change in fair value of financial assets at fair value through other comprehensive income ------6,375 (699) --- 5,676 --- 5,676

Total other comprehensive income ------6,375 (699) --- 5,676 --- 5,676

Total comprehensive income for the year ------6,375 (699) 88,192 93,868 3,880 97,748

Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank

Transfer to retained earnings ------98,065 ------(3,756) (94,309) ------

Transfer to reserves --- 19,596 (44,125) ------24,550 --- 21 (21) ---

Dividends to equity holders (18,905) 1,150 (17,755) (1,247) (19,002)

Prior year adjustment (83) (83) --- (83)

Adjustments (60) (60) 55 (5)

Adjustment share of profit of equity-accounted investees (1,332) 333 (999) --- (999)

Tax on previous year inter group dividends (173) (173) (173)

Allowances to directors (1,568) (1,568) --- (1,568)

Difference of exchange ------44 --- 44 --- 44

Total contribution by and distribution to owners --- 19,596 31,819 ------22,321 (94,309) (20,573) (1,213) (21,786)

Total transactions with owners of the Bank --- 19,596 31,819 ------22,321 (94,309) (20,573) (1,213) (21,786)

Balance at 31 December 2012 257,400 138,482 66,925 15,656 12,182 215,183 88,192 794,020 18,702 812,722

The notes on pages 184 to 238 are an integral part of these consolidated financial statements

180 Annual Report 2012 Credit Libanais Group 181 Credit Libanais Group

Consolidated Statement of Cash Flows For the Year Ended 31 December

2012 2011 Notes 2012 2011

Cash flows from operating activities Cash flows from investing activities

Profit for the year 92,072 97,792 Net change in investment securities (237,403) (14,756) millions LBP millions LBP Adjustments for: Acquisition of property and equipment (40,633) (29,370)

- Depreciation and amortisation 11,176 9,154 Proceeds from the sale of property and equipment 95 3,849

- Net impairment loss (recovery) on loans and advances to customers 3,555 (7,356) Acquisition of intangible assets (1,975) (2,370)

- Net interest income (189,222) (184,275) Proceeds from the sale of intangible assets 188 695

- Net loss on sale of investment in subsidiary --- 166 Net change in assets held for sale 2,913 (1,317)

- Net gain (loss) on sale of property and equipment (39) 3 Acquisition of investments in associates (439) (1,332)

- Net gain on non-current assets held for sale (1,882) (1,916) Net cash used in investing activities (277,254) (44,601)

- Tax expense 16,536 16,175 Cash flows from financing activities

(67,804) (70,257) Dividends paid (19,496) (7,606)

Changes in: Changes in non-controlling interest (1,247) (2,452)

- Cash and balances with Central Banks (241,890) (454,516) Share of profit of equity-accounted investees (999) ---

- Balances with other banks and financial institutions (15,075) --- Acquisition of non-controlling interests --- 1,170

- Loans and advances to customers (388,896) (469,881) Preferred shares settlement --- (75,375)

- Loans and advances to related parties (3,593) (8,807) Net cash used in financing activities (21,742) (84,263)

- Other assets (1,079) 13,758 Net increase in cash and cash equivalents 176,300 15,024

- Deposits from banks and financial institutions 4,036 (6,047) Cash and cash equivalents at 1 January 1,430,624 1,415,971

- Deposits from customers 1,015,039 937,498 Effect of exchange rate fluctuations on cash and cash equivalents held 44 (371)

- Deposits from related parties (7,848) 36,735 Cash and cash equivalents at 31 December 37 1,606,968 1,430,624

- Other liabilities 3,650 (10,561) The notes on pages 184 to 238 are an integral part of these consolidated financial statements

- Provisions for risks and charges 4,030 5,595

300,570 (26,483)

Interest received 629,874 600,027

Interest paid (441,902) (408,120)

Income taxes paid (13,246) (21,536)

Net cash from operating activities 475,296 143,888

182 Annual Report 2012 Credit Libanais Group 183 Credit Libanais Group

1- Reporting entity following material items in the statement of financial Notes to the position: Credit Libanais sal (the “Bank” or the “Group”) is a financial instruments at fair value through other Lebanese joint stock Company registered since 1961 Consolidated comprehensive income are measured at fair value, in Lebanon under No. 10742 in the Beirut register of financial instruments at fair value through profit and Commerce, and under No. 53 on the Bank’s list at the loss are measured at fair value. Financial Central Bank of Lebanon. The address of the Bank’s Statements registered office is Sofil Center, Charles Malek Avenue, (c) Functional and presentation currency Beirut, Lebanon. The consolidated financial statements These consolidated financial statements are presented of the Bank as at and for the year ended 31 December 31 December 2012 in Lebanese Pounds (LBP), which is the Bank’s 2012 comprise the Bank and its subsidiaries (together functional currency. All financial information presented referred to as the Group and individually as Group in LBP has been rounded to the nearest million. entities). The Group primarily is involved in retail, commercial and investment banking activities through (d) Use of estimates and judgements their headquarters as well as their branches and The preparation of the consolidated financial statements subsidiaries located in Lebanon, Cyprus, Bahrain, Iraq in conformity with IFRS requires management to make and Senegal. judgements, estimates and assumptions that affect

The parent company is EFG Hermes CL Holding sal the application of accounting policies and the reported incorporated in Lebanon, and the ultimate parent amounts of assets, liabilities, income and expenses. company is EFG Hermes Holding sae incorporated in Actual results may differ from these estimates. Egypt. Estimates and underlying assumptions are reviewed on 2- Basis of preparation an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are (a) Statement of compliance revised and in any future years affected. The consolidated financial statements have been prepared in accordance with International Financial 3- Significant accounting policies Reporting Standards (IFRS). The accounting policies set out below have been (b) Basis of measurement applied consistently to all years presented in these The consolidated financial statements have been consolidated financial statements, and have been prepared on the historical cost basis except for the applied consistently by Group entities.

184 Annual Report 2012 Credit Libanais Group 185 Credit Libanais Group

(a) Basis of consolidation comprehensive income are recognised in other integral to the effective interest rate on a financial asset Current tax comprehensive income (except on impairment in or liability are included in the measurement of the Current tax is the expected tax payable on the taxable (i) Subsidiaries which case foreign currency differences that have effective interest rate. income for the year, using tax rates enacted or Subsidiaries are entities controlled by the Group. The been recognised in other comprehensive income are substantively enacted at the reporting date, and any financial statements of subsidiaries are included in the Other fees and commission income, including account reclassified to profit or loss). adjustment to tax payable in respect of previous years. consolidated financial statements from the date that servicing fees, investment management fees, sales control commences until the date that control ceases. (ii) Foreign operations commission and placement fees, are recognised as the Deferred tax The assets and liabilities of foreign operations are Deferred tax is recognised in respect of temporary (ii) Transactions eliminated on consolidation related services are performed. translated to LBP at spot exchange rates at the Intra-group balances and transactions, and any differences between the carrying amounts of assets reporting date. The income and expenses of foreign Other fees and commission expense relate mainly to unrealised income and expenses (except for foreign and liabilities for financial reporting purposes and the operations are translated to LBP at spot exchange rates transaction and service fees, which are expensed as currency transaction gains or losses) arising from amounts used for taxation purposes. Deferred tax is not at the dates of the transactions. the services are received. intra-group transactions, are eliminated in preparing recognised for: temporary differences on the initial recognition the consolidated financial statements. Unrealised (c) Interest (e) Net trading income of assets or liabilities in a transaction that is not losses are eliminated in the same way as unrealised Interest income and expense are recognised in Net trading income comprises gains less losses related a business combination and that affects neither gains, but only to the extent that there is no evidence of profit or loss using the effective interest method. The to trading assets and liabilities, and includes all realised accounting nor taxable profit or loss; and impairment. effective interest rate is the rate that exactly discounts and unrealised fair value changes, interest, dividends temporary differences related to investments in the estimated future cash payments and receipts and foreign exchange differences. (b) Foreign currency subsidiaries to the extent that it is probable that they will through the expected life of the financial asset or (i) Foreign currency transactions (f) Net gain on financial investments not reverse in the foreseeable future. liability (or, where appropriate, a shorter period) to Transactions in foreign currencies are translated into Net gain on financial investments relates to non-trading the carrying amount of the financial asset or liability. The measurement of deferred tax reflects the tax the respective functional currencies of the operations at derivatives held for risk management purposes that do not When calculating the effective interest rate, the Group consequences that would follow the manner in which the spot exchange rates at the date of the transactions. form part of qualifying hedge relationships and financial estimates future cash flows considering all contractual the Group expects, at the end of the reporting period, to Monetary assets and liabilities denominated in foreign assets and liabilities designated at fair value through terms of the financial instrument, but not future credit recover or settle the carrying amount of its assets and currencies at the reporting date are retranslated to the profit or loss. It includes interest, dividends and net gain losses. liabilities. functional currency at the spot exchange rate at that from exchange of financial assets at amortised cost. date. The foreign currency gain or loss on monetary The calculation of the effective interest rate includes all Deferred tax is measured at the tax rates that are items is the difference between amortised cost in (g) Dividends transaction costs and fees paid or received that are an expected to be applied to temporary differences when the functional currency at the beginning of the year, Dividend income is recognised when the right to receive integral part of the effective interest rate. Transaction they reverse, using tax rates enacted or substantively adjusted for effective interest and payments during income is established. Usually this is the ex-dividend costs include incremental costs that are directly enacted at the reporting date. the year, and the amortised cost in foreign currency attributable to the acquisition or issue of a financial date for equity securities. Dividends are presented in translated at the spot exchange rate at the end of the asset or liability. net trading income or net gain on financial investments Deferred tax assets and liabilities are offset if there is a year. based on the underlying classification of the equity legally enforceable right to offset current tax liabilities Interest income and expense presented in the statement investment. and assets, and they relate to taxes levied by the same Non-monetary assets and liabilities that are measured of comprehensive income include interest on financial tax authority on the same taxable entity, or on different at fair value in a foreign currency are translated to the assets and financial liabilities measured at amortised (h) Lease payments tax entities, but they intend to settle current tax liabilities functional currency at the spot exchange rate at the cost calculated on an effective interest rate basis. Payments made under operating lease are recognised and assets on a net basis or their tax assets and date that the fair value was determined. Non-monetary in profit or loss on a straight-line basis over the term of Interest income and expense on all trading assets and liabilities will be realised simultaneously. items that are measured based on historical cost in a the lease. liabilities are considered to be incidental to the Group’s foreign currency are translated using the spot exchange Additional taxes that arise from the distribution of trading operations and are presented together with all (i) Tax expense rate at the date of the transaction. dividends by the Group are recognised at the same other changes in the fair value of trading assets and Tax expense comprises current and deferred tax. time as the liability to pay the related dividend is Foreign currency differences arising on retranslation are liabilities in net trading income. Current tax and deferred tax are recognised in profit recognised. generally recognised in profit or loss. However, foreign or loss except to the extent that it relates to items currency differences arising from the retranslation of (d) Fees and commissions recognised directly in equity or in other comprehensive A deferred tax asset is recognised for unused tax losses financial assets at fair value through other Fees and commission income and expense that are income. and deductible temporary differences to the extent that

186 Annual Report 2012 Credit Libanais Group 187 Credit Libanais Group

it is probable that future taxable profits will be available at a portfolio level as this reflects best the way the See accounting policies 3(l), (s). the extent to which it is exposed to changes in the value against which it can be utilised. Deferred tax assets are business is managed and information is provided to of the transferred asset. reviewed at each reporting date and are reduced to the management. (iii) Derecognition Financial assets In certain transactions, the Group retains the obligation extent that it is no longer probable that the related tax In making an assessment of whether an asset is held The Group derecognises a financial asset when the to service the transferred financial asset for a fee. benefit will be realised. within a business model whose objective is to hold contractual rights to the cash flows from the financial The transferred asset is derecognised if it meets the (j) Financial assets and financial liabilities assets in order to collect contractual cash flows, the asset expire, or it transfers the rights to receive the derecognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the (i) Recognition Group considers: contractual cash flows in a transaction in which servicing fee is more than adequate (asset) or is less The Group initially recognises loans and advances, management’s stated policies and objectives for substantially all the risks and rewards of ownership than adequate (liability) for performing the servicing. deposits and subordinated debt issued on the date that the portfolio and the operation of those policies in of the financial asset are transferred or in which the practice; Group neither transfers nor retains substantially all they are originated. Regular way purchases and sales Financial liabilities how management evaluates the performance of the the risks and rewards of ownership and it does not of financial assets are recognised on the trade date The Group derecognises a financial liability when its portfolio; retain control of the financial asset. Any interest in such at which the Group commits to purchase or sell the contractual obligations are discharged, cancelled or whether management’s strategy focuses on earning transferred financial assets that qualify for derecognition asset. All other financial assets and liabilities (including expire. assets and liabilities designated at fair value through contractual interest revenues; that is created or retained by the Group is recognised profit or loss) are recognised initially on the trade date, the degree of frequency of any expected asset sales; as a separate asset or liability. On derecognition (iv) Offsetting which is the date that the Group becomes a party to the the reason for any asset sales; and of a financial asset, the difference between the Financial assets and liabilities are offset and the net whether assets that are sold are held for an extended contractual provisions of the instrument. carrying amount of the asset (or the carrying amount amount presented in the statement of financial position period of time relative to their contractual maturity or are allocated to the portion of the asset transferred), and when, and only when, the Group has a legal right to set A financial asset or financial liability is measured sold shortly after acquisition or an extended time before the consideration received (including any new asset off the amounts and it intends either to settle them on initially at fair value plus, for an item not at fair value maturity. obtained less any new liability assumed) is recognised a net basis or to realise the asset and settle the liability through profit or loss, transaction costs that are directly in profit or loss. simultaneously. Financial assets held for trading are not held within a attributable to its acquisition or issue. business model whose objective is to hold the asset in The Group enters into transactions whereby it transfers Income and expenses are presented on a net basis (ii) Classification order to collect contractual cash flows. assets recognised on its statement of financial position, only when permitted under IFRS, or for gains and Financial assets but retains either all or substantially all of the risks and losses arising from a group of similar transactions such The Group has designated certain financial assets at The Group classifies its financial assets as measured at rewards of the transferred assets or a portion of them. as in the Group’s trading activity. fair value through profit or loss in either of the following amortised cost or fair value. If all or substantially all risks and rewards are retained, circumstances: (v) Amortised cost measurement then the transferred assets are not derecognised. See Notes 3(k), (l), (m) and (n). The assets or liabilities are managed, evaluated and The amortised cost of a financial asset or liability is Transfers of assets with retention of all or substantially reported internally on a fair value basis. the amount at which the financial asset or liability A financial asset qualifies for amortised cost all risks and rewards include, for example, securities The designation eliminates or significantly reduces is measured at initial recognition, minus principal measurement only if it meets both of the following lending and repurchase transactions. an accounting mismatch, which would otherwise arise. repayments, plus or minus the cumulative amortisation conditions: using the effective interest method of any difference When assets are sold to a third party with a concurrent the asset is held within a business model whose The Group has made an election to present in other between the initial amount recognised and the maturity total rate of return swap on the transferred assets, the objective is to hold assets in order to collect contractual comprehensive income changes in the fair value of amount, minus any reduction for impairment. transaction is accounted for as a secured financing cash flows; and certain investments in equity instruments that are not transaction similar to repurchase transactions as the the contractual terms of the financial asset give held for trading – see accounting policies 3(n). (vi) Fair value measurement Group retains all or substantially all the risks and rise on specified dates to cash flows that are solely Fair value is the amount for which an asset could rewards of ownership of such assets. payments of principal and interest on the principal Financial assets are not reclassified subsequent to their be exchanged, or a liability settled, between initial recognition, except when the Group changes its knowledgeable, willing parties in an arm’s length amount outstanding. In transactions in which the Group neither retains nor business model for managing financial assets. transaction on the measurement date. transfers substantially all the risks and rewards of If a financial asset does not meet both of these ownership of a financial asset and it retains control over conditions, then it is measured at fair value. Financial liabilities When available, the Group measures the fair value of The Group classifies its financial liabilities as measured the asset, the Group continues to recognise the asset to an instrument using quoted prices in an active market The Group makes an assessment of a business model at amortised cost or fair value through profit or loss. the extent of its continuing involvement, determined by for that instrument. A market is regarded as active

