annual report 2012 2012 annual report report annual table of contents

Financial Highlights 6 Notes to the Consolidated Financial Statements 88 Notes' Index 89 Statement of the Chairman and the Chief Executive Officer 8 Notes 90 12 Corporate Governance Shareholding Structure 208 1. Corporate Governance Framework 12 2. Composition of the Board of Directors 13 Corporate Structure 209 3. Biographies of Board Members 16 Group High Level Chart 210 Management of Bank Audi sal - Audi Saradar Group 22 Organisation Chart 211 Management Discussion and Analysis 26 214 1. Introduction 27 Management Bank Audi sal - Audi Saradar Group 214 2. Strategy 27 Management of Bank Audi sal - Audi Saradar Group (continued) 214 3. Economic Environment 28 Country Management Lebanon 216 3.1. Domestic Operating Environment 28 Audi Saradar Investment Bank sal 217 3.2. Operating Environment in the MENA Region 31 Audi Saradar Private Bank sal 218 3.3. Operating Environment in Turkey 33 Banque Audi (Suisse) sa 219 3.4. Operating Environment in West Europe 34 Bank Audi Saradar France sa 220 4. 2012 Activity and Performance Analysis 34 Bank Audi sal - Jordan Branches 221 4.1. Business Overview in 2012 34 Bank Audi Syria sa 222 4.2. Balance Sheet Management 35 Bank Audi sae (Egypt) 223 4.3. Results of Operations 49 Arabeya Online Brokerage (Egypt) 228 4.4. Analysis by Business Segments 56 National Bank of Sudan 229 4.5. Capital Management 59 Audi Capital (KSA) cjsc 230 5. Dividend Policy 62 Bank Audi LLC (Qatar) 231 6. Risk Management 63 Audi Capital Gestion sam (Monaco) 232 7. Investor Relations 69 Odeabank A.Ş. 233 7.1. Investor Relations Activity in 2012 69 7.2. Bank Audi's Stock Research Coverage 70 Addresses 234 8. Deployed Resources 70 Lebanon 234 8.1. Operations 70 Bank Audi sal - Audi Saradar Group 234 8.2. Information Technology 71 Audi Saradar Investment Bank sal 238 9. Human Resources 72 Audi Saradar Private Bank sal 238 Switzerland – Banque Audi (Suisse) sa 238 10. Corporate Social Responsibility 75 France – Bank Audi Saradar France sa 238 General Assembly Excerpts 78 Jordan – Bank Audi sal - Jordan Branches 238 Syria – Bank Audi Syria sa 239 Consolidated Financial Statements 80 Egypt 241 Auditors’ Report 81 Bank Audi sae 241 Consolidated Income Statement 82 Arabeya Online Brokerage 243 Consolidated Statement of Comprehensive Income 83 Sudan – National Bank of Sudan 243 Consolidated Statement of Financial Position 84 Saudi Arabia – Audi Capital (KSA) cjsc 243 Consolidated Cash Flow Statement 85 Qatar – Bank Audi LLC 243 Consolidated Statement of Changes in Equity 86 Monaco – Audi Capital Gestion sam 243 Turkey – Odeabank A.Ş. 244 United Arab Emirates – Bank Audi sal - Abu Dhabi Representative Office 244

2 3 gulf Bank Audi enjoys firm coverage of private and corporate banking markets in the Gulf region. The Bank offers its GCC clients high quality trading and advisory services, in addition to discretionary portfolio and asset management services, and increasingly caters to the financing needs of businesses and corporates.

4 5 financial highlights

Assets (USD Million) Net Earnings (USD Million) Bank Audi sal: Selected Financial Data (USD Million)

CAGR 12.6% CAGR 13.9% CAGR 2007 2008 2009 2010 2011 2012 07-12 31.302 384 Assets 17,320 20,385 26,486 28,688 28,737 31,302 12.6% 28.688 28.737 365 26.486 352 Loans to customers 4,708 6,129 6,747 8,548 8,594 10,428 17.2% 289 20.385 Customers' deposits 14,299 17,337 22,985 24,848 24,798 26,805 13.4% 17.320 238 Shareholders' equity 1,824 1,966 2,193 2,420 2,357 2,677 8.0% 200 Net earnings 200 238 289 352 365 384 13.9% Number of branches 136 143 154 157 154 162 3.6% Number of staff 3,872 4,291 4,388 4,838 4,808 5,070 5.5% Liquidity and asset quality

2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Liquid assets/Deposits 82.86% 77.39% 82.10% 77.25% 77.20% 74.51% Loans/Deposits 32.93% 35.35% 29.35% 34.40% 34.66% 38.91% Net doubtful loans/Gross loans (excluding collective provisions) 0.91% 0.60% 0.93% 0.61% 0.66% 0.64% Loan loss provisions/Gross doubtful loans (excluding collective provisions) 81.20% 80.35% 72.36% 72.61% 77.16% 76.26% Net doubtful loans/Equity 2.17% 1.06% 1.11% -0.34% 2.50% 2.57% Earnings per Common Share Growth (USD) Collective provisions/Net loans 0.72% 1.17% 1.06% Capital adequacy Equity/Assets 10.53% 9.64% 8.28% 8.44% 8.20% 8.55% CAGR 13.8% Capital adequacy as per BASEL II requirement 12.68% 12.84% 11.93% 11.42% 10.69% 11.79% Profitability

1.00 1.00 1.01 1.01 Cost to income 55.89% 54.91% 48.41% 47.28% 44.71% 45.96% 0.96 0.94 ROAA 1.27% 1.26% 1.23% 1.28% 1.27% 1.32% 0.80 0.78 ROACE 12.25% 13.30% 14.77% 16.02% 16.73% 16.49% 0.65 0.62 Share data 0.53 0.50 Common shares outstanding 329,023,090 341,893,890 344,189,410 348,477,114 349,439,944 349,749,204 1.23% Preferred shares outstanding 52,500,000 12,500,000 12,500,000 13,750,000 13,750,000 15,250,000 -21.91% Net dividends on common shares (in USD million) 66 77 120 138 139 139 16.06% Net dividends on preferred shares (in USD million) 18 18 10 15 17 23 5.20% 2007 2008 2009 2010 2011 2012 Payout ratio 42% 40% 45% 44% 43% 42% 0.00% Basic common earnings per share (in USD) 0.53 0.65 0.80 0.96 1.00 1.01 13.77% Diluted Diluted common earnings per share (in USD) 0.50 0.62 0.78 0.94 1.00 1.01 15.10% Basic Share price (in USD) 7 5 8 9 6 6 -3.04% Market capitalisation (in USD) 2,303,162 1,777,848 2,856,772 3,136,294 1,970,841 2,150,376 -1.36%