188 Annual Report 2012 Credit Libanais Group 189 Credit Libanais Group

if quoted prices are readily and regularly available transaction price. If such fair value is evidenced by individually significant are collectively assessed for liabilities that the Group acquires or incurs principally for and represent actual and regularly occurring market comparison with other observable current market impairment by grouping together loans and advances the purpose of selling or repurchasing in the near term, transactions on an arm’s length basis. transactions in the same instrument (without and investment securities measured at amortised cost or holds as part of a portfolio that is managed together modification or repackaging) or based on a valuation with similar risk characteristics. for short-term profit or position taking. If a market for a financial instrument is not active, technique whose variables include only data from the Group establishes fair value using a valuation In assessing collective impairment the Group uses Trading assets and liabilities are measured at fair value observable markets, then the difference is recognised technique. Valuation techniques include using recent statistical modelling of historical trends of the probability with changes in fair value recognised as part of net in profit or loss on initial recognition of the instrument. arm’s length transactions between knowledgeable, of default, timing of recoveries and the amount of loss trading income in profit or loss. In other cases the difference is not recognised in profit willing parties (if available), reference to the current incurred, adjusted for management’s judgement as to or loss immediately but is recognised over the life of (m) Loans and advances fair value of other instruments that are substantially whether current economic and credit conditions are the instrument on an appropriate basis or when the Loans and advances are non-derivative financial the same, discounted cash flow analyses and option such that the actual losses are likely to be greater or instrument is redeemed, transferred or sold, or the fair assets with fixed or determinable payments, other pricing models. The chosen valuation technique less than suggested by historical trends. Default rates, value becomes observable. than investment securities, that are not quoted in an makes maximum use of market inputs, relies as loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to active market and the Group does not intend to sell little as possible on estimates specific to the Group, (vii) Identification and measurement of impairment ensure that they remain appropriate. immediately or in the near term. incorporates all factors that market participants would At each reporting date the Group assesses whether there is objective evidence that financial assets carried consider in setting a price, and is consistent with Impairment losses on assets measured at amortised Subsequent to initial recognition loans and advances at amortised cost are impaired. A financial asset or a accepted economic methodologies for pricing financial cost are calculated as the difference between the are measured at amortised cost using the effective group of financial assets is impaired when objective instruments. Inputs to valuation techniques reasonably carrying amount of the financial amount and the present interest method. represent market expectations and measures of the evidence demonstrates that a loss event has occurred value of estimated future cash flows discounted at the (n) Investment securities risk-return factors inherent in the financial instrument. after the initial recognition of the asset(s), and that the asset’s original effective interest rate. The Group calibrates valuation techniques and tests loss event has an impact on the future cash flows of the Subsequent to initial recognition investment securities them for validity using prices from observable current asset(s) that can be estimated reliably. Impairment losses are recognised in profit or loss are accounted for depending on their classification as market transactions in the same instrument or based on and reflected in an allowance account against loans either amortised cost, fair value through profit or loss or Objective evidence that financial assets are impaired fair value through other comprehensive income. other available observable market data. and advances. When an event occurring after the can include significant financial difficulty of the impairment was recognised causes the amount Investment securities are measured at amortised cost Assets and long positions are measured at a bid borrower or issuer, default or delinquency by a of impairment loss to decrease, the decrease in using the effective interest method, if: price; liabilities and short positions are measured at borrower, restructuring of a loan or advance by the impairment loss is reversed through profit or loss. they are held within a business model with an an asking price. Where the Group has positions with Group on terms that the Group would not otherwise objective to hold assets in order to collect contractual offsetting risks, mid-market prices are used to measure consider, indications that a borrower or issuer will enter The Group writes off certain loans and advances and cash flows and the contractual terms of the financial the offsetting risk positions and a bid or asking price bankruptcy, the disappearance of an active market for investment securities when they are determined to be uncollectible. asset give rise, on specified dates, to cash flows that adjustment is applied only to the net open position as a security, or other observable data relating to a group are solely payments of principal and interest; and appropriate. Fair values reflect the credit risk of the of assets such as adverse changes in the payment (k) Cash and cash equivalents they have not been designated previously as instrument and include adjustments to take account of status of borrowers or issuers in the group, or economic Cash and cash equivalents include cash on hand, measured at fair value through profit or loss. the credit risk of the Group and the counterparty where conditions that correlate with defaults in the group. unrestricted balances held with central banks and highly appropriate. Fair value estimates obtained from models The Group elects to present changes in fair value The Group considers evidence of impairment for loans liquid financial assets with original maturities of three are adjusted for any other factors, such as liquidity risk of certain investments in equity instruments held for and advances and investment securities measured at months or less from the acquisition date that are subject or model uncertainties, to the extent that the Group strategic purposes in other comprehensive income. The amortised costs at both a specific asset and collective to an insignificant risk of changes in their fair value, and believes a third-party market participant would take election is irrevocable and is made on an instrument-by- level. All individually significant loans and advances and are used by the Group in the management of its short- them into account in pricing a transaction. term commitments. instrument basis at initial recognition. investment securities measured at amortised cost are The best evidence of the fair value of a financial assessed for specific impairment. Those found not to Cash and cash equivalents are carried at amortised Gains and losses on such equity instruments are instrument at initial recognition is the transaction price - be specifically impaired are then collectively assessed cost in the statement of financial position. never reclassified to profit or loss and no impairment is i.e. the fair value of the consideration given or received. for any impairment that has been incurred but not recognised in profit or loss. Dividends are recognised in However, in some cases, the fair value of a financial yet identified. Loans and advances and investment (l) Trading assets and liabilities profit or loss unless they clearly represent a recovery of instrument on initial recognition may be different to its securities measured at amortised cost that are not Trading assets and liabilities are those assets and part of the cost of the investment, in which case

190 Annual Report 2012 Credit Libanais Group 191 Credit Libanais Group

they are recognised in other comprehensive income. Any gain or loss on disposal of an item of property and for in accordance with the Directives issued by the (t) Provisions Cumulative gains and losses recognised in other equipment (calculated as the difference between the net Banking Regulators. A provision is recognised if, as a result of a past event, comprehensive income are transferred to retained proceeds from disposal and the carrying amount of the These assets are initially measured at fair value at the Group has a present legal or constructive obligation earnings on disposal of an investment. item) is recognised within other income/other expenses that can be estimated reliably, and it is probable that in profit or loss. the date of enforcement of the security. A reserve is Other investment securities are measured at fair value constituted for assets not disposed of within two years an outflow of economic benefits will be required to through profit or loss. (ii) Subsequent costs of the date of enforcement at a rate of 20% or 5%, settle the obligation. Provisions are determined using Subsequent expenditure is capitalised only when it depending on the date the related loan was granted. management’s best estimates to the risk specific to the (o) Property and equipment is probable that the future economic benefits of the Reserves ratio for assets acquired in connection with liability. (i) Recognition and measurement expenditure will flow to the Group. Ongoing repairs and loans granted before 30 June 2003 and in accordance Items of property and equipment are measured at cost maintenance are expensed as incurred. (u) Employee benefits with the Central Bank intermediary circular No. 41 and less accumulated depreciation and any accumulated The Group provides for End-of-Service Indemnity (iii) Depreciation its amendments is 20%, whereas reserves ratio for impairment losses. (EoSI) to its employees, which varies according to each Items of property and equipment are depreciated from assets acquired in connection with loans after 30 June employee’s final salary and length of service, subject the date they are available for use. Depreciation is 2003 is 5%. Cost includes expenditures that are directly attributable to the completion of a minimum service period. The calculated to write off the cost of items of property and to the acquisition of the asset. provision is calculated based on the difference between equipment less their estimated residual values using The accumulated reserve is classified under “Other total indemnities due and total EoSI contributions Purchased software that is integral to the functionality the straight-line basis over their estimated useful lives. reserves” in equity. paid to National Social Security Fund (NSSF). EoSI of the related equipment is capitalised as part of that Depreciation is recognised in profit or loss. Land is not (r) Impairment of non-financial assets contributions paid to the NSSF represents 8.5% equipment. depreciated. The carrying amounts of the Group’s non-financial of employee benefits. The Group does not use the The estimated useful lives for the current and comparative periods of significant items of property and equipment are assets are reviewed at each reporting date to determine Projected Unit Credit method since the End-of-Service as follows: whether there is any indication of impairment. If any Indemnity is provided for adequately, consequently no such indication exists, then the asset’s recoverable interest and actuarial gains or losses are recognised. amount is estimated. buildings 50 years (v) Share capital and reserves installations and improvements 16.67 years The recoverable amount of an asset is the greater of its (i) Share issue costs value in use and its fair value less costs to sell. Incremental costs directly attributable to the issue of furniture and equipment 12.5 years new shares are shown in equity as a deduction, net of Impairment losses are recognised in profit or loss. vehicles 10 years tax, from the proceeds.

power generators 12.5 years An impairment loss is reversed only to the extent (ii) Dividends on ordinary shares that the asset’s carrying amount does not exceed the Dividends on ordinary shares are recognised in equity carrying amount that would have been determined, net in the period in which they are approved by the Group’s Depreciation methods, useful lives and residual values relates. All other expenditure is expensed as incurred. of depreciation or amortisation, if no impairment loss shareholders. are reassessed at each reporting date and adjusted if had been recognised. Dividends for the year that are declared after the date appropriate. Software is amortised on a straight line basis in profit or loss over its estimated useful life, from the date that it is (s) Deposits and subordinated debt issued of the balance sheet are dealt with in the subsequent (p) Intangible assets available for use. The estimated useful life of software Deposits and subordinated debt issued are the Group’s events note. for the current and comparative periods is three to sources of debt funding. Software (w) New standards and interpretations not Software acquired by the Group is measured at cost ten years. Amortisation methods, useful lives and Deposits and subordinated debt issued are initially yet adopted less accumulated amortisation and any accumulated residual values are reviewed at each reporting date and measured at fair value minus incremental direct A number of new standards, amendments to standards impairment losses. adjusted if appropriate. transaction costs, and subsequently measured at their and interpretations are effective for annual periods Subsequent expenditure on software assets is (q) Assets held for sale amortised cost using the effective interest method, beginning after 1 January 2012, and have not been capitalised only when it increases the future economic Properties acquired through the enforcement of security except where the Group designates liabilities at fair applied in preparing these consolidated financial benefits embodied in the specific asset to which it over loans and advances to customers are accounted value through profit or loss. statements. Those which may be relevant to the Group

192 Annual Report 2012 Credit Libanais Group 193 Credit Libanais Group

are set out below. The Group does not plan to adopt standard all the disclosure requirements about an This note presents information about the Group’s and consolidates all elements of credit risk exposure. these standards early. entity’s interests in subsidiaries, joint arrangements, exposure to each of the above risks, the Bank’s For risk management purposes, credit risk arising on associates and unconsolidated structured entities. objectives, policies and processes for measuring and (i) Amendments to IFRS 7 and IAS 32 on offsetting trading assets is managed independently by the market It requires the disclosure of information about the managing risk, and the Group’s management of capital. financial assets and financial liabilities (2011) risk management function. The overall objective of nature, risks and financial effects of these interests in Disclosures – Offsetting Financial Assets and Financial Risk management framework managing market risk is to avoid unexpected losses due subsidiaries and unconsolidated structured entities in Liabilities (amendments to IFRS 7) introduces The Bank’s Board of Directors has overall responsibility to changes in market prices and to optimise the use of comparison with the existing disclosures. disclosures about the impact of netting arrangements for the establishment and oversight of the Bank’s risk market risk capital. The Group manages these potential management framework. The Board of Directors has on an entity’s financial position. The amendments are These standards are effective for annual periods exposures on a daily basis within predefined limits established the Board Risk Committee, Credit Policy effective for annual periods beginning on or after 1 beginning on or after 1 January 2013 with early for each of the major types of market risk established Committee and the Asset and Liability Management January 2013 and interim periods within those annual adoption permitted. within the Group’s policies and commensurate with the periods. Based on the new disclosure requirements Committee (ALCO), which are responsible for risk appetite defined by the Board of Directors. the Group will have to provide information about (iii) IFRS 13 Fair Value Measurement (2011) developing and monitoring Bank risk management Management of credit risk what amounts have been offset in the statement of IFRS 13 provides a single source of guidance on how policies. The Board of Directors has delegated responsibility financial position and the nature and extent of rights of fair value is measured, and replaces the fair value The Group’s risk management policies are established for the oversight of credit risk to its Risk Management set-off under master netting arrangements or similar measurement guidance that is currently dispersed to identify and analyse the risks faced by the Group, to Committee, Credit Policy Committee and allocated arrangements. throughout IFRS. Subject to limited exceptions, IFRS 13 set appropriate risk limits and controls, and to monitor is applied when fair value measurements or disclosures Credit Committees. An independent Credit Risk risks and adherence to limits. Risk management Offsetting Financial Assets and Financial Liabilities are required or permitted by other IFRSs. Although Management function, reporting to the Chief Risk policies and systems are reviewed regularly to reflect Officer (CRO), is responsible for management of the (amendments to IAS 32) clarify the offsetting criteria many of the IFRS 13 disclosure requirements regarding changes in market conditions and the Group’s activities. Group’s credit risk, including: in IAS 32 by explaining when an entity currently financial assets and financial liabilities are already The Group, through its training and management Formulating credit policies covering collateral has a legally enforceable right to set-off and when required, the adoption of IFRS 13 will require the Group standards and procedures, aims to develop a requirements, credit assessment, risk grading and gross settlement is equivalent to net settlement. The to provide additional disclosures. disciplined and constructive control environment amendments are effective for annual periods beginning reporting, documentary and legal procedures, and in which all employees understand their roles and on or after 1 January 2014 and interim periods within These include the fair value hierarchy disclosures for compliance with regulatory and statutory requirements. obligations. those annual periods. Earlier application is permitted. non-financial assets/liabilities and disclosures on fair Establishing the authorisation structure for the value measurements that are categorised in Level 3. approval and renewal of credit facilities. The Board Risk Committee, the Credit Policy Based on our initial assessment, the Group is not Reviewing and assessing credit risk. The Credit IFRS 13 is effective for annual periods beginning on or Committee and the Asset Liability Management expecting a significant impact from the adoption of Committee assesses all credit exposures in excess of after 1 January 2013 with early adoption permitted. Committee (ALCO) oversee how management monitors the amendments of IAS 32. However, the adoption of designated limits, prior to facilities being committed to (iv) IAS 19 Employee Benefits (2011) compliance with the Group’s risk management policies the amendments to IFRS 7 requires more extensive customers by the business unit concerned. Renewals IAS 19 (2011) changes the definition of short-term and procedures, and review the adequacy of the disclosures about rights of set-off. and reviews of facilities are subject to the same review and other long-term employee benefits to clarify the risk management framework in relation to the risks process. (ii) IFRS 10 Consolidated Financial Statements, distinction between the two. IAS 19 (2011) is effective faced by the Group. The Audit Committee is assisted Limiting concentrations of exposure to counterparties, IFRS 11 Joint Arrangements and IFRS 12 Disclosure for annual periods beginning on or after 1 January 2013 in its oversight role by Internal Audit. Internal Audit geographies and sectors. The Group’s approach to of Interests in Other Entities (2011) with early adoption permitted. undertakes both regular and ad hoc reviews of risk controlling this concentration of exposure is by the IFRS 10 introduces a single control model to determine management controls and procedures, the results of diversification of its commitments and by setting limits whether an investee should be consolidated. As a which are reported to the Audit Committee. 4- Financial risk management at level of aggregate of products, economic sectors, result, the Group may need to change its consolidation (a) Introduction and overview (b) Credit risk region and segments. conclusion in respect of its investees, which may lead to The Group has exposure to the following risks from Developing and maintaining the Group’s credit risk changes in the current accounting for these investees Credit risk is the risk of financial loss to the Group if a financial instruments: rating system. This system is a summary indicator of (see Note 3(a) (i)). customer or counterparty to a financial instrument fails credit risk to meet its contractual obligations, and arises principally the Group’s individual credit exposure. An internal rating IFRS 11 is not expected to have any impact on the liquidity risk from the Group’s loans and advances to customers and system categorises all credits into various classes on Group because the Group does not have interests in market risks other banks, and investment debt securities. For risk the basis of underlying credit quality. A well structured joint ventures. IFRS 12 brings together into a single operational risks. management reporting purposes the Group considers credit rating framework is an important tool for

194 Annual Report 2012 Credit Libanais Group 195 Credit Libanais Group

monitoring and controlling risk inherent in individual Each Credit Officer is required to implement Group Exposure to credit risk credits as well as in credit portfolios of the Group or a credit policies and procedures, with credit approval business line. The importance of internal credit rating Balances with Central authorities delegated from the Group Credit Committee. Loans and Advances Loans and Advances Investment Banks, Other Banks and framework becomes more eminent due to the fact Each Credit Officer reports on all credit related matters to Customers to Related Parties Debt Securities Financial Institutions that historically major losses to banks stemmed from to management and the Group Credit Committee. default in loan portfolios. While the Group already has a 2012 2011 2012 2011 2012 2011 2012 2011 system for rating individual credits in addition to the risk Each Credit Officer is responsible for the quality categories prescribed by the Central Bank of Lebanon, and performance of his/her credit portfolio and for Carrying amount 3,328,744 2,943,403 39,422 35,829 3,090,564 2,689,877 4,921,036 4,684,835 the Group established an internal rating framework. monitoring and controlling all credit risks in his/her Individually impaired

The internal rating framework benefits the Group in portfolios, including those subject to central approval. millions LBP Grade 4: Substandard 30,103 23,364 ------a number of ways such as: credit selection, amount of exposure, tenure and price of facility, frequency Regular audits of Group Credit processes are Grade 5: Impaired 114,349 101,517 1,487 ------or intensity of monitoring, analysis of migration of undertaken by Internal Audit. Grade 6: Impaired 22,122 19,910 ------10,992 11,163 ------deteriorating credits and more accurate computation The following tables set out information about the Gross amount 166,574 144,791 1,487 --- 10,922 11,163 ------of future loan loss provision; and deciding the level of credit quality of financial assets and the allowance Allowance for impairment (48,757) (47,885) (905) --- (6,856) (6,856) ------approving authority of loan. for impairment/loss held by the Group against those Reviewing compliance with agreed exposure limits, Unrealised interest (67,082) (60,889) (14) ------assets. Allowance for impairment held against assets including those for selected sectors, geography and Carrying amount 50,735 36,017 568 --- 4,136 4,307 ------classified within credit grades 1 to 6 is in respect of product types. Regular reports on the credit quality of Past due but not impaired portfolios are provided to the Credit Policy Committee losses incurred but not yet specifically identified. The Grades 3: Low-fair risk 155,398 52,825 ------who may require appropriate corrective action to be carrying amount of assets with credit grades 1 to 6 taken. that are collectively impaired represents the estimated Carrying amount 155,398 52,825 ------Providing advice, guidance and specialist skills to proportion of the total assets within these grades Neither past due nor impaired promote best practice throughout the Group in the (rather than individually identified assets) to which such Grade 1-2: Low-fair risk 3,129,490 2,865,817 38,849 35,829 3,070,470 2,674,481 4,841,445 4,611,184 management of credit risk. allowance is estimated to relate. Allowance for collective impairment (17,257) (16,289) ------

Interest receivable 10,378 5,033 5 --- 15,958 11,089 79,591 73,651

Carrying amount 3,122,611 2,854,561 38,854 35,829 3,086,428 2,685,570 4,921,036 4,684,835

Total carrying amount 3,328,744 2,943,403 39,422 35,829 3,090,564 2,689,877 4,921,036 4,684,835

Impaired loans and investment debt securities losses incurred but not yet identified are not considered The Group regards a loan and advance or a debt impaired. Impaired loans and advances are graded 4 to security as impaired where there is objective evidence 6 in the Bank’s internal credit risk grading system (see that a loss event has occurred since initial recognition Note 5(a)). and such loss event has an impact on future estimated cash flows from the asset. In addition, a retail loan is Set out below is an analysis of the gross and net (of considered impaired if it is overdue for 90 days or more. allowances for impairment) amounts of individually Loans that are subject to a collective provision for impaired assets by risk grade.

196 Annual Report 2012 Credit Libanais Group 197 Credit Libanais Group

Balances with Central The Group typically does not hold collateral against security against loans and advances amounted to LBP Loans and Advances Loans and Advances Banks, Other Banks and balances with other banks and financial institutions and 601 million (2011: 4,896 million). to Customers to Related Parties Financial Institutions against investment securities, and no such collateral was held at 31 December 2012 or 2011. The Bank’s policy is to pursue timely realisation of the Gross Net Gross Net Gross Net collateral in an orderly manner. The Group generally Non-financial assets obtained by the Group during the does not use the non-cash collateral for its own 31 December 2012 year by taking possession of collateral held for sale as operations. Grade 4: Individually impaired 30,103 21,332 ------millions LBP Grade 5: Individually impaired 114,349 29,403 1,487 568 ------Concentration of credit risk The Group monitors concentrations of credit risk by sector and by geographic location. An analysis of concentrations Grade 6: Individually impaired 22,122 ------10,992 4,136 of credit risk from loans and advances and investment securities is shown below: Total 166,574 50,735 1,487 568 10,992 4,136

31 December 2011 Balances with Central Loans and Advances Loans and Advances Investment Banks, Other Banks and Grade 4: Individually impaired 23,364 15,440 ------to Customers to Related Parties Debt Securities Financial Institutions Grade 5: Individually impaired 101,517 20,577 ------2012 2011 2012 2011 2012 2011 2012 2011 Grade 6: Individually impaired 19,910 ------11,163 4,307

Total 144,791 36,017 ------11,163 4,307 Carrying amount 3,328,744 2,943,403 39,422 35,829 3,090,564 2,689,877 4,921,036 4,684,835

Concentration by sector millions LBP Past due but not impaired loans and investment Group Credit Committee determines that the loan or Retail 1,556,177 1,527,979 147 268 ------debt securities security is uncollectible. This determination is made Trade and services 947,395 790,730 7,856 17,078 ------

Past due but not impaired loans and investment debt after considering information such as the occurrence of Industries 463,881 372,745 5,414 6,820 ------securities are those for which contractual interest or significant changes in the borrower’s / issuer’s financial Construction and real estate 279,124 151,526 22,922 8,171 ------principal payments are past due, but the Group believes position such that the borrower / issuer can no longer Brokerage that impairment is not appropriate on the basis of the pay the obligation, or that proceeds from collateral will 27,709 46,097 3,083 3,492 ------level of security / collateral available and / or the stage not be sufficient to pay back the entire exposure. Agriculture 54,458 54,326 ------of collection of amounts owed to the Group. Banks and financial institutions ------1,217,513 1,259,619 93,535 1,447,247 Collateral held Write-off policy The Group holds collateral against certain of its credit Corporate ------12,249 11,403 The Bank writes off a loan or an investment debt exposures. The table below sets out the principal Government ------1,873,051 1,430,258 4,815,252 3,226,185 security balance, and any related allowances for types of collateral held against loans and advances to 3,328,744 2,943,403 39,422 35,829 3,090,564 2,689,877 4,921,036 4,684,835 impairment losses and suspended interest, when customers. Concentration by location

Lebanon 3,247,752 2,878,711 39,421 35,829 1,910,943 1,474,706 4,809,504 4,556,772

2012 2011 Middle East and Africa 65,955 59,926 1 --- 259,132 216,927 70,555 40,385

Europe 13,562 4,552 ------847,161 941,699 18,938 64,942 Principal type of collateral held for secured lending Other 1,475 214 ------73,328 56,545 22,039 22,736 Engagement by signature received 17,418 21,143

millions LBP 3,328,744 2,943,403 39,422 35,829 3,090,564 2,689,877 4,921,036 4,684,835 Personal guarantees received 2,760,626 2,018,616

Mortgages and real securities received 3,236,306 2,690,776

Mobilisation bills received as guarantee 1,024,461 1,005,611 Concentration by location for loans and advances is Concentration by location for investment securities is based on the customer, related party and other banks based on the country of domicile of the issuer of the Bills received as guarantee 5,820 58,226 and financial institutions’ country of domicile. security. 7,044,631 5,794,372

198 Annual Report 2012 Credit Libanais Group 199 Credit Libanais Group

Trading assets a variety of scenarios, giving due consideration to by its local regulator, the branch is responsible for An analysis of the credit quality of the maximum credit exposure, based on the median rating of the three eligible stress factors relating to both the market in general and managing its overall liquidity within the regulatory limit rating agencies as per Basel II (Moody’s, Standard & Poor’s and Fitch) where applicable, is as follows: specifically to the Group. The Group maintains a solid in coordination with Central Treasury. Central Treasury ratio of highly liquid net assets in foreign currencies to monitors compliance of all foreign branches with local deposits and commitments in foreign currencies taking regulatory limits on a daily basis. From AA+ From A+ From BBB+ From BB+ From B+ From CCC+ to Total market conditions into consideration. In accordance, to AA- to A- to BBB- to BB- to B- CCC- or NR Exposure to liquidity risk with the Central Bank of Lebanon circulars, the ratio The key measure used by the Group for managing At 31 December 2012 of net liquid assets to deposits and commitments in liquidity risk is the ratio of net liquid assets to deposits Financial assets at fair value through profit or loss --- 13,392 7,601 5,684 25,066 151 51,894 foreign currencies and Lebanese Pounds should not

millions LBP from customers. For this purpose net liquid assets are be less than 10% and 40% respectively. The highly At 31 December 2011 considered as including cash and cash equivalents liquid net assets consist of cash and balances with Financial assets at fair value through profit or loss 1,510 13,005 30,362 2,748 24,340 151 72,116 and investment debt securities for which there is Central Banks, balances with other banks and financial an active and liquid market less any deposits from institutions less deposits from banks and financial banks and financial institutions, other borrowings and institutions and deposits that mature within one year. Settlement risk foreign branches. commitments maturing within the next month. A similar, Deposits and commitments are composed of total The Group’s activities may give rise to risk at the time of but not identical, calculation is used to measure the settlement of transactions and trades. Settlement risk is The Group’s approach to managing liquidity is to deposits from customers in addition to acceptances and Group’s compliance with the liquidity limit established the risk of loss due to the failure of an entity to honour ensure, as far as possible, that it will always have loans that mature within one year. by the Central Bank of Lebanon and the Banking its obligations to deliver cash, securities or other assets sufficient liquidity to meet its liabilities when due, under When a branch is subject to a liquidity limit imposed Control Commission. as contractually agreed. both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date was as follows: For certain types of transactions the Group mitigates reputation. The key elements of the Group’s liquidity this risk by conducting settlements through a strategy are as follows: settlement/clearing agent to ensure that a trade is Maintaining a diversified funding base consisting of 2012 2011 settled only when both parties have fulfilled their customer deposits (both retail and corporate) and contractual settlement obligations. Settlement limits maintaining contingency facilities; At 31 December 30.87% 33.53% form part of the credit approval/limit monitoring process Carrying a portfolio of highly liquid assets, diversified described earlier. Acceptance of settlement risk on by currency and maturity; free settlement trades requires transaction specific or Monitoring liquidity ratios, maturity mismatches, counterparty specific approvals from Group Risk. behavioural characteristics of the Group’s financial assets and liabilities, and the extent to which the (c) Liquidity risk Group’s assets are encumbered and so not available as Liquidity risk is the risk that the Group will encounter potential collateral for obtaining funding. difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or In addition, the Group maintains statutory deposits with another financial asset. Central Banks. As per Lebansese banking regulations, the Group must retain non-interest bearing balances Management of liquidity risk with the Central Bank of Lebanon equivalent to The Group’s Board of Directors sets the Group’s 25% of the sight deposits and 15% of term deposits strategy for managing liquidity risk and delegates the denominated in Lebanese Pounds. As for foreign responsibility for the oversight of the implementation currencies, the Group must retain with the Central of this policy to the Risk Committee and ALCO. ALCO Bank of Lebanon interest bearing statutory investments approves the Group’s liquidity policies and procedures. equivalent to 15% of all deposits regardless of their Central Treasury manages the Bank’s liquidity position nature. on a day-to-day basis and reviews daily reports covering the liquidity position of both the Bank and The liquidity position is assessed and managed under

200 Annual Report 2012 Credit Libanais Group 201 Credit Libanais Group

Maturity analysis for assets and liabilities The tables below set out the remaining contractual maturities of the Bank’s assets and liabilities.

Amount Amount 6 Months More Than 6 Months More Than Without 1-3 Months 3-6 Months 1-5 Years Total Without 1-3 Months 3-6 Months 1-5 Years Total As at 31 December 2012 to 1 Year 5 Years As at 31 December 2011 to 1 Year 5 Years Maturity Maturity

Assets Assets

Cash and balances with Central Banks 72,402 728,985 235,170 111,556 331,650 450,000 1,929,763 Cash and balances with Central Banks 55,469 795,206 116,078 170,348 337,680 --- 1,474,781 millions LBP millions LBP Due from banks and financial institutions 4,404 1,198,034 12,060 3,015 ------1,217,513 Due from banks and financial institutions 143 1,259,476 ------1,259,619

Loans and advances to customers 43,856 1,244,073 186,459 235,503 659,376 959,477 3,328,744 Loans and advances to customers 5,033 1,249,729 275,491 535,608 839,458 38,084 2,943,403

Loans and advances to related parties 573 33,409 ------5,440 --- 39,422 Loans and advances to related parties --- 25,430 --- 174 10,225 --- 35,829

Debtors by acceptances --- 124,733 11,660 ------136,393 Debtors by acceptances 46,425 ------46,425

Financial assets at fair value through other Financial assets at fair value through other 60,004 ------60,004 28,607 ------24,524 53,131 comprehensive income comprehensive income

Financial assets at fair value through profit or loss 377 261 474 --- 15,225 35,557 51,894 Financial assets at fair value through profit or loss 702 ------26,280 45,134 72,116

Financial assets at amortised cost 79,214 242,125 275,616 266,575 2,791,131 1,214,481 4,869,142 Financial assets at amortised cost 72,948 168,802 315,332 734,594 2,162,801 1,158,242 4,612,719

Investment in associates 17,275 ------17,275 Investment in associates 16,836 ------16,836

Property and equipment 139,546 ------139,546 Property and equipment 108,102 ------108,102

Intangible assets 4,971 ------4,971 Intangible assets 5,227 ------5,227

Non-current assets held for sale 44,895 ------44,895 Non-current assets held for sale 45,926 ------45,926

Other assets 141,519 ------141,519 Other assets 140,440 ------140,440

Total assets 609,036 3,571,620 721,439 616,649 3,802,822 2,659,515 11,981,081 Total assets 525,858 3,498,643 706,901 1,440,724 3,376,444 1,265,984 10,814,554

Liabilities Liabilities

Due to banks and financial institutions (788) (74,830) (9,836) (6,229) (34,602) (6,865) (133,150) Due to banks and financial institutions (1,129) (75,602) (11,861) (6,292) (41,446) (13,217) (149,547)

Customers’ deposits (53,774) (8,525,179) (962,846) (543,502) (108,520) (10) (10,193,831) Customers’ deposits (50,373) (7,700,702) (836,555) (527,503) (63,659) --- (9,178,792)

Related parties’ deposits (814) (254,878) (34,307) (9,563) ------(299,562) Related parties’ deposits (1,019) (291,859) (14,532) ------(307,410)

Engagement by acceptances --- (124,733) (11,660) ------(136,393) Engagement by acceptances (46,425) ------(46,425)

Subordinated debt issued (7,420) (113,063) (120,483) Subordinated debt issued (8,670) ------(113,063) (121,733)

Current tax liabilities --- (7,537) (7,776) ------(15,313) Current tax liabilities --- (6,491) (5,532) ------(12,023)

Other liabilities (214,998) (19,657) ------(234,655) Other liabilities (213,085) (17,837) ------(230,922)

Provision for risks and charges (34,972) ------(34,972) Provision for risks and charges (30,942) ------(30,942)

Shareholders’ equity (812,722) ------(812,722) Shareholders’ equity (736,760) ------(736,760)

Total liabilities and shareholders’ equity (1,125,488) (9,006,814) (1,026,425) (559,294) (143,122) (119,938) (11,981,081) Total liabilities and shareholders’ equity (1,088,403) (8,092,491) (868,480) (533,795) (105,105) (126,280) (10,814,554)

Liquidity gap (516,452) (5,435,194) (304,986) 57,355 3,659,700 2,539,577 --- Liquidity gap (562,545) (4,593,848) (161,579) 906,929 3,271,339 1,139,704 ---

Cumulative gap (516,452) (5,951,646) (6,256,632) (6,199,277) (2,539,577) ------Cumulative gap (562,545) (5,156,393) (5,317,972) (4,411,043) (1,139,704) ------

202 Annual Report 2012 Credit Libanais Group 203 Credit Libanais Group

The above tables show the undiscounted cash flows on and control market risk exposures within acceptable A summary of the Group’s interest rate gap position is as follows: the Group’s assets and liabilities on the basis of their parameters in order to ensure the Group’s solvency earliest possible contractual maturity. while optimising the return on risk. Carrying Less than 6-12 More Than Non Interest As at 31 December 2012 3-6 Months 1-5 Years Amount 3 Months Months 5 Years Bearing The Group’s expected cash flows on some assets and Management of market risks Assets liabilities vary significantly from the contractual cash Overall authority for market risk management is vested flows. For example, demand deposits from customers in ALCO. ALCO sets up limits for each type of risk in Cash and balances with Central Banks 1,929,763 424,968 235,170 111,556 331,650 450,000 376,419 millions LBP are expected to maintain a stable or increasing balance. aggregate and for portfolios, with market liquidity being Balances with other banks and financial institutions 1,217,513 1,030,826 12،060 3,015 ------171,612 a primary factor in determining the level of limits set for As part of the management of its liquidity risk arising Loans and advances to customers 3,328,744 1,244,073 186،459 235,503 659,376 959,477 43,856 from financial liabilities, the Group holds liquid assets trading portfolios. The Group Market Risk is responsible Loans and advances to related parties 39,422 33,409 ------5,440 --- 573 for the development of detailed risk management comprising cash and cash equivalents, compulsory Debtors by acceptances 136,393 ------136,393 reserves with Central Banks and investment securities policies (subject to review and approval by ALCO) and Financial assets at fair value through for the day-to-day review of their implementation. The 60,004 ------60,004 for which there is an active and liquid market so that other comprehensive income they can be readily sold to meet liquidity requirements. Group employs a range of tools to monitor and limit Financial assets at fair value through profit or loss 51,894 261 474 --- 15,225 35,557 377 In addition, the Bank maintains agreed lines of credit market risk exposures. with banks. Financial assets at amortised cost 4,869,142 242,125 275,616 266,575 2,791,131 1,214,481 79,214 Exposure to interest rate risk Investment in associates 17,275 ------17,275 (d) Market risks The principal risk to which portfolios are exposed is the Property and equipment 139,546 ------139,546 Market risk is the risk that changes in market prices, risk of loss from fluctuations in the future cash flows or such as interest rates, equity prices, foreign exchange fair values of financial instruments because of a change Intangible assets 4,971 ------4,971 rates will affect the Group’s income or the value of its in market interest rates. Interest rate risk is managed Assets held for sale 44,895 ------44,895 principally through monitoring interest rate gaps and by holdings of financial instruments. The objective of the Other assets 141,519 ------141,519 Group’s market risk management is to manage having pre-approved limits for repricing bands. Total assets 11,981,081 2,975,662 709,779 616,649 3,802,822 2,659,515 1,216,654

Liabilities

Deposits from banks and financial institutions (133,150) (44,752) (9,836) (6,229) (34,602) (6,865) (30,866)

Deposits from customers (10,193,831) (7,610,751) (962,846) (543,502) (108,520) (10) (968,202)

Deposits from related parties (299,562) (234,342) (34,307) (9,563) ------(21,350)

Engagement by acceptances (136,393) ------(136,393)

Subordinated debt issued (120,483) ------(120,483)

Current tax liabilities (15,313) ------(15,313)

Other liabilities (234,655) ------(234,655)

Provision for risks and charges (34,972) ------(34,972)

Shareholders’ equity (812,722) ------(812,722)

Total liabilities and equity (11,981,081) (7,889,845) (1,006,989) (559,294) (143,122) (6,875) (2,374,956)

Interest rate sensitivity gap --- (4,914,183) (297,210) 57,355 3,659,700 2,652,640 (1,158,302)

Cumulative gap --- (4,914,183) (5,211,393) (5,154,038) (1,494,338) 1,158,302 ---

204 Annual Report 2012 Credit Libanais Group 205 Credit Libanais Group

The management of interest rate risk against interest a monthly basis include a 100 basis point (bp) parallel rate gap limits is supplemented by monitoring the fall or rise in all yield curves. An analysis of the Group’s Carrying Less than 6-12 More Than Non Interest sensitivity of the Group’s financial assets and liabilities sensitivity to an increase or decrease in market interest As at 31 December 2011 3-6 Months 1-5 Years Amount 3 Months Months 5 Years Bearing to various standard and non-standard interest rate rates, assuming no asymmetrical movement in yield

Assets scenarios. Standard scenarios that are considered on curves and a constant financial position, is as follows:

Cash and balances with Central Banks 1,474,781 588,989 116,078 170,348 337,680 --- 261,686 millions LBP Balances with other banks and financial institutions 1,259,619 1,117,368 ------142,251 Change in bp Sensitivity of Net Interest Income

Loans and advances to customers 2,943,403 1,230,001 275,491 535,608 839,458 38,084 24,761 31 December 2012 Loans and advances to related parties 35,829 25,430 --- 174 10,225 ------LBP +100 (81,384) Debtors by acceptances 46,425 ------46,425 millions LBP USD +50 (11,960) Financial assets at fair value through other 53,131 ------53,131 EUR +25 (206) comprehensive income 31 December 2011 Financial assets at fair value through profit or loss 72,116 ------26,280 45,134 702 LBP +100 (52,628) Financial assets at amortised cost 4,612,719 168,802 315,332 734,594 2,162,801 1,158,242 72,948 USD +50 (12,143) Investment in associates 16,836 ------16,836 EUR +25 (271) Property and equipment 108,102 ------108,102

Intangible assets 5,227 ------5,227

Assets held for sale 45,926 ------45,926 Overall interest rate risk positions are managed by to any individual currency in regard to the translation of Risk Management, which uses investment securities, foreign currency transactions and monetary assets and Other assets 140,440 ------140,440 advances to banks, deposits from banks to manage the liabilities into the functional currency of the Group, and Total assets 10,814,554 3,130,590 706,901 1,440,724 3,376,444 1,241,460 918,435 overall position arising from the Group’s activities. with regard to the translation of foreign operations into Liabilities the presentation currency of the Group. Exposure to other market risks Deposits from banks and financial institutions (149,547) (28,859) (11,861) (6,292) (41,446) (13,217) (47,872) The Group monitors any concentration risk in relation Deposits from customers (9,178,792) (6,872,903) (836,555) (527,503) (63,659) --- (878,172)

Deposits from related parties (307,410) (284,226) (14,532) ------(8,652)

Engagement by acceptances (46,425) ------(46,425)

Subordinated debt issued (121,733) ------(113,063) (8,670)