6 7 statement of the chairman and the chief executive officer

The Bank’s achievements and results for 2012 confirm lending portfolio (the equivalent of USD Odeabank, the first foreign bank to be granted an corporates from Lebanon, the MENA region and once again the Group’s ability to sustain its growth 1.9 billion), for the latter to reach USD 10.5 operating license by the Banking Regulatory and Turkey. By end-December 2012, the Bank had track record in an atypical surrounding environment, billion at end-December 2012, and which Supervisory Agency in 14 years, obtained its license a corporate and commercial loan portfolio of USD while pursuing its expansionary strategy to new contributed to a steady increase in the in September 2012. In only two months’ time, the 7.6 billion, by far the largest among Lebanese banks. captive markets of interest. Those achievements loan-to-deposit ratio from 34.7% to 39.1% over Bank managed to open 6 branches, attract over Bank Audi was able to sustain its lead presence in actually represent additional acknowledgements of the period. Lending growth was coupled with a 1,500 customers and build customers’ deposits of Project and Structured Finance by extending new Bank Audi’s highly differentiated and innovative strengthening of the lending portfolio quality over USD 1.4 billion, which translated into assets loans covering a variety of sectors including profile: a bank that has the best universal banking through the allocation of additional net provisions of over USD 2 billion (USD 4.3 billion at end- fertilizer production, oil and gas, retail and commercial profile among peers, a bank that benefits from a worth USD 121 million during 2012. Total collective March 2013). Odeabank’s achievements in development, construction and contracting, real strong proven expertise in cross-border expansion, a provisions reached USD 111 million at end-December such a small period of time underscore the estate, cement, steel, hotels, airlines, and insurance. bank that enjoys firm risk management philosophies 2012, the equivalent of 1.1% of the consolidated net pertinent investment the Bank made. Over the combined with best Corporate Governance loans portfolio, while loan loss provisions stood at medium term, Turkey would constitute one of • A strong franchise in Retail Banking, with a wide practices, thorough Management vision and wise USD 221 million, translating in a coverage of doubtful the development pillars of the Group, together spectrum of 145 retail products and services covering strategic planning systems, and a bank that has the loans by specific provisions of 76.3%. In parallel, the with Lebanon and Egypt. Odeabank’s biggest bancassurance, credit card and internet banking, most diversified shareholders base gathering around gross doubtful loans to gross loans ratio improved, advantage is a young, dynamic, ambitious, offered in all countries where Bank Audi operates. its historical shareholders large regional investors reaching 2.68% at end-December 2012, while success-oriented team and a continuous search Retail activity is supported by an 80-branch domestic and international institutional investors. net doubtful loans accounted for a mere 0.63% of for perfection, with the purpose of reaching top network, which is the largest in Lebanon and an gross loans. level customer satisfaction. To achieve that, the Bank 82-branch network in the MENA region and Turkey Bank Audi sal - Audi Saradar Group was indeed has equipped all its branches with top-of-the-range built in four years of average activity. The Retail able, in 2012, to considerably differentiate itself The growth in assets was not realised at the technologies in a way to enhance quick quality service, cross-selling per customer reached 4.55 products as at by performing favourably in the most difficult detriment of the Group’s financial standing, as and has opted for recruiting the most experienced and end-December 2012, versus 4.40 in 2011. The Bank’s operating conditions, and even embarking on 23.1% of the total growth in assets during 2012 specialised personnel in the sector. market penetration in terms of customers reached lucrative expansion. The Bank managed to sustain was used to increase primary liquidity which 25% in 2012, ranking first among competitors, versus positive assets and earnings growth (respectively reached USD 13.1 billion and represented 49% of Following the expansion to Turkey, the Group is now 23% in 2011, supported by the best brand image in at 8.9% and 5% in 2012), improve its risk coverage, customers’ deposits. In parallel, the Bank continued present in 12 different countries. Over and above the domestic market. and reinforce its financial standing across all to enjoy sound capital adequacy ratio with a Basel its historic and dominant presence in Lebanon and entities both domestic and abroad. In details, the III ratio of around 11.6%, versus a 10% minimum Europe (France, Switzerland, and recently Monaco), • A leading position in Private Banking, servicing Bank’s consolidated assets rose by USD 2.6 billion regulatory requirement. As to profitability, the Group is now present in Jordan, Syria, Egypt, the needs of high net-worth individuals through during the year to reach USD 31.3 billion at Bank Audi’s net earnings grew by 5% over the Sudan, Saudi Arabia, Qatar, Turkey and the United its subsidiaries. Bank Audi’s Private Banking arm is end-December and USD 39.8 billion when year, moving from USD 365 million in 2011 to Arab Emirates through a representative office. represented by Banque Audi (Suisse) sa (the second accounting for fiduciary deposits, security accounts USD 384 million in 2012. Based on such results, Bank Audi has in parallel reinforced its universal largest Arab bank in Switzerland) and Audi Saradar and assets under management. The growth in the Bank’s profitability ratios improved, with the banking profile, offering a full range of Commercial Private Bank sal (the only 100% Private banking assets was in particular owed to customers’ deposits return on average assets reporting 1.28% and the and Corporate Banking, Retail and Individual subsidiary in Lebanon), along with Bank Audi LLC which grew by 8.1% in 2012, i.e. the equivalent return on average common equity amounting to Banking, Online Brokerage services, Private Banking, (Qatar) and Audi Capital (KSA), accounting together of USD 2 billion, moving from USD 24.8 billion 16.6% over the year. Investment Banking, Capital Market activities, in for over USD 8.4 billion of assets under management at end-December 2011 to USD 26.8 billion at addition to Insurance activities. In particular, Bank at end-December 2012, by far the largest portfolio end-December 2012. The most significant development of the past year Audi benefits today from the following leaderships: managed by a Lebanese banking group and was the launch of Odeabank A.Ş., the fully owned which compares competitively with portfolios The rise in consolidated assets was translated into Turkish subsidiary of Bank Audi sal - Audi Saradar • A strong franchise in Commercial Banking activities, managed by leading banks in the GCC. a growth of 22% at the level of the consolidated Group, on the beginning of November 2012. with a diversified loan portfolio covering top