Current tax liabilities (12,023) ------(12,023)

Other liabilities (230,922) ------(230,922)

Provision for risks and charges (30,942) ------(30,942)

Shareholders’ equity (736,760) ------(736,760)

Total liabilities and equity (10,814,554) (7,185,988) (862,948) (533,795) (105,105) (126,280) (2,000,438)

Interest rate sensitivity gap --- (4,055,398) (156,047) 906,929 3,271,339 1,115,180 (1,082,003)

Cumulative gap --- (4,055,398) (4,211,445) (3,304,516) (33,177) 1,082,003 ---

206 Annual Report 2012 Credit Libanais Group 207 Credit Libanais Group

The following table presents the breakdown of assets and liabilities by currency: The Group is subject to currency risk on financial assets liabilities are denominated in US Dollars or Euros. and liabilities denominated in currencies other than the An analysis of the Group’s sensitivity to a change in Group’s functional currency, which is the Lebanese currency rates, assuming all other variables remain 2012 2011 Pound (LBP). Most of these financial assets and constant, is as follows:

LBP Other Total LBP Other Total Increase in Currency Rate Effect on Profit Before Tax Effect on Equity Assets 31 December 2012 Cash and balances with Central Banks 860,814 1,068,949 1,929,763 588,579 886,202 1,474,781 millions LBP USD 1% (398) 1,596 Balances with other banks and financial institutions 6,254 1,211,259 1,217,513 13,978 1,245,641 1,259,619 millions LBP EUR 1% 12 --- Loans and advances to customers 1,272,437 2,056,307 3,328,744 1,192,733 1,750,670 2,943,403 BHD 1% 314 --- Loans and advances to related parties 199 39,223 39,422 185 35,644 35,829 XOF 1% 5 --- Debtors by acceptances --- 136,393 136,393 505 45,920 46,425 31 December 2011 Financial assets at fair value through other comprehensive income 3,872 56,132 60,004 3,951 49,180 53,131 USD 1% (295) 1,515 Financial assets at fair value through profit or loss --- 51,894 51,894 --- 72,116 72,116 EUR 1% 7 --- Financial assets at amortised cost 3,305,210 1,563,932 4,869,142 3,082,997 1,529,722 4,612,719 BHD 1% 316 --- Investment in associates 17,228 47 17,275 16,789 47 16,836 XOF 1% 5 --- Property and equipment 126,785 12,761 139,546 96,640 11,462 108,102

Intangible assets 4,489 482 4,971 4,126 1,101 5,227 Assets held for sale 7,115 37,780 44,895 7,576 38,350 45,926 (e) Operational risks requirements for appropriate segregation of duties, including the independent authorisation of Other assets 125,907 15,612 141,519 117,369 23,071 140,440 Operational risk is the risk of direct or indirect loss transactions; Total assets 5,730,310 6,250,771 11,981,081 5,125,428 5,689,126 10,814,554 arising from a wide variety of causes associated with requirements for the reconciliation and monitoring of Liabilities the Group’s processes, personnel, technology and transactions; infrastructure, and from external factors other than Deposits from banks and financial institutions 12,656 120,494 133,150 27,587 121,960 149,547 compliance with regulatory and other legal credit, market and liquidity risks, such as those arising requirements; Deposits from customers 4,821,317 5,372,514 10,193,831 4,307,800 4,870,992 9,178,792 from legal and regulatory requirements and generally documentation of controls and procedures; Deposits from related parties 104,441 195,121 299,562 103,299 204,111 307,410 accepted standards of corporate behaviour. Operational requirements for the periodic assessment of Engagement by acceptances --- 136,393 136,393 505 45,920 46,425 risks arise from all of the Group’s operations. operational risks faced, and the adequacy of controls Subordinated debt issued --- 120,483 120,483 --- 121,733 121,733 The Group’s objective is to manage operational risk and procedures to address the risks identified; Current tax liabilities 10,979 4,334 15,313 9,708 2,315 12,023 so as to balance the avoidance of financial losses and requirements for the reporting of operational losses Other liabilities 153,705 80,950 234,655 122,286 108,636 230,922 damage to the Group’s reputation with overall cost and proposed remedial action; effectiveness and innovation. In all cases, the Group development of contingency plans; Provision for risks and charges 33,575 1,397 34,972 29,751 1,191 30,942 policy requires compliance with all applicable legal and training and professional development; Shareholders’ equity 751,529 61,193 812,722 695,031 41,729 736,760 regulatory requirements. ethical and business standards; and Total liabilities and shareholders’ equity 5,888,202 6,092,879 11,981,081 5,295,967 5,518,587 10,814,554 risk mitigation, including insurance where this is The Board of Directors has delegated responsibility for Currency gap (157,892) 157,892 --- (170,539) 170,539 --- effective. operational risks to management which is responsible for the development and implementation of controls to Compliance with Group standards is supported by address operational risk. This responsibility is supported a programme of periodic reviews undertaken by by the development of overall Bank standards for the Internal Audit. The results of Internal Audit reviews are management of operational risk in the following areas: discussed with the management, with summaries

208 Annual Report 2012 Credit Libanais Group 209 Credit Libanais Group

submitted to the Audit Committee and senior management of the Group. The Bank and its individually regulated operations have complied with all externally imposed capital requirements.

(f) Capital management Regulatory capital 2012 2011 The Group’s lead regulator, the Central Bank of Lebanon, sets and monitors capital requirements for the Group as a whole. The Group’s regulatory capital adequacy ratio at 31 December was as follows: Risk weighted assets

Credit risk 5,737,776 4,891,773 millions LBP Market risk 94,045 105,191 2012 2011 Operational risk 452,121 417,792

Capital adequacy ratio - Tier 1 capital 11.35% 11.83% Total risk weighted assets 6,283,942 5,414,756 Capital adequacy ratio - Total capital 13.41% 14.15%

The Bank’s regulatory capital position under Basel II at 31 December was as follows: To monitor the adequacy of its capital, the Group account by applying different categories of conversion uses ratios established by the Bank for International factors, designed to convert these items into statement Settlements (BIS). In line with Basel III and Central of financial position equivalents. 2012 2011 Bank of Lebanon Basic Circular No. 44 amended by The results of the capital adequacy computation Tier 1 capital 713,065 640,530 Central Bank of Lebanon Intermediary Circular no. exercise are presented to Senior Management and 282, the minimum requirements for capital adequacy Tier 2 capital 129,573 125,883 the Group’s Risk Committee for regular review and millions LBP ratios are set at 8% by the BIS and the Central Bank Total regulatory capital 842,638 766,413 monitoring of the Group’s overall capitalisation levels. of Lebanon. These ratios measure capital adequacy (minimum 8% as required by BIS and 12% as required The resulting equivalent amounts are then weighted on the amounts recognised in the consolidated financial by the Central Bank of Lebanon) by comparing the for risk using the same percentages as for on-balance- 5- Use of estimates and judgements Group’s eligible capital with its statement of financial sheet assets. statements is disclosed below. The preparation of the consolidated financial statements position, off-balance-sheet commitments and market in conformity with IFRS requires management to make These disclosures supplement the commentary on and other risk positions at weighted amounts to reflect The Group’s regulatory capital comprises two tiers: judgements, estimates and assumptions that affect financial risk management (see Note 4). their relative risk. Tier 1 capital, which includes ordinary share capital, the application of accounting policies and the reported retained earnings, and other regulatory adjustments amounts of assets, liabilities, income and expenses. (a) Impairment The market risk approach covers the risk of open relating to items that are included in equity but are Actual results may differ from these estimates. Assets accounted for at amortised cost are evaluated positions in currencies and debt and equity securities. treated differently for capital adequacy purposes; and Assets are weighted according to broad categories of for impairment on a basis described in Note 3(j)(vii). Tier 2 capital, which includes the element of the Estimates and underlying assumptions are reviewed on notional risk, being assigned a risk weighting according fair value reserve relating to unrealised gains and an ongoing basis. Revisions to accounting estimates The specific component of the total allowances for to the amount of capital deemed to be necessary to losses on equity instruments measured at fair value are recognised in the period in which the estimates are impairment applies to financial assets evaluated support them. Six categories of risk weights (0%, 20%, through other comprehensive income and real estate revised and in any future periods affected. individually for impairment and is based upon 35%, 50%, 75%, 100%) are applied; for example cash revaluation reserve. management’s best estimate of the recoverable and LBP placements with the Central Bank have a 0% Management discusses with the Audit Committee the amounts that are expected to be received. In estimating risk weighting which means that no capital is required to The Group’s policy is to maintain a strong capital development, selection and disclosure of the Group’s these recoverable amounts, management makes support the holding of these assets. base so as to maintain investor, creditor and market critical accounting policies and their application, confidence and to sustain future development of the and assumptions made relating to major estimation judgements about a debtor’s financial situation and Off-balance-sheet credit instruments are taken into business. uncertainties. Information about assumptions and the net realisable value of any underlying collateral. estimation uncertainties that have a significant risk Each impaired asset is assessed on its merits, and the of resulting in a material adjustment within the next workout strategy and estimate of amounts considered financial year and about critical judgements in applying recoverable are independently approved by the Credit accounting policies that have the most significant effect Risk function.

210 Annual Report 2012 Credit Libanais Group 211 Credit Libanais Group

A collective component of the total allowance is of judgement depending on liquidity, concentration, discounted cash flow models, comparison to similar volatilities and correlations. The objective of valuation established for: uncertainty of market factors, pricing assumptions and instruments for which market observable prices exist. techniques is to arrive at a fair value determination groups of homogenous loans that are not considered other risks affecting the specific instrument. Assumptions and inputs used in valuation techniques that reflects the price of the financial instrument at the individually significant; and include risk-free and benchmark interest rates, bond reporting date, that would have been determined by groups of assets that are individually significant but The valuation of the underlying collateral is rendered and equity prices, foreign currency exchange rates, market participants acting at arm’s length. that were not found to be individually impaired. more difficult for judgement because of the absence equity and equity index prices and expected price of an active real estate market. Even when observable Collective allowance for groups of assets that are market prices are available, these are often based on The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in individually significant but that were not found to be illiquid markets. the fair value hierarchy into which the fair value measurement is categorised: individually impaired cover credit losses inherent in portfolios of loans and advances, with similar credit The Group’s accounting policy on fair value risk characteristics when there is objective evidence measurements is discussed in Note 3(j)(vi). Level 1 Level 2 Level 3 Total to suggest that they contain impaired loans and The Group measures fair values using the following advances, but the individual impaired items cannot yet 31 December 2012 fair value hierarchy that reflects the significance of the be identified. Financial assets at fair value through other comprehensive income 36,897 15,746 5,704 58,347

inputs used in making the measurements. millions LBP Financial assets at fair value through profit or loss 48,058 3,459 --- 51,517 Investments in equity securities were evaluated for Level 1: Quoted market price in an active market for impairment on the basis described in Note 3(j)(vii). 84,955 19,205 5,704 109,864 an identical instrument. 31 December 2011 An assessment as to whether an investment in Level 2: Valuation techniques based on observable Financial assets at fair value through other comprehensive income 28,617 17,254 5,794 51,665 sovereign debt (see Note 4(b)) is impaired may be inputs, either directly - i.e. as prices - or indirectly - i.e. complex. In making such an assessment, the Group derived from prices. This category includes instruments Financial assets at fair value through profit or loss 59,358 12,056 --- 71,414 considers the following factors. valued using: quoted market prices in active markets 87,975 29,310 5,794 123,079 for similar instruments; quoted prices for identical or The market’s assessment of creditworthiness as similar instruments in markets that are considered less reflected in the bond yields. than active; or other valuation techniques where all (c) Financial asset and liability classification The rating agencies’ assessments of the significant inputs are directly or indirectly observable The Group’s accounting policies provide scope for In designating financial assets or liabilities as at creditworthiness. from market data. assets and liabilities to be designated at inception fair value through profit or loss, the Group has The ability of the country to access the capital Level 3: Valuation techniques using significant into different accounting categories in certain determined that it has met one of the criteria for this markets for new debt issuance. unobservable inputs. This category includes all circumstances: designation set out in Note 3(j)(ii). The probability of debt being restructured resulting instruments where the valuation technique includes In classifying financial assets and liabilities as in holders suffering losses through voluntary or inputs not based on observable data and the “trading”, the Group has determined that it meets the Details of the Bank’s classification of financial assets mandatory debt forgiveness. unobservable inputs have a significant effect on description of trading assets and liabilities set out in and liabilities are given in Note 6. the instrument’s valuation. This category includes See Note 4(b) for the Group’s assessment of whether Note 3(l). instruments that are valued based on quoted prices there is objective evidence of impairment of its for similar instruments where significant unobservable investments in sovereign debt, based on the above adjustments or assumptions are required to reflect factors. differences between the instruments. (b) Fair values Fair values of financial assets and financial liabilities The determination of fair value for financial assets and that are traded in active markets are based on quoted liabilities for which there is no observable market price market prices or dealer price quotations. For all other requires the use of valuation techniques as described financial instruments the Group determines fair values in Note 3(j)(vi). For financial instruments that trade using valuation techniques. infrequently and have little price transparency, fair value is less objective, and requires varying degrees Valuation techniques include net present value and

212 Annual Report 2012 Credit Libanais Group 213 Credit Libanais Group

6- Financial assets and liabilities (a) Accounting classifications and fair values The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities:

Fair Value Fair Value Fair Value Fair Value Amortised Total Carrying Amortised Total Carrying Through Profit Through Other Fair Value Through Profit Through Other Fair Value Comprehensive Cost Amount Comprehensive Cost Amount or Loss income or Loss income

31 December 2012 31 December 2011

Cash and balances with Central Banks ------1,929,763 1,929,763 1,929,763 Cash and balances with Central Banks ------1,474,781 1,474,781 1,474,781 millions LBP millions LBP Balances with other banks and financial institutions ------1,217,513 1,217,513 1,217,513 Due from banks and financial institutions ------1,259,619 1,259,619 1,259,619

Loans and advances to customers ------3,328,744 3,328,744 3,457,163 Loans and advances to customers ------2,943,403 2,943,403 2,955,546

Loans and advances to related parties ------39,422 39,422 39,309 Loans and advances to related parties ------35,829 35,829 35,574

Investment securities Investment securities

Measured at fair value 51,894 60,004 --- 111,898 111,898 Measured at fair value 72,116 53,131 --- 125,247 125,247

Measured at amortised cost ------4,869,142 4,869,142 4,871,583 Measured at amortised cost ------4,612,719 4,612,719 4,771,664

51,894 60,004 11,384,584 11,496,482 11,627,229 72,116 53,131 10,326,351 10,451,598 10,622,431

Deposits from banks and financial institutions ------133,150 133,150 133,150 Due to banks and financial institutions ------149,547 149,547 149,547

Deposits from customers ------10,193,831 10,193,831 10,193,879 Customers’ deposits ------9,178,792 9,178,792 9,178,962

Deposits from related parties ------299,562 299,562 299,562 Related parties’ deposits ------307,410 307,410 307,410

Subordinated debt issued ------120,483 120,483 120,483 Subordinated debt issued ------121,733 121,733 121,733

------10,747,026 10,747,026 10,747,074 ------9,757,482 9,757,482 9,757,652

7- Cash and balances with Central Banks

2012 2011

Cash 56,712 44,523

Unrestricted balances with Central Banks 855,570 492,989 millions LBP Mandatory reserves with the Central Bank of Lebanon 995,269 897,392

Mandatory reserves with the Central Bank of Iraq 494 21,105

Mandatory reserves with the Central Bank of Cyprus 3,058 4,349

Mandatory reserves with the Central Bank of Bahrain 400 400

Mandatory reserves with the Central Bank of Senegal 2,570 3,077

Interest receivable 15,690 10,946

1,929,763 1,474,781

214 Annual Report 2012 Credit Libanais Group 215 Credit Libanais Group

In accordance with Central Bank of Lebanon Foreign branches and subsidiaries with banking 9- Loans and advances to customers regulations, the Bank is required to constitute operations are also subject to mandatory reserve mandatory reserves in Lebanese pounds (LBP) of 15% requirements with varying percentages, according to Impairement the banking rules and regulations of the countries in 2012 Gross Amount Unrealised Interest Carrying Amount and 25% of the average weekly customers deposit Allowance accounts denominated in Lebanese pounds. The Bank which they are operating. Regular retail customers: is also required to constitute mandatory reserves in Mandatory reserve deposits are not available for use in foreign currency (FCY) calculated on the basis of 15% Cash collateral 117,101 ------117,101

the Group’s day-to-day operations. Cash in hand and millions LBP of customers deposit accounts denominated in foreign LBP reserves are non-interest bearing, whereas FCY Mortgage loans 1,141,598 ------1,141,598 currency. reserves are floating–rate assets. Personal loans 212,262 ------212,262

Credit cards 41,295 ------41,295

8- Balances with other banks and financial institutions Other 232,339 ------232,339

Regular corporate customers:

2012 2011 Corporate 1,384,895 ------1,384,895 Classified retail customers: Current accounts 167,208 137,800 Watch 25,957 ------25,957 Term deposits 1,030,826 1,117,369 Substandard 22,487 (7,559) --- 14,928 millions LBP Loans and advances to banks 15,075 --- Doubtful 55,295 (24,886) (18,672) 11,737 Doubtful loans to banks and financial institutions 10,992 11,163 Bad 11,130 (6,664) (4,466) --- Less specific allowance for impairment (6,856) (6,856) Classified corporate customers: Interest receivable 268 143 Watch 129,441 ------129,441 1,217,513 1,259,619 Substandard 7,616 (1,212) --- 6,404

Doubtful 59,054 (19,286) (22,102) 17,666

Bad 10,992 (7,475) (3,517) ---

Collective provision for retail loans ------(6,714) (6,714)

Collective provision for corporate loans ------(10,543) (10,543)

Accrued interest receivable 10,378 ------10,378

3,461,840 (67,082) (66,014) 3,328,744

216 Annual Report 2012 Credit Libanais Group 217 Credit Libanais Group

Impairment allowance Impairement 2011 Gross Amount Unrealised Interest Carrying Amount Allowance

Regular retail customers: 2012 2011 Cash collateral 91,848 ------91,848 millions LBP Mortgage loans 1,133,131 ------1,133,131 Specific allowances for impairment

Personal loans 206,924 ------206,924 Balance at 1 January 47,885 54,239 millions LBP Credit cards 40,626 ------40,626 Impairment loss for the year:

Other 228,374 ------228,374 Charge for the year 7,485 4,826

Regular corporate customers: Recoveries (4,898) (12,501)

Corporate 1,164,914 ------1,164,914 Write-offs (1,715) (2,284)

Classified retail customers: Reversal of write-offs --- 3,605

Watch 12,479 ------12,479 Balance at 31 December 48,757 47,885

Substandard 20,756 (7,333) --- 13,423 Collective allowance for impairment

Doubtful 41,981 (20,903) (16,159) 4,919 Balance at 1 January 16,289 15,970

Bad 9,737 (5,663) (4,074) --- Impairment loss for the year:

Classified corporate customers: Charge for the year 968 319

Watch 40,346 ------40,346 Balance at 31 December 17,257 16,289

Substandard 2,608 (591) --- 2,017 Total allowances for impairment 66,014 64,174

Doubtful 59,536 (19,653) (24,225) 15,658

Bad 10,173 (6,746) (3,427) --- Unrealised interest Collective provision for retail loans ------(5,746) (5,746)

Collective provision for corporate loans ------(10,543) (10,543) 2012 2011 Accrued interest receivable 5,033 ------5,033

3,068,466 (60,889) (64,174) 2,943,403 Balance at 1 January 60,889 62,620

Unrealised interest on non-performing loans 11,501 7,918 millions LBP Unrealised interest recovered (5,308) (9,649)

Balance at 31 December 67,082 60,889

218 Annual Report 2012 Credit Libanais Group 219 Credit Libanais Group

10- Financial assets at fair value through other comprehensive income 12- Financial assets at amortised cost

2012 2011 2012 2011

Unquoted equity securities 5,704 5,794 Lebanese government treasury bills and eurobonds 3,424,552 3,149,026

Quoted equity securities 28,084 21,347 Other sovereign bonds 9,482 8,437 millions LBP millions LBP Quoted preferred shares 24,559 24,524 Interest receivable 47,459 44,381

Accrued interest receivable 1,657 1,466 3,481,493 3,201,844

60,004 53,131 Certificates of deposits issued by the Central Bank 1,281,679 1,297,972

Interest receivable 31,517 28,332

1,313,196 1,326,304

11- Financial assets at fair value through profit or loss Certificates of deposits issued by banks 22,491 20,485

Interest receivable 60 73

2012 2011 22,551 20,558 Other debt instruments - Corporate bonds 51,724 63,850 Lebanese government treasury bills and eurobonds 19,037 23,989 Interest receivable 178 163 Interest receivable 174 351

millions LBP 51,902 64,013 19,211 24,340 4,869,142 4,612,719 Corporate bonds 13,908 21,583

Interest receivable 58 203 13,966 21,786 13- Investment in associates Other debt instruments 14,256 22,070

Interest receivable 116 136 2012 2011 14,372 22,206

Financial international sukuk --- 3,772 Company Country of Incorporation Ownership Interest Ownership Interest Interest receivable --- 12 Agence Generale de Courtage d’Assurances sal Lebanon 25.86% 25.86% --- 3,784 Credit Card Management sal Lebanon 28.96% 28.96% Certificates of deposit issued by banks 2,985 --- International Payment Network sal Lebanon 20.18% 19.88% Interest receivable 8 --- Net Commerce sal Lebanon 19.10% 19.10% 2,993 --- Liberty Executive Center sal Lebanon 6.27% 6.27% Certificates of deposit issued by the Central Bank of Lebanon 1,331 --- Hot Spot Properties sal Lebanon 32.23% 32.23% Interest receivable 21 --- Dourrat Loubnan Al Iqaria sal Lebanon 30.14% 30.14% 1,352 ---

51,894 72,116

220 Annual Report 2012 Credit Libanais Group 221 Credit Libanais Group

14- Property and equipment 2012 2011

Land and Installations Furniture and Power Advances Company Country of Incorporation Ownership Interest Ownership Interest and Vehicles on Capital Total Buildings Improvements Equipment Generators Expenditures

Agence Generale de Courtage d’Assurances sal Lebanon 7,398 7,038 Cost

Credit Card Management sal Lebanon 2,377 2,362 Balance at 1 January 2011 72,328 37,015 37,709 1,775 1,535 3,918 154,280 millions LBP millions LBP International Payment Network sal Lebanon 1,608 1,545 Prior year adjustment (2,815) --- (22) (1) ------(2,838)

Net Commerce sal Lebanon 255 254 Additions 2,585 3,557 4,584 263 480 17,901 29,370

Liberty Executive Center sal Lebanon 12 12 Disposals (454) (41) (1,331) (160) (1) --- (1,987)

Hot Spot Properties sal Lebanon 2,025 2,025 Transfers 659 2,197 629 ------(3,485) ---

Dourrat Loubnan Al Iqaria sal Lebanon 3,600 3,600 Balance at 31 December 2011 72,303 42,728 41,569 1,877 2,014 18,334 178,825

17,275 16,836 Balance at 1 January 2012 72,303 42,728 41,569 1,877 2,014 18,334 178,825

Additions --- 3,348 4,590 165 268 32,262 40,633

On 26 January 2011, the Extraordinary General The Group’s share of its equity-accounted investees Disposals --- (83) (2,097) (112) (175) --- (2,467) Assembly of Liberty Executive Center sal resolved to for the year was LBP 1,436 million (2011: LBP 1,349 Transfers --- 2,253 2,122 ------(4,329) 46 liquidate and remove the said company from the Beirut million). Balance at 31 December 2012 72,303 48,246 46,184 1,930 2,107 46,267 217,037 register of Commerce. Depreciation

Summary financial information for equity-accounted investees is as follows. Balance at 1 January 2011 11,553 28,131 22,645 873 1,041 --- 64,243 Prior year adjustment --- (1) (7) ------(8)

Depreciation for the year 1,037 2,615 3,508 178 115 --- 7,453 2012 2011 Disposals --- (41) (844) (79) (1) --- (965)

Current assets 33,068 23,496 Balance at 31 December 2011 12,590 30,704 25,302 972 1,155 --- 70,723

Non current assets 33,689 17,226 Balance at 1 January 2012 12,590 30,704 25,302 972 1,155 --- 70,723 millions LBP Current liabilities (20,050) (7,525) Depreciation for the year 1,073 3,343 4,370 172 175 --- 9,133

Non current liabilities (1,288) (1,145) Disposals --- (83) (2,025) (83) (174) --- (2,365)

Net assets 45,419 32,052 Balance at 31 December 2012 13,663 33,964 27,647 1,061 1,156 --- 77,491

Income 16,130 16,806 Carrying amounts

Expenses (10,567) (10,687) Balance at 1 January 2011 60,775 8,884 15,064 902 494 3,918 90,037

Profit 5,563 6,119 Balance at 31 December 2011 59,713 12,024 16,267 905 859 18,334 108,102

Balance at 31 December 2012 58,640 14,282 18,537 869 951 46,267 139,546

222 Annual Report 2012 Credit Libanais Group 223 Credit Libanais Group

15- Intangible assets 16- Assets held for sale

Key Money Licenses Software Total 2012 2011

Cost Balance at 1 January 45,926 42,693

Balance at 1 January 2011 1,545 3,365 13,727 18,637 Additions 601 4,896 millions LBP millions LBP Prior year adjustment ------18 18 Disposals (1,632) (1,663)

Additions 308 589 1,473 2,370 Balance at 31 December 44,895 45,926

Disposals --- (217) --- (217)

Balance at 31 December 2011 1,853 3,737 15,218 20,808 17- Other assets Balance at 1 January 2012 1,853 3,737 15,218 20,808

Additions --- 332 1,643 1,975

Disposals --- (7) (158) (165) 2012 2011 Transfers --- (190) 144 (46) Accounts receivable and prepayments 69,385 42,289 Balance at 31 December 2012 1,853 3,872 16,847 22,572 Reinsurers’ share of technical reserve 16,637 32,567

Amortisation millions LBP Inventories of apartments 1,266 2,403 Balance at 1 January 2011 1,496 2,818 9,070 13,384 Restricted deposits with the Ministry of Finance 6,015 6,015 Prior year adjustment ------536 536 Deferred charges 2,205 1,542 Amortisation for the year 20 177 1,504 1,701 Other assets 46,011 55,624 Disposals --- (40) --- (40) 141,519 140,440 Balance at 31 December 2011 1,516 2,955 11,110 15,581

Balance at 1 January 2012 1,516 2,955 11,110 15,581

Amortisation for the year 39 254 1,750 2,043 Credit Libanais d’Assurances et de Reassurances sal, of technical reserve and the technical reserve for

Disposals --- (7) --- (7) a Group entity, proceeded to a reclassification of LBP insurance companies classified under other liabilities 21,105 million between the reinsurers’ share (Note 22) as at 31 December 2011. Transfers --- (124) 108 (16) Balance at 31 December 2012 1,555 3,078 12,968 17,601 18- Deposits from banks and financial institutions Carrying amounts

Balance at 1 January 2011 49 547 4,657 5,253

Balance at 31 December 2011 337 782 4,108 5,227 2012 2011

Balance at 31 December 2012 298 794 3,879 4,971 Current deposits 30,078 49,511

Term deposits 27,728 19,093 millions LBP Financial institutions 74,556 79,814

Accrued interest payable 788 1,129

133,150 149,547

224 Annual Report 2012 Credit Libanais Group 225 Credit Libanais Group

19- Deposits from customers 21- Current tax liabilities

2012 2011 2012 2011

Retail customers: Income tax 3,058 2,940

Term deposits 2,810,577 2,265,631 Taxes on interest 5,157 4,625 millions LBP millions LBP Current deposits 928,191 868,658 Taxes on salaries 2,380 1,866

Savings 5,966,827 5,653,499 Deferred tax liabilities 2,594 1,498

Other credit balances 19,402 16,178 Other taxes 2,124 1,094

Accrued interest payable 52,083 48,979 15,313 12,023

9,777,080 8,852,945

Corporate customers:

Term deposits 224,398 159,574 22- Other liabilities

Current deposits 137,149 103,822

Savings 53,513 59,587 2012 2011 Other credit balances --- 1,470 Margins held against documentary credits 19,657 17,838 Accrued interest payable 1,691 1,394 Due to reinsurance 32,443 34,271

416,751 325,847 millions LBP Technical reserve for insurance companies 73,855 85,763 10,193,831 9,178,792 Accrued expenses 5,507 3,981

Unearned revenue 1,504 1,164 20- Subordinated debt issued Other creditors 51,718 28,524 Other payables 49,971 59,381

234,655 230,922 2012 2011

Subordinated debt 113,063 113,063 23- Provisions for risks and charges Accrued interest payable 7,420 8,670 millions LBP

120,483 121,733

2012 2011

During 2010, the Bank issued subordinated bonds for These subordinated debts are included in Tier 2 capital Provision for structural exchange position (a) 5,318 5,318 an amount of USD 75,000,000 bearing an interest rate as per local regulatory requirements. Provision for employee benefits obligations (b) 24,780 20,818

of 6.75% payable annually and maturing on 15 January millions LBP 2018. Provision for risks and charges (c) 4,652 4,586 Provision for loss on foreign currency position (d) 222 220

34,972 30,942

226 Annual Report 2012 Credit Libanais Group 227 Credit Libanais Group

(a) Provision for structural exchange position 25- Capital reserves This provision is taken as per the requirement of Central Bank Circular number 32 related to foreign exchange position. 2012 2011 (b) Provision for employee benefits obligations

The movement in the provision for employee benefits obligations during the year was as follows. General banking risks reserve 63,309 51,941

Legal reserve 75,173 66,945 millions LBP

138,482 118,886 2012 2011

Balance at 1 January 20,818 15,760 General banking risks reserve 20th years, respectively. This reserve is not available for Provision raised during the year 4,337 5,459

millions LBP The Group is required, according to the Central Bank distribution. Provision used during the year (375) (401) regulations and commencing at 1996, to set-up a Legal reserve Balance at 31 December 24,780 20,818 reserve for general banking risks at a minimum of 0.2% and a maximum rate of 0.3% of the risk weighted The Lebanese Commercial Law and the Group’s assets and off-balance sheet financial instruments in articles of association stipulate that 10% of the net (c) Provision for risks and charges local and foreign currencies. This reserve should not be annual profits be transferred to legal reserve. This The movement in the provision for risks and charges during the year was as follows. less than 1.25% and 2% by the end of the 10th and the reserve is not available for distribution.

26- Fair value reserve 2012 2011

Balance at 1 January 4,586 4,065 2012 2011 Provision raised during the year 397 581 millions LBP Provision used during the year (334) (55) Other securities 12,182 5,807

Difference of exchange 3 (5) millions LBP Balance at 31 December 4,652 4,586 The movement in fair value reserve is as follows:

(d) Provision for loss on foreign currency 24- Share capital 2012 2011 position At 31 December 2012, the authorised and issued share As per local regulatory requirements the Group capital comprised 23,400,000 ordinary shares with a Balance at 1 January 5,807 9,612 provides for an amount equivalent to 5 percent of its nominal value of LBP 11,000. All shares rank equally Equity securities 6,375 1,338 year-end foreign exchange position. with regards to the Bank’s residual assets. millions LBP Reversal of impairement allowance --- (30)

The holders of ordinary shares are entitled to receive Impact of adopting IFRS 9 --- (5,113)

dividends as declared from time to time. All issued Balance at 31 December 12,182 5,807 shares are fully paid.

2012 2011 millions LBP LBP 812.05 per ordinary share 19,002 ---

228 Annual Report 2012 Credit Libanais Group 229 Credit Libanais Group

27- Other reserves 29- Net fee and commission income

2012 2011 2012 2011

Reserve for property acquired in settlement of debt 8,373 8,375 Fee and commission income

Other reserves 206,810 185,186 Fees on credit cards and ATM transactions 23,825 24,256 millions LBP millions LBP 215,183 193,561 Fees on transactions with customers 29,888 27,040

Fees on various banking transactions 30,696 27,345

Fees on letters of guarantee 5,919 4,954

28- Net interest income Total fee and commission income 90,328 83,595

Fee and commission expense

Note 2012 2011 Fees on credit cards and ATM transactions (23,176) (23,841) Fees on various banking transactions (12,459) (10,243) Interest income Total fee and commission expense (35,635) (34,084) Cash and balances with Central Banks 48,869 18,528

millions LBP Net fee and commission income 54,693 49,511 Balances with other banks and financial institutions 4,130 3,949

Loans and advances to customers 233,542 217,120 Loans and advances to related parties 37 2,162 1,562 30- Net trading income Financial assets at amortised cost 341,171 358,868

Total interest income 629,874 600,027 2012 2011 Interest expense

Balances with other banks and financial institutions (4,080) (4,548) Net gain on trading portfolio 10,904 2,678

Deposits from customers (412,815) (391,916) Net gain on foreign currency position 9,939 7,992 millions LBP

Deposits from related parties 37 (16,019) (11,656) 20,843 10,670

Subordinated debt issued (7,738) (7,632)

Total interest expense (440,652) (415,752)

Net interest income 189,222 184,275

230 Annual Report 2012 Credit Libanais Group 231 Credit Libanais Group

31- Net gain on financial investments 34- Personnel expenses

2012 2011 2012 2011

Dividend received on quoted securities 3,049 2,587 Wages and salaries 63,360 55,988

Dividend received on unquoted securities 170 177 Allowances to the Board of Directors 2,158 1,485 millions LBP millions LBP Net gain from exchange of financial assets at amortised cost* 10,112 3,806 Compulsory social security obligations 9,209 8,047

Interest paid on islamic banking activities (1,206) (576) Employee benefits obligation 4,647 5,717

12,125 5,994 Other personnel expenses 14,766 12,676

94,140 83,913 * During the year and following the offer of the Central Bank of Lebanon, the Bank exchanged certificates of deposit issued by the Central Bank of Lebanon maturing in December 2012 for three categories of certificates of deposit maturing in 5, 7 and 10 years.The gain on the exchange amounted to LBP 9,528 million. 35- Other expenses 32- Other income 2012 2011

2012 2011 Rental and building charges 6,100 5,648

Taxes and similar disbursements 10,483 4,574 Gain on sale of property acquired in settlement of debt 1,882 1,916 millions LBP Advertising expenses 6,122 5,601 Rental income 1,155 1,130

millions LBP Electricity, water and heating charges 5,557 4,381 Gain on sale of real estate properties --- 467 Insurance premiums 2,324 2,491 Gain on sale of property and equipment 49 16 Information technology costs 2,798 3,391 Other income 33 309 Repairs and maintenance charges 4,401 3,879 3,119 3,838 Postage and telecommunication charges 3,280 3,002

Professional fees 4,649 3,756 33- Net (impairment) recovery on loans and advances Premiums for the guarantee of deposits 4,585 4,019 Travel and entertainment fees 3,065 2,687

Computer maintenance charges 1,605 1,533 2012 2011 Transportation charges 2,379 1,992

Allowance for impairment of loans and advances to customers (8,453) (5,145) Board of directors attendance allowance 2,285 2,023

Write-back of allowance for impairment of loans and advances to customers 4,898 12,501 Stationery and office supplies 1,792 1,701 millions LBP

(3,555) 7,356 Training charges 466 544

Other expenses 2,008 4,307

63,899 55,529

232 Annual Report 2012 Credit Libanais Group 233 Credit Libanais Group

36- Income tax expense 37- Cash and cash equivalents

2012 2011 2012 2011

Income tax expense on the Bank’s operations (13,891) (13,430) Cash and balances with Central Banks 434,608 221,516

(2,645) (2,745) Balances with other banks and financial institutions 1,202,438 1,259,619 Income tax expense on subsidiaries and branches millions LBP millions LBP (16,536) (16,175) Deposits from banks and financial institutions (30,078) (50,511)

1,606,968 1,430,624

Reconciliation of income tax expense on the Bank’s operations in Lebanon 38- Contingencies 2012 2011

Profit for the year 92,072 97,792 2012 2011

Current tax liability 1,500 ---

millions LBP Financing commitments Less: profit of branches abroad and subsidiaries (9,214) (29,041) Financing commitments given to customers 341,430 457,728 millions LBP Non-deductible expenses 11,828 1,586 Financing commitments given to financial institutions 185,386 170,064 5% tax on interest received 12,391 13,430 Guarantees Less: dividends received (20,344) (2,022) Guarantees given to customers 192,938 131,581 Less: tax exempt income (883) (865) Securities’ commitments 115,413 95,789 Taxable income 87,350 80,880 Restricted and non-restricted fiduciary accounts 12,310 12,180 Corporate income tax expense at 15% 13,103 12,132 Commitments of signature received from financial intermediaries 17,418 21,143 Less: tax paid on interest received * (11,735) (13,430) Other commitments received 7,027,213 5,773,229 Excess of corporate tax over tax paid on interest 1,368 --- Assets under management 464,846 451,102 Effective income tax rate 15.23% 14.19%

* The Bank in Lebanon is subject to a withholding tax of 5% on certain interest income which is considered as a prepayment on corporate income tax due. In case this withholding tax exceeds the calculated corporate income tax expense, the excess is not reimbursable and is considered as a final income tax expense.