8 9 • A leading position in domestic and regional Capital On the back of all such performances, Bank Audi Markets activities, with strong market-making looks at the future with faith and optimism. The activities in Lebanon, Saudi Arabia and Egypt. Over Bank believes there are many opportunities at the the past year, market-making activities on Lebanese horizon and that it is very well placed to grasp them. and GCC fixed income instruments strengthened Such a conviction is based on the fact that the Bank across the Group, reporting a turnover of around is very well staffed (74% of its staff being university USD 10.3 billion in 2012, broken down over graduates against a global average of 37%), USD 2 billion on Lebanese Treasury bills, USD 5.8 billion benefitting from a Management-driven profile, a on Lebanese sovereign bonds, and USD 2.5 billion on very strong Corporate Governance, and an extensive GCC fixed income instruments. On the equity front, vision when it comes to strategy with a deeper sense Bank Audi is an active leading intermediary on the of expanding, growing and developing further. Beirut Stock Exchange, with a 34.3% market share in Bank Audi’s strategic orientations, going ahead, total trading value in 2012. revolve around consolidating and strengthening our domestic leadership, growing our entities in The Bank accompanied such business Turkey and MENA, expanding to new captive foreign accomplishments with an adequate development markets, and investing in all necessary support of its support functions. In 2012, Bank Audi’s infrastructure, all in the aim of positioning our Group IT supported the Bank’s growth plans by in the inner circle of major regional players at large. launching new applications, kick-starting the transformation program and completing the As a matter of fact, such business objectives can set-up of Odeabank’s IT organisation. In addition only translate into significant value added to our to the aforementioned initiatives, Bank Audi’s IT shareholders, which we believe have been gratefully worked on enhancing its operational efficiencies supporting our strategic orientations and our by optimising utilisation of resources and ensuring development plans. transparent monitoring of capital consumption. Last but not least, Bank Audi’s IT heightened importance In closing, we would like to express our gratitude to all has been given to enhancing the existing security our colleagues for their motivation, professionalism, measures and emphasising business continuity. and permanent support of our objectives, amidst the most atypical circumstances surrounding us. In parallel, the year 2012 was marked by significant It is our unscathed eagerness to always innovate, achievements by Human Resources (HR), crowned outgrow and move ahead that continuously makes by the launching of the “Training Academy”, Bank Audi’s differentiation. a long-awaited milestone that required extensive planning, research and preparation. Bank Audi’s Sincerely, Human Resources continuously strive to enhance and adopt new approaches, methods and practices Raymond W. Audi to maintain and reaffirm the Bank’s position in the Chairman and General Manager region as an “employer of choice” and a market leader in the HR field.

In parallel, Bank Audi’s Corporate Social Responsibility (CSR) function was selected by ISO through Libnor – Samir N. Hanna the Lebanese Standards Institution attached to the Group Chief Executive Officer Ministry of Industry – as the first pilot organisation within the banking sector to implement ISO 26000 Social Responsibility guidelines.