234 Annual Report 2012 Credit Libanais Group 235 Credit Libanais Group

39- Group entities Interest rates charged on balances outstanding from balances outstanding during the year with key related parties are equal to the internally approved rates management personnel, and no specific allowance has for employees of the Bank. been made for impairment losses on balances with key management personnel and their immediate relatives at 2012 2011 No impairment losses have been recorded against the year end. Country of Company Business Activity % of Control % of Control Incorporation Key management personnel compensation for the year comprised:

Credit Libanais Investment Bank sal Banking Lebanon 99.86 99.86

Lebanese Islamic Bank sal Banking Lebanon 99.84 99.84 2012 2011

Cedar’s Real Estate sal Real estate Lebanon 99.92 99.92 Short-term employee benefits 8,439 3,847 Soft Management sal IT solutions Lebanon 47.00 47.00

Hermes Tourism and Travel sal Tourism and ticketing Lebanon 99.99 99.99 millions LBP Credit Libanais d’Assurances et de Reassurances sal Insurance Lebanon 66.97 66.97 (b) Balances with related parties Business Development Center sarl Advertising Lebanon 98.62 98.62

Capital Real Estate sal Real estate Lebanon 98.00 98.00 2012 2011 Credilease sal Leasing services Lebanon 99.26 99.26

Collect sal Collection services of receivables Lebanon 44.94 44.94 Direct facilities and credit balances

Credit International sa Banking Senegal 92.82 92.82 Unsecured loans and advances 16,265 15,955 millions LBP Credit Libanais sal (Limassol Branch) Banking Cyprus Branch Branch Deposits 47,110 46,599

Credit Libanais sal (Bahrain Branch) Banking Bahrain Branch Branch Indirect facilities

Credit Libanais sal (Baghdad Branch) Banking Iraq Branch Branch Letters of guarantees 15,124 15,100

Credit Libanais sal (Erbil Branch) Banking Iraq Branch Branch

(c) Loans and advances to related parties 40- Related parties (a) Transactions and balances with key management personnel 2012 2011 Key management personnel and their immediate relatives have transacted with the Group during the year as follows:

Unsecured loans and advances to shareholders, directors and other key management personnel 23,152 19,874

Unsecured loans and advances to related parties 16,265 15,955

2012 2011 millions LBP Accrued interest 5 ---

Direct facilities and credit balances 39,422 35,829

Unsecured loans and advances 23,152 19,874 millions LBP Deposits 251,638 259,791

Indirect facilities

Letters of credit 235 171

236 Annual Report 2012 Credit Libanais Group 237 Credit Libanais Group

(d) Interest income on loans and advances to related parties

2012 2011

Interest income on loans and advances to related parties 2,162 1,562 millions LBP (e) Deposits from related parties

2012 2011

Retail:

Term deposits 134,560 177,817 millions LBP Current deposits 19,405 4,849

Savings 91,090 95,584

Accrued interest payable 616 647

245,671 278,897

Corporate:

Term deposits 52,337 27,701

Current deposits 1,356 439

Accrued interest payable 198 373

53,891 28,513

299,562 307,410

(f) Interest expense on deposits from related parties

2012 2011

Interest expense on related parties’ deposits 16,019 11,656 millions LBP

238 Annual Report 2012 Credit Libanais Group 239 Financial Results Credit Libanais 06 Investment Bank (CLIB)

Board of Directors 243

Management’s Discussion and Analysis 244

Statement of Financial Position 250

Statement of Comprehensive Income 252

Statement of Cash Flows 254

Statement of Changes in Equity 256

Fast decision-making processes are the results of our Group Strategy to assign experienced relationship managers capable of ensuring a just-in-time and efficient customer experience. Credit Libanais Investment Bank (CLIB)

Board of Directors

Chairman General Manager

Dr. Joseph Torbey

Members

H.E. Dr. Samir Makdessi

H.E. Mr. Jacques Joukhadarian

Dr. Chafic Moharram

Mr. Joe Issa El Khoury

Dr. Michel Khadige

Mr. Moustafa Alaeddine

242 Annual Report 2012 Credit Libanais Group 243 Credit Libanais Investment Bank (CLIB)

Management’s Discussion and Analysis of Results

Basis of Presentation The following table sketches the changes in major asset classes year-on-year. The following discussion and analysis have been prepared based on the audited

consolidated financial statements of Credit Libanais Investment Bank (“CLIB”) as at and As at End of 2012 2011 Percentage Change for the years ended 31 December 2011 and 2012 and on selected financial information. Cash and balances with Central Banks 112,738 101,787 10.76

Analysis of Financial Position Due from banks and financial institutions 3,446 743 363.80 1- Statement of Financial Position millions LBP Head Office, branches, parent company, sisters, fin. Inst. & subs. 413,410 586,016 -29.45 a) Total Assets Despite its shrinking balance sheet, CLIB is showing a more solid financial structure Financial assets held for trading ------evident in a significant decrease in the bank account with the head office which went Loans and advances to customers 299,467 265,439 12.82 from 49% to 40% of total assets. On the other hand, loans and advances to customers Loans and advances to related parties 3,824 4,405 -13.19 have shown an organic growth of 13%. It is to be noted that the gradual decrease of total assets was carefully monitored and instructed by management in order to comply with Financial assets classified as available for sale ------the new stringent regulatory requirements specific to Investment banks prohibiting them Financial assets classified as held to maturity ------from embarking on commercial banking activities. Loans and advances to customers still Financial assets at fair value/OCI 31,602 31,398 0.65 represent the second largest asset item with a share of 29.48% of total assets. Financial assets at amortised cost 95,600 135,112 -29.24

Investment in associates 39,435 39,275 0.41

Property & equipment 1,287 1,468 -12.33

Intangible assets 2,806 2,289 22.59

Non-current assets held for sale 22,420 21,819 2.75

Other assets 2,897 3,231 -10.34

Total Assets 1,028,932 1,192,982 -13.75

244 Annual Report 2012 Credit Libanais Group 245 Credit Libanais Investment Bank (CLIB)

b) Liabilities & Shareholders’ Equity The following table portrays the evolution of CLIB’s sources and uses of funds during the period 2011-2012: Total Liabilities showed a -14.65% decrease to of excess liquidity now that CLIB is no longer looking reach LBP 0.89 Trillion in 2012 compared to LBP to delve into commercial banking activities following 1.04 Trillion at yearend 2011. The 14.92% drop in the new regulations. As at End of Sources of Funds 2012 2011 % of Total Sources total deposits, which constitute 98.91% of CLIB’s liabilities, was the main driver behind this decrease. On the equity side, shareholders’ equity decreased to Head Office 3,128 1,367 0.35 These deposits were channeled through to the parent LBP 138.70 billion in 2012, a 7.5% drop compared to Customers’ deposits 865,570 1,006,457 97.96 company to alleviate the burden they cause in terms the LBP 149.94 billion recorded in 2011. millions LBP Deposits from related parties 14,936 28,467 1.69

The following table sketches the development of the liability and equity accounts during the period 2011-2012: Total 883,634 1,036,291 100.00

As at End of 2012 2011 Percentage Change The above table clearly states that the entirety of CLIB’s financing is sourced from customer deposits

Head Office, branches, parent company, sisters, fin. Inst. & subs. 3,128 1,367 128.82

Customers’ deposits 865,570 1,006,457 -14.00 As at End of Uses of Funds 2012 2011 % of Total Uses millions LBP Deposits from related parties 14,936 28,467 -47.53 Head Office, branches, parent company, sisters, fin. Inst. & subs. 413,410 586,016 57.68 Current tax liabilities 1,829 1,897 -3.58 Loans & advances to customers 299,467 265,439 41.79 millions LBP Other liabilities 3,363 3,607 -6.76 Loans & advances to related parties 3,824 4,405 0.53 Provision for risks and charges 1,412 1,249 13.05 Total 716,701 855,860 100.00 Total Liabilities 890,238 1,043,044 -14.65

The Central Bank of Lebanon have introduced funds utilization has reached to 42.32% in 2012 in measures prohibiting Investment Banks from delving comparison with 31.53% in 2011. Shareholders’ Equity 2012 2011 Percentage Change into Commercial Banking activities which has negatively impacted the balance sheets of Investment 2- Statement of Income Share capital-Common Shares 80,000 80,000 --- Banks in Lebanon evident in an asset contraction in Credit Libanais Investment Bank posted after tax Capital reserves 31,121 28,191 10.39 2012 of 4% for the Lebanese Investment banking net profits of LBP 8.66 billion in 2012, a decrease of millions LBP 37.82% from the LBP 13.92 billion registered in 2011. Available-for-sale financial instruments revaluation reserve 619 605 2.31 sector and 13.75% for CLIB in particular. This was influenced by the asset contraction and thus Retained Earnings 10,098 ------On the funds’ utilization front, the above analysis the restriction of commercial banking revenue evident Other reserves 8,199 27,219 -69.88 reveals that the contraction in CLIB’s total uses of in an 20.11% drop in Net Interest Income. It is worth funds is particularly due to the 29% reduction of noting that 2012 figures included extraordinary expense Result of the period 8,657 13,923 -37.82 CLIB’s current accounts with head office, branches in the form of tax adjustments related to previous Total Shareholders’ Equity 138,694 149,938 -7.50 and parent company. These accounts still constitute years and amounting to LBP 3,747 million. If we were Total Liabilities & Shareholders’ Equity 1,028,932 1,192,982 -13.75 the bulk of CLIB’s funds deployment at a ratio to adjust the Income statement to eliminate the effect of 57.68% in 2012 down from 68.47% in 2011. of these extraordinary items, the decrease in pre-tax Consequently, CLIB’s lending portfolio’s share of total profits of CLIB would become 27% (instead of 36%).

246 Annual Report 2012 Credit Libanais Group 247 Credit Libanais Investment Bank (CLIB)

The following table highlights the yearly change of the major items in CLIB’s statement of income:

As at End of 2012 2011 Percentage Change As at End of 2012 2011 Percentage Change

Interest and similar income 59,566 74,524 -20.07 Operating Profit 9,770 15,270 -36.02

Interest and similar expense (43,569) (54,499) -20.06 Profit before tax 9,770 15,270 -36.02 millions LBP millions LBP Net interest income 15,997 20,025 -20.11 Income Tax expense (1,113) (1,347) -17.37

Fees & commissions income 1,998 3,031 -34.08 Profit for the year 8,657 13,923 -37.82

Fees & commissions expense (832) (1,246) -33.23 Other comprehensive income

Net fees & commissions income 1,166 1,785 -34.68 Net gain on available-for-sale financial assets - (421) -100.00

Net gain (loss) on trading portfolio 14 76 -81.58 Total comprehensive income for the year, net of tax 8,657 13,502 -35.88

Net gain on disposal of subsidiary - (55) -100.00

Net gain on financial investments 3,987 3,402 17.20 Profits of CLIB are stated on an individual basis and would aggregate LBP 11,324 compared to LBP 16,053 Other operating income 239 187 27.81 do not include the share of the bank in the companies in 2011. in which it holds a direct interest. Total operating income 21,403 25,420 -15.80 Pre-tax return on average equity and on average Credit loss expense (26) 677 -103.84 After consolidating the share of CLIB in the profit of assets reached 8.82% and 1.12% respectively in 2012, affiliated companies, Net profits for the year 2012 compared to 12.58% and 1.27% respectively in 2011. Net operating income 21,377 26,097 -18.09

Staff costs (2,943) (2,653) 10.93

Depreciation and amortization (1,034) (876) 18.04

Other operating expenses (7,630) (7,298) 4.55

Total Operating Expenses (11,607) (10,827) 7.20

248 Annual Report 2012 Credit Libanais Group 249 Credit Libanais Investment Bank (CLIB)

Statement of Financial Position As at 31 December

2012 2011 2012 2011

Assets Shareholders’ Equity

Cash and balances with the central bank 112,738 101,787 Share capital - Common shares 80,000 80,000 millions LBP millions LBP Due from banks and financial institutions 3,446 743 Legal reserves 21,367 19,975

Head office, branches, parent company, foreign sister financial institutions & subsidiaries 413,410 586,016 Reserves for unspecific banking risks 9,754 8,216

Loans and advances to customers 299,467 265,439 Other reserves 3,297 23,200

Loans and advances to related parties 3,824 4,405 Real Estate Revaluation Reserve 4,902 4,019

Financial assets at Fair value through other comprehensive income 31,602 31,398 Change in fair value of Equity instruments through OCI 619 605

Financial assets at amortized cost 95,600 135,112 Retained Earnings 10,098 ---

Investments in associates 39,435 39,275 Result of the period 8,657 13,923

Property and equipment 1,287 1,468 Total Equity Attributable to Equity Holders of the Bank 138,694 149,938

Intangible assets 2,806 2,289 Non-Controlling Interest ------

Assets acquired in recovery of bad debts 22,420 21,819 Total Shareholders’ Equity 138,694 149,938

Other assets 2,897 3,231 Total Liabilities & Shareholders’ Equity 1,028,932 1,192,982

Total Assets 1,028,932 1,192,982

Liabilities

Head office, branches, parent company, foreign sister financial institutions & subsidiaries 3,128 1,367

Customer deposits 865,570 1,006,457

Related parties deposits 14,936 28,467

Current tax liabilities 1,829 1,897

Other liabilities 3,363 3,607

Provision for risks and charges 1,412 1,249

Total Liabilities 890,238 1,043,044

250 Annual Report 2012 Credit Libanais Group 251 Credit Libanais Investment Bank (CLIB)

Statement of Comprehensive Income

As at 31 December 2012 2011 2012 2011

Interest and similar income 59,566 74,524 Credit losses (gains) (26) 677

Interest and similar expense (43,569) (54,499) Net Operating Income 21,377 26,097 millions LBP millions LBP Net Interest Income 15,997 20,025 Staff expenses (2,943) (2,653)

Fees and commission income 1,998 3,031 Depreciation and Amortization (1,034) (876)

Fees and commission expense (832) (1,246) Other operating expenses (7,630) (7,298)

Net fees and commission income 1,166 1,785 Total Operating Expenses (11,607) (10,827)

Net gain on financial investments 3,987 3,402 Profit Before Tax 9,770 15,270

Net loss on disposal of subsidiaries --- (55) Income Tax Expense (1,113) (1,347)

Net gain on FVTPL financial instruments 14 76 Profit for the Period 8,657 13,923

Other operating income 239 187 Change in Fair Value of Financial Instruments through OCI 13 (421)

Total Operating Income 21,403 25,420 Total comprehensive income for the year 8,670 13,502

252 Annual Report 2012 Credit Libanais Group 253 Credit Libanais Investment Bank (CLIB)

Statement of Cash Flows As at 31 December

2012 2011 2012 2011

Cash Flows From Operating Activities Cash Flows From Investing Activities

Profit before tax 9,771 15,270 Acquisition of Property and Equipment (1,371) (690) millions LBP millions LBP Adjustments for: Proceeds from sale of investment in associate (160) (361)

Depreciation and Amortization 1,035 876 Purchase of financial instrument Held-to-Maturity 39,310 (52,596)

Net Impairment Loss (recovery) on loans and advances to customers 25 (677) Real Estate Property acquired in settlement of bad debts (601) (3,758)

Net Provision for End of service indemnity 163 146 Net cash used in investing activities 37,178 (57,405)

Net Provision for Loss on Foreign Currency Position --- (30) Cash flows from financing activities

Gain /Loss on sale of shares in an associate --- 55 Distribution of dividends (20,000) ---

10,994 15,640 Effect of exchange rate fluctuation on cash & cash equivalent held 98 ---

Financial Assets maturing later than 3 months (312,579) (54,402) Net cash from financing activities (19,902) ---

Change in loans and advances to customers and related parties (33,472) (13,594) Net decrease in cash and cash equivalents (473,290) (475,840)

Change in other assets 334 (265) Cash and cash equivalents at 1 January 589,059 1,064,899

Change in deposits from customers (140,886) (331,261) Cash and cash equivalents at 31 December 115,769 589,059

Change in deposits from related parties (13,531) (33,498)

Change in Current Tax Liabilities 166 (202)

Change in other liabilities (245) 1,208

(489,219) (416,374)

Income tax paid (1,347) (1,991)

Settled End of Service indemnity - (70)

Net cash flows from operating activities (490,566) (418,435)

254 Annual Report 2012 Credit Libanais Group 255 Annual Report 2012 Statement ofChangesinEquity Balance at31December2011 Total comprehensiveincomefortheyear2011 Change infairvalueofequityinstrumentsthroughOCI Profit fortheyear Impact ofadoptingIFRS9at1January2011 Profit allocation2010 Balance at01January2011 Balance at31December2012 Total comprehensiveincomefortheyear2012 Change infairvalueofequityinstrumentsthroughOCI Profit fortheyear Adjustment Distribution ofdividends Profit allocation2011 Balance at01January2012 Credit Libanais Group Common Shares Share Capital- 80,000 80,000 80,000 80,000 ------Legal Reserve 19,975 17,268 21,367 19,975 2,707 1,392 ------Banking Risks Reserves for Unspecific 8,216 1,624 6,592 9,754 1,538 8,216 ------Other Reserves (20,000) (1,051) 23,200 22,032 23,200 2,219 3,298 98 ------Settlement ofBadDebts Real Estate Acquired in 4,019 3,173 4,902 4,019 846 883 ------Financial Instruments Revaluation Reserve Available-for-sale (421) (421) 605 954 618 605 72 13 13 ------Retained Earnings 10,098 10,110 (140) (12) 140 ------Profit forthe Year (27,069) (13,923) Credit LibanaisInvestmentBank(CLIB) 13,923 13,923 13,923 27,069 13,923 8,658 8,658 8,658 ------Total Equity (20,000) 149,938 137,415 138,695 149,938 13,923 13,502 8,671 8,658 (979) (421) 13 86 ------257 256

millions LBP Financial Results Credit Libanais d’Assurances 06 et de Reassurances

Board of Directors 260

A Word from the Chairman 262

Management’s Discussion and Analysis 263

Auditors’ Special Report 264

Statement of Financial Position 266

Statement of Comprehensive Income 268

Statement of Cash Flows 270

Statement of Changes in Shareholders’ Equity 272

Our success in 2012 is due to our commitment towards our customers and our excellent reputation as a member of CL Group. Credit Libanais d’Assurances et de Reassurances

Board of Directors

Chairman General Manager

Mr. Jacques Sehnaoui

Members

Credit Libanais sal represented by Dr. Joseph Torbey

The Honourable Mr. Said Mirza

Mr. Khaldoun Barakat

H.E. Mr. Jacques Joukhadarian

AGCA sal represented by Mr. Fady Rizk

Mr. Elie Torbey

260 Annual Report 2012 Credit Libanais Group 261 Credit Libanais d’Assurances et de Reassurances

A Word From the Chairman Management’s Discussion and Analysis 31 December 2012

A Year in Review Many factors affected the insurance sector over the past years, from CLA’s total assets increased confirming the company’s Life environmental disasters worldwide to the impact of large fire claims strength since in 2012 the company total assets In 2012, the generated income under the life business nationwide, mostly hitting industrial sites. These factors led to the amounted to LBP 164 billion as compared to LBP 150 totaled LBP 15.075 billion as compared to LBP 16.892 deterioration in the results of some insurance companies and had an billion in 2011 with a percentage increase of 9.34%. billion in 2011, a percentage decrease of 10.76%. effect on the reinsurers’ way in negotiating treaty renewals with local The loss ratio recorded for the year under review is insurers. Cash flow statement for the company at the end of 4.09% compared to the loss ratio of 18.18% recorded the year 2012 decreased. The net cash provided from in the year 2011. Despite the above alarming threats, Credit Libanais d’Assurances operating activities decreased by 24.65% from LBP 10.413 billion in 2011 to LBP 7.846 billion in 2012. et de Reassurances recorded a net profit of LBP 11.392 billion in Casualty 2012, an increase of 12.31% over last year, and recorded a return The total gross written premium amounting to LBP Casualty business premium income generated for the on equity ratio (ROE) of 24.74% well above the industry average of 27.571 billion in 2012. As well as the Gross written year 2012 amounted to LBP 2.434 billion as compared 14%. premiums for the life insurance business amounted to to LBP 2.632 billion in 2011, a percentage decrease of LBP 15.075 billion in 2012. 7.52%. Furthermore, our net profit margin with respect to premiums written The after tax profits recorded in 2012, amounting to The lines of business falling under the casualty class in 2012 stands at 41.32% as compared to 9% representing the LBP 11.392 billion as compared to LBP 10.142 billion are mainly Hospitalization, Workmen’s compensation, insurance companies’ industry average. in 2011 with a percentage increase of 12.33% mainly attributed to the increase of operating and financial personal accident, theft on property…etc The fact that the year 2012 was yet another successful year for income. The loss ratio calculated on this line of business is us is due to our commitment towards our clients and our excellent 43.21% in 2012 while it was 15.05% in 2011. reputation as a member of Credit Libanais Group. Performance by Class of Business Motor Technical Reserves Moreover, the professionalism of our employees contributed into The motor line of business showed an increase in At the end of year 2012, a decrease in the unexpired CLA being a trustworthy and one of the leading insurance companies premiums from LBP 4.782 billion in 2011 to LBP 5.203 risks reserves has been recorded to become LBP in Lebanon. We shall continue to create value to our shareholders billion for the year under review. 70.867 billion with a difference of LBP 11.679 billion while ensuring sustainability in all aspects of our business. between this year and 2011 when it recorded LBP The loss ratio for the motor class of business for the 82.546 billion including the premium deficiency year 2012 based on accounting year production is reserves. 55.91% as compared to 56.8% in 2011. Sincerely, The loss ratio dropped to 18.31% in 2012 as Marine compared to 33.33% in 2011. The marine business showed a slight decrease in Outstanding claims reserves decreased from LBP premiums generated in 2012 from LBP 242 million in 3.217 billion in 2011 to 2.988 LBP billion in 2012 2011 to LBP 221 million in 2012. including IBNR due to the increase in claims volume recorded under the life line business. Jacques J. Sehnaoui Fire As a result, CLA recorded as technical reserves LBP Chairman The premiums income for the fire business in 2012 73.855 billion in its books for 2012 as compared to totaled LBP 4.638 billion compared to LBP 5.299 LBP 85.763 billion in 2011 with an increase of 13.88%. billion achieved in the year 2011 this recording a percentage decrease of 12.47%. • The basis of calculation differs from 2011 calculation.

262 Annual Report 2012 Credit Libanais Group 263 Credit Libanais d’Assurances et de Reassurances

Report on the Financial Statements statements are free from material misstatement. Independent We have audited the accompanying financial statements An audit involves performing procedure to obtain of Credit Libanais d’Assurances et de Reassurances sal, audit evidence about the amounts and disclosures Auditors’ which comprise the statement of financial position as in the financial statements. The procedures selected at 31 December 2012, the statement of comprehensive depend on the auditors’ judgement, including the Report to the income, the statement of cash flows and the statement assessment of the risks of material misstatement of the of changes in shareholders’ equity for the year then Shareholders ended, and a summary of significant accounting policies financial statements whether due to fraud or error. In and other explanatory notes. making those risk assessments, the auditor considers of Credit Libanais internal control relevant to the entity’s preparation d’Assurances et de Managements Responsibility for the Financial and fair presentation of the financial statements, in Statements order to design audit procedures that are appropriate Reassurances sal The Directors are responsible for the preparation and fair for the circumstances, but not for the purpose of Beirut - Lebanon presentation of these financial statements in accordance expressing an opinion on the effectiveness of the entity’s with International Financial Reporting Standards. This internal control. An audit also includes evaluating the responsibility includes: designing, implementing and appropriateness of accounting policies used and maintaining internal control relevant to the preparation the reasonableness of accounting estimates made and fair presentation of financial statements that are by management, as well as evaluating the overall free from material misstatement, whether due to fraud presentation of the financial statements. or error; selecting and applying appropriate accounting We believe that the audit evidence we have obtained policies and making accounting estimates that are is sufficient and appropriate to provide a basis for our reasonable in the circumstances. audit opinion.

Auditors’ Responsibility Opinion Our responsibility is to express an opinion on these In our opinion, the financial statements present fairly, financial statements based on our audit. We conducted in all material respects, the financial position of the our audit in accordance with International Standards Company as of 31 December 2012 and its financial on Auditing. Those standards require that we comply performance and its cash flows for the year then ended with ethical requirements, plan and perform the audit to in accordance with International Financial Reporting obtain reasonable assurance whether the financial Standards.

Beirut, Lebanon DFK Fiduciaire du Moyen-Orient 28 January 2013

264 Annual Report 2012 Credit Libanais Group 265 Credit Libanais d’Assurances et de Reassurances

Statement of Financial Position As at 31 December 2012

Notes 2012 2011 Notes 2012 2011

Assets Liabilities & Shareholders’ Equity

Property and equipment (5a) 461,697 518,253 Shareholders’ Equity 46,041,088 38,420,434

Intangible assets (5b) 226,731 281,797 thousands LBP Capital (16) 10,005,000 10,005,000 thousands LBP

Investments at amortised cost (9) 14,985,340 14,980,172 Legal reserve 3,231,412 2,217,189

Investments at fair value through profit or loss (10) 1,510,342 972,338 Other reserves (14) 21,412,762 16,056,010

Unquoted equity investments (11) 5,636,306 5,636,306 Profit for the year 11,391,914 10,142,235

Reinsurance share in technical reserve for: 16,637,688 32,566,965 Liabilities 117,613,363 128,476,333

Unexpired risks (6a) 15,126,560 30,756,624 Provision for employees’ end of service indemnities (15) 983,088 888,025

Outstanding claims (6b) 1,235,138 1,372,055 Reinsurance Deposits 4,863,420 2,949,566

Claims incurred but not reported (6c) 275,990 298,157 Technical reserves for: 73,855,199 85,763,011

Premium Deficiency Reserve (PDR) (6e) --- 140,128 Unexpired risks (6a) 70,867,248 82,294,213

Time deposits (8a) 102,880,114 96,268,782 Outstanding claims (6b) 2,395,909 2,589,254

Premiums receivable - Net (7) 268,103 1,029,766 Claims incurred but not reported (6c) 505,015 534,371

Reinsurance balances receivable 3,837,431 3,981,045 Loss adjustment expenses (6d) 87,028 93,709

Other debtors 35,235 3,716 Premium deficiency reserve (6e) --- 251,465

Prepaid commissions 9,398,915 9,733,866 Bank Overdraft 151 1,363

Cash in hand and at banks (8b) 7,776,549 923,762 Reinsurance balances payable 32,442,951 34,270,941

Total Assets 163,654,452 166,896,767 Premiums payable 87,469 57,090

Taxes payable (12) 1,234,543 1,430,549

Unearned commissions 3,782,396 2,776,346

Other creditors and accruals (13) 364,147 339,441

Total Liabilities & Shareholders’ Equity 163,654,452 166,896,767

The accompanying notes form an integral part of these financial statements. The financial statements were approved on 18 February 2003 by the Board of Directors.

266 Annual Report 2012 Credit Libanais Group 267 Credit Libanais d’Assurances et de Reassurances

Statement of Comprehensive Income As at 31 December

Notes 2012 2011 Notes 2012 2011

Gross premiums (6a) 27,571,774 29,846,666 General expenses (18) (3,949,807) (4,093,572)

Premiums ceded to reinsurers (6a) (8,348,016) (13,534,512) Other Commission expense- net of reserves (3,750,190) (3,787,812)

Net premiums 19,223,758 16,312,154 thousands LBP Depreciation and Amortisation charges (5) (168,878) (169,071) thousands LBP

Change in unexpired risk reserve (4,091,763) (2,373,396) Provisions for end of service indemnities (15) (98,193) (229,738)

Net earned premium 15,131,995 13,938,758 Unrealized Gain (Loss) on Investments at fair value through profit or loss (10) 527,625 (135,675)

Gross claim paid (7,370,793) (7,117,803) Net (Allocation)/Write-back of Provisions 37,806 (96,897)

Reinsurance recoveries 2,994,634 2,292,525 Other Income/(Charges) 15,294 10,045

Change in outstanding claims 70,297 (154,938) Net financial income 7,438,672 6,990,562

Net commission 983,906 3,111,950 Financial income (19) 7,550,382 7,144,728

Net underwriting results 11,810,041 12,070,492 Financial charges (19) (111,710) (154,166)

Net loss on exchange (168,778) (72,541)

Profit Before Taxation 11,693,593 10,485,793

Income Tax Expense (12) (301,679) (343,558)

Profit for the year 11,391,914 10,142,235

The accompanying notes form an integral part of these financial statements

268 Annual Report 2012 Credit Libanais Group 269 Credit Libanais d’Assurances et de Reassurances

Statement of Cash Flows For the Year Ended 31 December 2012 & 2011

Notes 2012 2011 Notes 2012 2011

Operating Activities Financing Activities

Profit for the year before taxation 11,693,593 10,485,793 Variation in reinsurance deposits 1,913,853 171,841

Adjusted by: thousands LBP Dividends and bonuses distributed (21) (3,771,260) (3,185,975) thousands LBP

Depreciation and Amortisation charges (5) 168,878 169,071 Net cash used in financing activities (1,857,407) (3,014,134)

Provision for end of service indemnities (15) 98,193 229,738 Investing Activities

Interest and investment income (19) (7,550,382) (7,144,728) Acquisition of Property and equipment (5a) (44,656) (36,051)

Interest expense and related charges (19) 111,710 154,166 Acquisition of Intangible assets (5b) (17,909) (247,079)

(Gain)/Loss on sale of property and equipment 793 141 Variation in time deposits (more than 3 months) 13,283,115 (20,047,496)

Net Allocation/(Write-back) of provisions (37,806) 96,897 Acquisition of Investments at Amortised Cost --- (1,826,445)

(Write- Back) of Provision for devaluation of investments (10) (527,625) 135,675 Redemption of Investments at Amortised Cost --- 2,261,250

Variation in other creditors and accruals 24,706 96,490 Proceeds from disposal of property and equipment 4,515 754

Variation in other debtors (31,519) 592 Interest income received 7,753,924 7,085,864

Variation in reinsurance share in technical reserves 15,929,277 (2,912,120) Net cash (used in) from investing activities 20,978,990 (12,809,204)

Variation in technical reserves (11,907,812) 5,440,454 Net variation in cash and cash equivalents 26,967,930 (5,409,707)

Variation in unearned commissions 1,006,050 (1,089,791) Cash & cash equivalents at the beginning of the year 68,687,734 74,097,441

Variation in prepaid commissions 334,951 251,989 Cash & cash equivalents at the end of the year (22) 95,655,664 68,687,734

Variation in premiums and reinsurance payables (1,797,612) 6,249,460 The accompanying notes form an integral part of these financial statements

Variation in taxes payable (154,127) (158,299)

Variation in reinsurance receivables 143,614 (264,747)

Variation in premiums receivable 799,469 (639,816)

Employees’ End of Service benefits paid (15) (3,130) (127,328)

Income tax paid (343,558) (416,624)

Interest expense paid (111,316) (143,382)

Net cash from operating activities 7,846,347 10,413,631

270 Annual Report 2012 Credit Libanais Group 271 Credit Libanais d’Assurances et de Reassurances

Statement of Changes in Shareholders’ Equity For the Year Ended 31 December 2012 & 2011

Capital Legal Reserves Other Reserves Profit for the Year Total

Balance as at 1/1/2011 10,005,000 1,457,000 12,400,286 7,601,888 31,464,174

Allocation of 2010 profit --- 760,189 6,841,699 (7,601,888) ---

Dividends and Bonuses distributed (note 14) ------(3,185,975) --- (3,185,975) thousands LBP

Profit for the year 2011 ------10,142,235 10,142,235

Balance as at 31/12/2011 10,005,000 2,217,189 16,056,010 10,142,235 38,420,434

Allocation of 2011 profit --- 1,014,224 9,128,012 (10,142,235) ---

Dividends and Bonuses distributed (notes14, 21) ------(3,771,260) --- (3,771,260)

Profit for the year 2012 ------11,391,914 11,391,914

Balance as at 31/12/2012 10,005,000 3,231,412 21,412,762 11,391,914 46,041,088

272 Annual Report 2012 Credit Libanais Group 273 Correspondent Banks Network

Correspondent Banks Network

Help line for transfers

Central Processing Department

Phone : + 961 1 258 106/9 Ext. 100/111

Fax : + 961 1 257 635/6

274 Annual Report 2012 Credit Libanais Group 275 Correspondent Banks Network

Country Bank Country Bank

Algeria Arab Banking Corporation - Algiers Egypt National Bank of Egypt - Cairo

Australia Westpac Banking Corporation - Sydney Finland Nordea Bank Finland PLC - Helsinki

Bank Austria AG - Vienna Austria BNP Paribas - Paris Raiffeisen Zentralbank Osterrich AG - Vienna France Natixis - Paris UBAF - Union de Banques Arabes et Françaises - Paris National Bank of Bahrain - Manama Bahrain Arab Banking Corporation BSC - Manama Deutsche Bank AG - Frankfurt Credit Libanais - Bahrain Commerzbank AG - Frankfurt Germany Bayerische Landesbank - Munich KBC Bank NV - Brussels West LB - Düsseldorf Belgium BNP Paribas Fortis Bank - Brussels Ghana Ghana Commercial Bank LTD - Acra Bulgaria Unicredit Bulbank LTD - Sofia

Greece National Bank of Greece - Athens National Bank of Canada - Montreal Canada Bank of Montreal - Montreal Royal Bank of Canada - Toronto Fortis Bank - Amesterdam Holland ING Bank of China - Beijing JP Morgan Chase Bank NA - Shanghai The Bank of New York Mellon - Shanghai Hungary National Bank of Hungary Commerzbank AG - Shanghai China & Hong Kong HSBC Bank LTD - Hong Kong JP Morgan Chase Bank NA - Hong Kong India State Bank of India - Mumbai The Bank of New York Mellon - Hong Kong UBAF (Hong Kong) LTD - Hong Kong Indonesia PT Bank Mandiri (Persero) - Jakarta Cyprus Credit Libanais Cyprus Branch - Limassol Intesa Sanpaolo SPA - Milano Unicredit SPA - Milano Italy Banca Nazionale Del Lavoro SPA - Rome Ceskoslovenska Obchodni Banka - Prague Czech Republic Banca Popolare Dell Emilia Romagna - Modena

Danske Bank A/S - Copenhagen Denmark The Bank of Tokyo-Mitsubishi UFJ, LTD - Tokyo Nordea Bank Danmark A/S - Copenhagen Japan The Bank of New York Mellon - Tokyo UBAF - Union de Banques Arabes et Françaises - Tokyo

276 Annual Report 2012 Credit Libanais Group 277 Correspondent Banks Network

Country Bank Country Bank

Arab Bank PLC - Amman Banca Comerciala Romana - Bucharest Jordan Jordan Ahli Bank - Amman Romania

Korea Exchange Bank - Seoul VNESHECONOMBANK JP Morgan Chase Bank NA - Seoul Russia (The Bank for Development & Foreign Economic Affairs) - Moscow Korea The Bank of New York Mellon - Seoul Standard Chartered Bank - Seoul Al Rajhi Bank - Riyadh UBAF - Union de Banques Arabes et Françaises - Seoul Saudi Arabia The National Commercial Bank - Jeddah Saudi Hollandi Bank - Riyadh Kuwait The National Bank of Kuwait SAK - Kuwait Senegal Credit International SA - Dakar

Luxembourg Kredietbank SA Luxembourgeoise - Luxembourg JP Morgan Chase Bank NA - Singapore Singapore The Bank of New York Mellon - Singapore Wahda Bank - Benghazi UBAF - Union de Banques Arabes et Françaises - Singapore Libya Umma Bank - Tripoli Gumhouria Bank - Tripoli Banco de Sabadell - Madrid Banco Santander SA - Madrid Spain Fimbank (First Int’l Merchant Bank) - Sliema Banco Bilbao Vizcaya Argentaria SA (BBVA) - Madrid Malta Banco Popular Espagnol - Madrid

Banque Marocaine du Commerce Extérieur - Casablanca Morocco Bank of Ceylon - Colombo Banque Marocaine pour le Commerce Et l’Industrie - Casablanca Sri Lanka Commercial Bank of Ceylon PLC - Colombo

Norway DNB NOR Bank ASA - Oslo Skandinaviska Enskilda Banken - Stockholm Sweden Nordea Bank AB (Publ) - Stockholm