10 11 corporate governance

adequate control of the company, with the ultimate • The mission of the Corporate Governance and I. Corporate Governance goal of increasing the long term value of the Bank. Remuneration Committee is to assist the Board in 2. Composition of the Board Framework maintaining an effective institutional Governance of Directors Bank Audi’s Governance framework and that of its framework for the Group, an optimal Board Introduction major banking subsidiaries encompass a number composition, effective Board process and structure, Members of the Board of Directors serving throughout of policies, charters, and terms of reference that and a set of values and incentives for executives and the year 2012 were elected by a resolution of the During the year 2012, the Board of Directors continued shape the Group’s Governance framework over employees that are focused on performance and Ordinary General Assembly of shareholders held to give sound Corporate Governance a particular a wide range of issues including risk supervision, promote integrity, fairness, loyalty and meritocracy. on April 12, 2010 for a term expiring on the date of importance. It carried out a comprehensive review of compliance, audit, remuneration, evaluation, the annual Ordinary General Assembly meeting of key Governance practices and introduced a number succession planning, ethics and conduct, budgeting, • The mission of the Group Risk Committee is to April 8, 2013 that examined the accounts and activity of modifications (including to its “Governance and capital management. Clear lines of responsibility assist the Board in discharging its risk-related of the year 2012. responsibilities. The Committee is expected to Guidelines” as well as to the Charters of its Audit and accountability are in place throughout the (i) consider and recommend the Group’s risk policies and Risk Committees) that are aimed at enhancing organisation with a continuous chain of supervision The Ordinary General Assembly held on April 8, 2013, and risk appetite to the Board, (ii) monitor the Group’s Governance practices generally and at aligning them for the Group as a whole, including effective has re-elected the same Directors for a new risk profile for all types of risks, and (iii) oversee the three-year term expiring on the date of the annual with the dynamic local and international regulatory channels of communication of the Group Executive Management framework of the aforementioned Ordinary General Assembly meeting (expected to be expectations. It also acted on the recommendations Committee’s guidance and core group strategy. risks and assess its effectiveness. held in April 2016) that will examine the accounts of its committees that substantially discharged Strategic objectives setting corporate values and and activity of the year 2015. all of their responsibilities. Particularly salient promoting high standards of conduct have been • The mission of the Group Executive Committee is Governance-related achievements include the established and widely communicated throughout carrying out of a formal assessment of the Board’s to develop and implement business policies for the The Board of Directors currently comprises the the Group, providing appropriate incentives to Bank and to issue guidance for the Group within the (2) compliance with its Corporate Governance guidelines following Directors (see table on next page): ensure professional behaviour. strategy approved by the Board. The Group Executive and with the applicable regulations (yielding a Committee also supports the Group Chief Executive satisfactory outcome), as well as the adoption of a formal The Bank’s Corporate Governance Guidelines are Officer in the day-to-day running of the Bank and in Board evaluation process and an implementation plan, accessible on the Bank’s website at www.banqueaudi.com guiding the Group. in line with best Governance practices. The Board is supported in carrying out its duties by the At the level of the Group, the year 2012 also witnessed Group Audit Committee, the Corporate Governance important Governance-related developments with and Remuneration Committee, the Board Group Risk the material addition of Odeabank A.Ş. to the Committee and the Group Executive Committee. Group Governance framework (while preserving local regulatory requirements) and with a number of • The mission of the Group Audit Committee is to assist enhancements that were brought to other local and the Board in fulfilling its oversight responsibilities foreign subsidiaries’ Governance frameworks. as regards (i) the adequacy of accounting and Governance Framework financial reporting policies, internal control and the compliance system; (ii) the integrity of the financial Bank Audi is governed by a Board of Directors statements and the reliability of disclosures; (iii) the appointment, remuneration, qualifications, consisting of up to 12 members (currently 11) elected (1) It is not the duty of the Audit Committee to plan or to conduct audits or make specific determinations that the Bank’s statements and disclosures by the General Assembly of shareholders for a term independence and effectiveness of the external are complete and accurate, nor is it its duty to assure compliance with laws, regulations and the Bank’s Code of Ethics and Conduct. These are the responsibilities of Management and of external auditors. of 3 years. The responsibility of the Board is to ensure auditors; and (iv) the independence and effectiveness (1) strategic direction, Management supervision and of the internal audit function . (2) Listed according to their dates of appointment (beyond the Group CEO).

12 13 Members Independent Member of Group Sharia’ Supervisory Board Dr. Abdulsattar A. Abu Ghudda (Chair) (as per the Corporate Dr. Mohamed A. Elgari the Bank’s Member of Governance Corporate the Group and Member of the Member of the Sheikh Nizam M. Yaqoobi Governance Executive Remuneration Group Audit Board Group Risk Dr. Khaled R. Al Fakih Guidelines(3)) Committee Committee Committee Committee

H.E. Mr. Raymond W. Audi Legal Advisors Law Offices of Ramzi Joreige & Partners Chairman Chair Dr. Marwan M. Ghandour Vice-chairman Chair Auditors Semaan, Gholam & Co. Mr. Samir N. Hanna Ernst and Young Chair (until August 2012) Sheikha Suad H. Al Homaizi

Mr. Marc J. Audi

Dr. Freddie C. Baz Deputy Chair (since August 2012) Sheikha Mariam N. Al Sabbah

Dr. Imad I. Itani

Mr. Mario J. Saradar (since May 2012) Mr. Abdullah I. Al Hobayb

Dr. Khalil M. Bitar Chair Mr. Youssef A. Nasr (until November 2012) (until November 2012)

Secretary of the Board

Mr. Farid F. Lahoud Corporate Secretary

The Board is advised, for Audit Committee matters, by Mr. Maurice H. Sayde (who served as a member of the Board and Chairman of its Group Audit Committee from June 2, 2006 until July 18, 2008). Changes to the Board of Directors during the Years 2012 and 2013 to Date:

2012 2013 (i) Dr. Georges A. Achi (88), who had been member (iii) The Ordinary General Assembly of shareholders of the Board of Directors since August 2008 (and of Bank Audi sal - Audi Saradar Group convened (3) Definition of Director independence as per the Bank’s Governance Guidelines (summary): previously a member of the Board from 1998 on April 8, 2013, and resolved to re-elect the “In order to be considered independent Director by the Board, a Director should have no relationship with the Bank that would interfere with the until 2004), resolved to retire from his function current Directors for a new three-year mandate. exercise of independent judgment in carrying out responsibilities as a Director. Such a relationship should be assumed to exist when a Director (him/her as member of the Board of Directors on April self or in conjunction with affiliates): • is occupying, or has recently occupied an executive function in the Bank or the Group; 10, 2012, after long years of highly valuable (iv) The newly elected Board convened following • is providing, or has recently provided advisory services to the Executive Management; contributions to the Bank and to its Board. the General Assembly of shareholders and • is a major shareholder (i.e. owns, directly or indirectly, more than 5% of outstanding Audi common stock), or is a relative of a major shareholder; • has, or has recently had a business relationship with any of the Senior Executives or with a major shareholder; resolved, amongst other things, to re-elect • is the beneficiary of credit facilities granted by the Bank; (ii) Mr. Youssef A. Nasr, who was elected as a member H.E. Mr. Raymond W. Audi as Chairman • is a significant client or supplier of the Bank; of the Board in replacement of Dr. Georges A. Achi, • has been, over the 3 years preceding his appointment, a partner or an employee of the Bank’s external auditor; of the Board – General Manager, and • is a partner with the Bank in any material joint venture. resigned in November 2012. Dr. Marwan M. Ghandour as Vice-chairman of In addition to the above, the Board of Directors is satisfied with the ability of the independent Directors to exercise sound judgment afterfair the Board for the new Board’s term. consideration of all relevant information and views without undue influence from Management or inappropriate outside interests.”

14 15 3. Biographies of Board Members Raymond W. AUDI Samir N. HANNA

Raymond Audi acts as Chairman of the Board of Directors and Samir Hanna joined Bank Audi sal - Audi Saradar Group General Manager since December 2009. He had also served (previously Banque Audi sal) in January 1963. He held several as Chairman of the Board of Directors and General Manager managerial and executive positions across various departments from 1998 through 2008, resigning from this position when of the Bank. He was appointed General Manager of Bank Audi he was appointed Minister of the Displaced in the Lebanese in 1986 and member of its Board of Directors in 1990. In the government. Mr. Audi resumed his position as Chairman of early 1990s, he initiated and managed the restructuring and the Board of Directors effective December 22, 2009. expansion strategy of Bank Audi, transforming it into a strong banking powerhouse offering universal banking products and He started his banking career in 1962, when, together with services including Corporate, Commercial, Retail, Investment his brothers and with prominent Kuwaiti businessmen, he and Private Banking. founded Banque Audi sal (now Bank Audi sal - Audi Saradar Group), building on a successful long-standing family business. He grew the Bank to its current position as the largest bank in Lebanon (and among the top 20 Arab banking groups), Chairman of the Board Raymond Audi has played an active role in leading Bank Audi General Manager with presence in 12 countries, consolidated assets exceeding and General Manager through both prosperous and challenging times to its current Group Chief Executive Officer USD 31 billion, consolidated deposits exceeding USD 26 billion, status as a widely recognised leading Lebanese and regional and group staff headcount exceeding 5,000 employees. Age: 80 – Lebanon Age: 68 – Lebanon bank. He served as President of the Association of Banks Samir Hanna is also the Chairman of Odeabank A.Ş. in Turkey Director since February 1962 in Lebanon in 1994. Director since August 1990 and a member of the Board of Directors of several affiliates of Bank Audi. T erm expires at the 2016 Annual General Raymond Audi is the recipient of several honours and T erm expires at the 2016 Annual General Assembly of shareholders awards, including, in July 2007, an Honorary Doctorate in Assembly of shareholders He currently serves as the Group Chief Executive Officer and • Chairman of the Corporate Governance Humane Letters from the Lebanese American University. • Executive Director the Chairman of the Group Executive Committee, and heads and Remuneration Committee • Chairman of the Group Executive Committee all aspects of the Bank’s Executive Management. • Member of the Group Risk Committee (until August 2012)