Phillippines Bank of the Phillipine Islands - Manila UBS AG - Zurich Switzerland Credit Suisse - Geneva and Zurich Habib Bank AG Zurich - Zurich Poland Bank Handlowy Warszawie SA - Varsovia JP Morgan Chase Bank NA - Taipei The Bank of New York Mellon - Taipei Banco Commercial Portugese - Lisbon Taiwan Standard Chartered Bank - Taipei Portugal Deutsche Bank - Lisbon Bank of Taiwan

Qatar National Bank - Doha Qatar Mashreqbank - Doha Thailand Bangkok Bank Public Company Limited - Bangkok

278 Annual Report 2012 Credit Libanais Group 279 Correspondent Banks Network

Country Bank

Tunis International Bank - Tunis Tunisia Union Bancaire pour le Commerce et l’Industrie - Tunis Société Tunisienne de Banque SA - Tunis

Yapi Ve Kredi Bankasi AS - Istanbul Akbank TAS - Istanbul Turkey T. Vakiflar Bankasi Tao - Istanbul Turkiye Is Bankasi AS - Istanbul Turkiye Garanti Bankasi - Istanbul

Mashreqbank PSC - Dubai National Bank of Abu Dhabi - Abu Dhabi UAE Emirates Bank International PJSC - Dubai Standard Chartered Bank - Dubai Habib Bank AG Zurich - Dubai

HSBC Bank PLC - London UK Standard Chartered Bank PLC - London

JP Morgan Chase Bank NA - New York Citibank NA USA The Bank of New York Mellon - New York Standard Chartered Bank - New York Wells Fargo - Philadelphia

Joint Stock Commercial Bank of Foreign Trade of Vietnam - Hanoi Vietnam Bank for Foreign Trade of Vietnam - Hanoi

Yemen Yemen Bank for Reconstruction and Development - Sana’a

280 Annual Report 2012 Credit Libanais Group 281 Head Office and Branch Network

Head Office and Branch Network

Call Center +961 1 900 111 Lebanon 1518 Beirut

Ashrafieh Zahret Al Ihsan St., Sausalito Bldg. Raouche Hajj Toufic Nassar Bldg. Credit Libanais sal Head Office Fax: (01) 204 643 - Phone: (01) 216 540 - 204 641 Fax: (01) 807 475 - Phone: (01) 807 454 - 807 492 Branch Manager: Mr. Naji Khayat Branch Manager: Mr. Saadeddine Akel Sofil Center - Charles Malek Avenue - Ashrafieh 1100 2811 - Beirut, Lebanon Badaro Badaro St., Khatoun Center Riad El Solh Beirut Central District, Riad El Solh Square, Asseily Bldg. P.O.Box: 16-6729 Fax: +961 1 325 713 - Phone: +961 1 200 028/9 Fax: (01) 382 145 - Phone: (01) 387 878/9 Fax: (01) 983 141 - Phone: (01) 983 141/2/3 +961 1 201 292 Branch Manager: Ms. Randa El Hauche Branch Manager: Ms. Lina Dabaghi Website: www.creditlibanais.com Gefinor Clemenceau St., Gefinor Center 1st floor, Bloc C Rmeil Nahr St., Zoghbi Bldg. E-mail: [email protected] - [email protected] Fax: (01) 740 168 - Phone: (01) 739 830/1 Fax: (01) 445 275 - Phone: (01) 445 684 - 443806 Branch Manager: Mr. Omar Fayoumi Branch Manager: Ms. Katia Ayoub Credit Libanais Investment Bank (clib) sal Head Office Geitawi Facing Geitawi Hospital Sassine Sassine Square, Independance Ave., Credit Libanais Bldg.

Fax: (01) 582 087 - Phone: (01) 580 715/6 Fax: (01) 203 007 - Phone: (01) 332 889 - 218 608 Asseily Bldg. - Riad El Solh Square - Beirut Central District (BCD), Lebanon Branch Manager: Mr. Costi Saroufim Branch Manager: Mr. Rafic Makhzoumi P.O.Box: 11-1458 Fax: +961 1 983 155 - Phone: +961 1 983 150/1/2/3 Hamra Hamra St., Ghanem Bldg. Sofil (Main Branch) Ashrafieh, Charles Malek Ave., Sofil Center Website: www.creditlibanais.com Fax: (01) 340 390 - Phone: (01) 346 960 - 342 954/5 - 350 293 Fax: (01) 215 044 - Phone: (01) 200 028/9 - 201 292 E-mail: [email protected] - [email protected] Branch Manager: Mr. Ahmad Kechli Branch Manager: Ms. Georgette Abdo Liberty Tower Hamra, Rome St., Liberty Tower Bldg. Starco Mina El Hosn, George Picot St., Starco Center, Bloc A,1st Floor

Fax: (01) 740 017 - Phone: (01) 740 017/8/9 Phone/Fax: (01) 367 582/3 Credit Libanais d’Assurances et de Reassurances (cla) sal Head Office Branch Manager: Mr. Kamal Abdel Sater Branch Manager: Mr. Ali Berro

Mar Elias Mousaitbeh, Mar Elias St. Verdun (Unesco) Unesco St., Boubes Bldg. Credit Libanais sal Bldg. - Dora, Jisr Fax: (01) 312 028 - Phone: (01) 819 116 - 312 021 Phone/Fax: (01) 790 511 - 790 289 P.O.Box: 166729 - Beirut - Lebanon Branch Manager: Ms. Noha Yammout Branch Manager: Ms. Fadia Hammoud Fax: +961 1 257 629 - Phone: +961 1 257 628 / +961 1 257 629 / +961 1 257 630 Website: www.creditlibanais.com Mazraa Corniche El-Mazraa, Salam Blvd., Choueiry Bldg. E-mail: [email protected] - [email protected] Fax: (01) 300 937 - Phone: (01) 313 590 - 317435 Branch Manager: Mr. Bassam Matta

282 Annual Report 2012 Credit Libanais Group 283 Head Office and Branch Network

Mount Lebanon

Antelias Rahabneh St., Antelias Square, St. Elie Center Fanar Fanar Roundabout, Samra Center Kaslik Main Road, Kaslik Plaza Center Sin El Fil Fouad Chehab Road, St. Georges Center

Fax: (04) 418 582 - Phone: (04) 418 582/3 Fax: (01) 902 362 - Phone: (01) 902 360/1/2 Fax: (09) 640 244 - Phone: (09) 639 945 - 640 794 - 640 118 Fax: (01) 491 899 - Phone: (01) 495 370/1 - 482 368 Branch Manager: Ms. Nohad Torbey Branch Manager: Ms. Antoinette Tannoury Branch Manager: Mr. Joseph Kmeid Branch Manager: Mr. Sami Koreh

Amchit Main Road, Jafoury Bldg. Furn El Chebbak Damascus Road, Ghaoui Bldg. Khaldeh (Al-Kobbé) Saida Highway, Credit Libanais Bldg. Zouk Jounieh Highway, Zeayter Bldg.

Fax: (09) 621 072 - Phone: (09) 622 781/2 Phone/Fax: (01) 281 518/9 Fax: (05) 810 893 - Phone: (05) 810 891/2/3 Fax: (09) 211 556 - Phone: (09) 210 485/7 - 211 542 Branch Manager: Mr. Paul Ajaltouni Branch Manager: Mr. Amin Zakhour Branch Manager: Mr. Mahfoud Ghanem Branch Manager: Mr. Joe Khoury

Awkar Main Road Ghobeiry Airport Blvd., Moucharafieh Square, Wazneh Bldg. Kornet Chehwan Main Road, Forum 600 Center Zouk Mosbeh Geita Main Road, Near Pizza Hut

Fax: (04) 544 763 - Phone: (04) 544 760/1/2 Fax: (01) 552 781 - Phone: (01) 552 781/2 Fax: (04) 913 911 - Phone: (04) 913 911 - 928 240 Fax: (09) 211 083 - Phone: (09) 211 082 - 210 744 - 210 711 Branch Manager: Ms. Amal Azar Branch Manager: Mr. Fawaz Toufeili Branch Manager: Mr. Joseph Mallouk Branch Manager: Ms. Amale Araman

Bauchrieh Industrial City St., Boulghourjian Bldg. Hadeth Adib Al Chidiac St., Kafaa’t Intersection, Wehbe Center Mkalles Main Road, Factory Center

Fax: (01) 497 332 - Phone: (01) 497 092- 497 260 Fax: (05) 466 680 - Phone: (05) 466 681/2 Fax: (01) 698 753 - Phone: (01) 698 750/1/2/3/4 Branch Manager: Mr. Atef Renno Branch Manager: Mr. Youssef Chartouni Branch Manager: Mr. Emile Moukarzel

Beit Mery Notre Dame St., Dr. Sawan Bldg. Haret Hreik Hady Nasrallah Blvd., Diab and Ayad Bldg.

Fax: (04) 871 176 - Phone: (04) 871 916 - 871 761 Fax: (01) 278 004 - Phone: (01) 278 042/9 - 278 121 Branch Manager: Mr. Adib Hamouche Branch Manager: Mr. Noureddine Ballout Bekaa

Bhamdoun Main Road, Bhamdoun Station, Mouttawah Center Haret Hreik Menchieh

Fax: (05) 260 247 - Phone: (05) 260 244/5/6/7 Fax: (01) 556 784 - Phone: (01) 556 780/1/2 Bar Elias Damascus Road, Araji Bldg. Machghara Albert Karam Bldg. Branch Manager: Mr. Imad Abdel Nour Branch Manager: Mr. Ali Mahfouz Fax: (08) 510 267 - Phone: (08) 510 265/6/7 Phone/Fax: (08) 650 250 - 650 297 Branch Manager: Mr. Wajih Araji Branch Manager: Mr. Antoine Hajjar Bourj El Brajneh Zein Harb Road, Yassine Bldg. Haret Sakhr Jounieh highway, Credit Libanais Tower

Fax: (01) 450 471 - Phone: (01) 450 470/2 Fax: (09) 636 842 - Phone: (09) 636 841 - (03) 675 004 Chtaura Damascus Road, Rose Massabki Bldg. Rachaya - Dahr El Ahmar Dib Mounzer Bldg. Branch Manager: Mr. Nadim Hatoum Branch Manager: Mr. Elias Njeim Fax: (08) 544 802 - Phone: (08) 540 833 - 543 555/666 Fax: (08) 590 303 - Phone: (08) 591 013/4 Branch Manager: Mr. Wassim Rahal Branch Manager: Mr. Nidal Abou Hjeili Bourj Hammoud Municipality Square, Mukhtarian and Sarkissian Bldg. Hazmieh Jisr El Bacha Main Road, S and S Center

Fax: (01) 265 299 - Phone: (01) 262 393 Fax: (05) 952 425 - Phone: (05) 952 426 Ferzol Main Road, Ordre Salvatoriens Bldg. Zahle Hoch Al Omara, Deir Mar Chaaya Bldg. Branch Manager: Ms. Arpie Tcheboukdjian Branch Manager: Mr. Rami Nassif Fax: (08) 950 544 - Phone: (08) 950 540/1/2/3 Fax: (08) 800 459 - Phone: (08) 810 142/3 - 803 200 Branch Manager: Mr. Michel Gerios Branch Manager: Mr. Aziz Chamma Broummana Main Road, Tawil Bldg. Jbeil Main St., Kordahi and Matta Center

Fax: (04) 862 105 - Phone: (04) 960 664 - 960 349 Fax: (09) 949 588 - Phone: (09) 942 588 - 949 558 Jeb Jannine Ismaïl Sharanek Bldg. Branch Manager: Mr. Naoum Labaki Branch Manager: Ms. Yana Youssef Fax: (08) 660 233 - Phone: (08) 660 233 - 660 710 Branch Manager: Mr. Souheil Charanik Chehim Main Road, El Chraifeh St., Raiif Abdallah Bldg. Jbeil Collège des Frères, Street 13, Khoury Business Center

Fax: (07) 242 405/6 - Phone: (07) 242 405/6/7 Phone/Fax: (09) 540 496/7/8 - 540 534 Branch Manager: Mr. Ahmad Charafeddine Branch Manager: Mr. Akram Khoury North Dekwaneh Main Road, Rawda Roundabout Jdeideh Nahr El Mott Roundabout, Montelibano Bldg.

Fax: (01) 686 903 - Phone: (01) 686 794/5 Fax: (01) 887 780 - Phone: (01) 898 065 - 887 779 Branch Manager: Mr. Michel Ghalieh Branch Manager: Mr. Kamal Zakhem Abdeh Abdeh Main Road, Haddad Bldg. Batroun Main Road, Juliette Adaymi Bldg. Fax: (06) 470 650/1/2 - Phone: (06) 470 650/1/2 - (03) 583 586 Fax: (06) 642 168 - Phone: (06) 742 074/5 Dora Dora Roundabout, Bassil Bldg. Jisr Dora Highway, Karantina Bridge, Azar Bldg. Branch Manager: Mr. Aghiad Dandachi Branch Manager: Mr. Nidal Farah Fax: (01) 264 813 - Phone: (01) 251 832 - 260 358 Fax: (01) 257 641 - Phone: (01) 257 640/1 Branch Manager: Mr. Antoine Kmeid Branch Manager: Mr. Antoine Saba Amioun Koura Main Road, Azar Bldg. Kobbe Kobbe Main Road, Yehya Center Fax: (06) 952 714 - Phone: (06) 952 715/6/7 Fax: (06) 393 902 - Phone: (06) 393 900/1 Branch Manager: Mr. Esper Azar Branch Manager: Mr. Walid Rima

284 Annual Report 2012 Credit Libanais Group 285 Head Office and Branch Network

North South

Tripoli - Azmi Azmi St., Haytham Center Zghorta Main Road, Kareh and Mouawad Bldg. Bint Jbeil Main Road, Charara Center Saida Riad El Solh St., Zaatary Bldg.

Fax: (06) 215 900 - Phone: (06) 215 900/1/2 Fax: (06) 668 601 - Phone: (06) 668 600/1/2/3 Fax: (07) 450 802 - Phone: (07) 450 800/1 - (03) 675 012 Fax: (07) 721 401 - Phone: (07) 721 401/2 - 751 101/2/3 Branch Manager: Mr. Nazih Naja Branch Manager: Ms. Elissar Frangieh Branch Manager: Mr. Ayoub Khoraiche Branch Manager: Mr. Samih Kaakour

Tripoli - Tell Abdel Hamid Karame St., Kantara Bldg. Nabatieh Main Road, Sabbagh Bldg. Tyr Rest House St., Farran Bldg.

Fax: (06) 430 350 - Phone: (06) 430 350/1/2 - 424 434 Fax: (07) 767 911 - Phone: (07) 767 909/10/11 Fax/Phone: (07) 742 854/5/6 Branch Manager: Mr. Fouad Kabbara Branch Manager: Mr. Zahi Jaffal Branch Manager: Mr. Riad Chebli

Saida East Blvd., Elia Roundabout, Center Zaatari 2035 Tyr Abbassieh Abbassieh, Main Road, Jal El Bahr, Sea Center

Fax: (07) 755 793 - Phone: (07) 755 790/1/2 Fax: (07) 351 094 - Phone: (07) 351 064 - 351 074 - 351 084 Branch Manager: Mr. Mohamad Saad Branch Manager: Mr. Rached Al Roz

Cyprus Branch Erbil Branch

Chrysalia Court, 1st Floor, 206 Arch. Makarios III Avenue, CY 3303 Newroz Street, Worech 44, Credit Libanais Bldg.

P.O.Box: 53-492, Limassol Cyprus P.O. Box: 20, Newroz Tlx: (605) 4702 CRELIB CY - Fax: +357 25 376 807 - Phone: +357 25 376 444 Fax: +964 66 2296690 - Phone: +964 750 3000111 / +964 770 0000766 / +964 750 3000666 / +964 770 0000103 Branch Manager: Ms. Hayat Harfouche General Manager: Mr. Rafic Aramouni E-mail: [email protected] - [email protected] Website: www.creditlibanais.com.lb E-mail: [email protected] Bahrain Branch Baghdad Branch

Seef Area, 428, Road 2608 Street No. 14, Selman Al Faek, 904, Credit Libanais Bldg.

P.O.Box: 5576, Manama Kingdom of Bahrain P.O. Box: 81018, Abi Nawas Fax: +973 17 582 224 - Phone: +973 17 560 570 - Mobile: +973 39 912 912 Fax: +964 727 0020385 - Phone: +964 727 0020384 / +964 727 0020386 - Mobile: +964 750 5000111 / +964 770 0000665 Branch Manager: Mr. Aghar Kanafani General Manager: Mr. Marwan Abi Hana E-mail: [email protected] - [email protected] Website: www.creditlibanais.com.lb E-mail: [email protected]

Representative Office - Montréal, Canada Credit Libanais Investment Bank (CLIB) sal

Montreal, Quebec, Place du Canada, 1010 de la Gauchetière Ouest # 1325, 13th Floor, Montreal, Quebec H3B 2N2 Canada Asseily Bldg., Riad El Solh Square, Beirut Central District (BCD), Lebanon Fax: +1 514 866 6220 - Phone: +1 514 866 6688 P.O. Box: 11-1458 +1 800 864 5512 Fax: +961 1 983 155 - Phone: +961 1 983 150/1/2/3 Office Manager: Mr. Elie Ayoub Website: www.creditlibanais.com E-mail: [email protected] - [email protected] E-mail: [email protected] - [email protected]

Credit International, sa (cisa) Senegal Credit Libanais d’Assurances et de Reassurances (CLA) sal

Credit International sa, Immeuble le Goelan, Boulevard Djily Mbaye, Intersection Henri Dunan Credit Libanais sal Bldg., Dora, Jisr

B.P.: 50117, Dakar RP P.O. Box: 166729 - Beirut, Lebanon Fax: +221 33 822 80 80 - Phone: +221 33 829 64 64 / +221 33 889 18 18 Fax: +961 1 257 629 - Phone: +961 1 257 628/9 - 257 630 General Manager: Mr. Christian Khalife Website: www.creditlibanais.com Website: www.cisenegal.com E-mail: [email protected] - [email protected] E-mail: [email protected]

286 Annual Report 2012 Credit Libanais Group 287 Head Office and Branch Network

The Corporate Projects and Publications Department Credit Libanais sal

Sofil Center - Charles Malek Avenue Tel: +961 1 325 052 - Fax: +961 1 325 713 P.O.Box 16-6729 Ashrafieh 1100 2811 Beirut, Lebanon [email protected] - www.creditlibanais.com.lb

288 Annual Report 2012 Credit Libanais Group 289 The Forest Stewardship Council www.FSC.org is an international organization promoting responsible forest management. FSC has developed principles for forest management of forest holdings, and a system of tracing, verifying and labeling timber and wood products, which originate from FSC-certied forests.