Marwan M. GHANDOUR Suad H. AL HOMAIZI

Marwan Ghandour is an independent member of the Board of Sheikha Suad Al Homaizi is the widow of late Sheikh Jaber Al Directors since March 2000 and the Vice-chairman of the Board Sabbah, a prominent figure of the ruling family of Kuwait. She of Directors since December 2009. He is a previous Vice-governor is one of the founders of the Bank. Sheikha Suad Al Homaizi of the Central Bank of Lebanon. He held this position between serves as Chairman of the Commercial Kuwaiti Company January 1990 and August 1993, with primary responsibilities in Hamad Saleh Al Homaizi which owns international licenses the area of monetary policy. During this period, he was also a for pharmaceutical products and is a member of the Board of member of the Higher Banking Commission and various other Directors of several other Kuwaiti companies. government committees involved in economic policy. In this capacity, he liaised with various international institutions such She is a member of the Board of Directors of Bank Audi since as the International Monetary Fund (IMF), the World Bank and February 1962. the Bank for International Settlements (BIS).

From 1995 until July 2011, Marwan Ghandour served as Chairman and General Manager of Lebanon Invest sal, a Vice-chairman of the Board leading financial services group in the region whose holding Board Member Age: 69 – Lebanon company merged with Bank Audi in 2000. He also served as Age: 70 – Kuwait Chairman of the Board of Directors of Audi Saradar Investment Director since March 2000 Bank sal, a fully owned subsidiary of Bank Audi, from 2005 Director since February 1962 until December 2011. He was elected Chairman of the Board Term expires at the 2016 Annual General Term expires at the 2016 Annual General of Directors of Banque Audi (Suisse) sa in March 2011 and Assembly of shareholders Assembly of shareholders Vice-chairman of the Board of Directors of Odeabank A.Ş. in • Non-executive Director Turkey in June 2012. He also serves as member of the Board of • Non-executive Director • Chairman of the Group Audit Committee Directors of several affiliates of Bank Audi. • Member of the Board Group Risk Committee • Member of the Corporate Governance and Marwan Ghandour holds a PhD in Economics (Econometrics) Remuneration Committee from the University of Illinois (Post-doctorate research at Stanford University).

16 17 Marc J. AUDI Mariam N. AL SABBAH

Marc Audi started his banking career at Banque Audi (France) sa Sheikha Mariam Al Sabbah is the daughter of late Sheikh (now Bank Audi Saradar France sa) in 1981. He then moved to Nasser Sabah Al Nasser Al Sabbah and the widow of late Sheikh Banque Audi California where he was appointed Director and Ali Sabah Al Salem Al Sabbah who was the son of the former Executive Vice-president. He later came back to Lebanon to Prince of Kuwait and who held several ministerial positions join Banque Audi sal (now Bank Audi sal - Audi Saradar Group) in Kuwait, notably the Ministry of Interior. Sheikh Nasser Al in 1993, and was appointed member of its Board of Directors Sabbah was one of the founders of Bank Audi. in 1996. He held executive responsibilities successively in Sheikha Mariam Al Sabbah is a member of the Board of Commercial Lending and Capital Markets divisions. Marc Audi Directors of several Kuwaiti companies. served as General Manager of Banque Audi (Suisse), the Private Banking arm of the Audi Group of Banks until 2005, and She is a member of the Board of Directors of Bank Audi remains a member of its Board of Directors. He also serves as since March 2001. member of the Board of Directors of several affiliates of Bank Audi, and has been General Manager of the Bank since 2004, General Manager where he currently acts as the Lebanon Country Manager. Board Member Country Manager Lebanon Age: 64 – Kuwait Marc Audi holds a Master’s of Business Administration from Age: 55 – Lebanon the University of Paris IX – Dauphine. Director since March 2001 Director since March 1996 T erm expires at the 2016 Annual General T erm expires at the 2016 Annual General Assembly of shareholders Assembly of shareholders • Non-executive Director • Executive Director • Member of the Group Executive Committee

Freddie C. BAZ Imad I. ITANI

Freddie Baz joined the Bank in 1991 as advisor to the Chairman Prior to joining the Bank, Imad Itani held several key positions and founded the Secretariat for Planning and Development at in Corporate Finance for major energy companies in Canada. the Bank. As the Group Chief Financial Officer and Strategy In parallel, he taught Economics and Finance to graduate Director of the Bank, he now has overall authority over students at the American University of Beirut. He joined Bank the finance and accounting, MIS and budgeting functions Audi in 1997 and headed the team that successfully launched throughout the Group, and is responsible for the development the Bank’s Retail business line, today a major pillar of the of the Group strategy. He is also the Chairman of the Board Bank’s innovative and leading position. In 2002, Imad Itani of Directors of Bank Audi Saradar France sa, a fully owned was appointed Deputy General Manager and member of the subsidiary of Bank Audi, and is a member of the Board of Board of Directors. He was later appointed General Manager. Directors of several affiliates of Bank Audi. Furthermore, Imad Itani is also the Chairman of the Bank’s Sudanese Islamic Freddie Baz is the Managing Director of Bankdata Financial Banking subsidiary, acquired within the context of the Bank’s Services WLL which publishes Bilanbanques, the only reference regional expansion, the Chairman of Audi Saradar Investment in Lebanon that provides an extensive structural analysis of all Bank sal, a fully owned subsidiary of Bank Audi, and a member banks located in Lebanon. General Manager General Manager of the Board of Directors of Odeabank A.Ş. in Turkey, in Group Chief Financial Officer Head of Group Retail Banking addition to his responsibilities as Head of Group Retail Banking Freddie Baz holds a State PhD degree in Economics from the and Head of Group Islamic Banking. and Strategy Director University of Paris I (Panthéon – Sorbonne). Age: 51 – Lebanon Age: 60 – Lebanon Imad Itani holds a PhD in Economics from the University Director since June 2002 of Chicago. Director since March 1996 Term expires at the 2016 Annual General Term expires at the 2016 Annual General Assembly of shareholders Assembly of shareholders • Executive Director • Executive Director • Member of the Group Executive Committee • Deputy Chairman of the Group Executive Committee • Member of the Group Risk Committee (since August 2012)

18 19 Mario J. SARADAR Khalil M. BITAR

Mario Saradar was appointed in September 1992 Chairman Khalil Bitar is a current Professor of Physics and a former – CEO of Banque Saradar, leading it through several successful Dean of the Faculty of Arts and Sciences of the American strategic transformations, notably opening its capital to prime University of Beirut (AUB). He held this last position from shareholders including the International Finance Corporation in 1997 until 2009, playing an instrumental role in advocating 1998 and Natcan Holdings International Ltd (subsidiary of the AUB’s strengths and regional position as the premier National Bank of Canada) in 2000. center for higher education, and in re-establishing its PhD In 2004, he led Banque Saradar to a merger/acquisition with Bank programs. Throughout his career, he held several academic Audi, following which he was elected member of the Board of and administrative positions, including Associate Director of Directors of Bank Audi sal - Audi Saradar Group and appointed the Supercomputer Computations Research Institute – Florida General Manager, heading all the Private Banking activities of the State University (between the years 1994 and 1997) and Group and chairing the Boards of the Private Banking subsidiaries. visiting Professor at leading academic institutes in Europe and North America (including the European Organisation In August 2010, having determined that he had fulfilled his mission to perfect the merger between Banque Audi sal and Banque Saradar for Nuclear Research in Geneva, the International Centre for Board Member Board Member sal that now form one fully integrated entity, and having led the Theoretical Physics in Italy, The Institute for Advanced Study in New Jersey, the Fermi National Accelerator Laboratory Private Banking arm of the Group for more than 6 years to reach a Age: 70 – Lebanon Age: 45 – Lebanon remarkable size and profitability, he resolved, in coordination with (Fermilab) in Illinois, the University of Illinois, Brookhaven the Chairman and the CEO, to gradually relinquish his executive Director since April 2010 National Lab. in New York, the Max Planck Institute in Munich, Director since August 2004 duties within the Group in order to embark on new separate private and the Rockefeller University in New York). He also served T erm expires at the 2016 Annual General Term expires at the 2016 Annual General business ventures, while remaining a non-executive member of the two mandates as member of The Institute for Advanced Study Assembly of shareholders Assembly of shareholders Board of Directors. in Princeton, New Jersey, between 1968 and 1972. Mario Saradar was elected several times member of the Board of • Non-executive Director Khalil Bitar is also a member of the Board of Directors of Audi • Non-executive Director the Association of Banks in Lebanon, and is currently member of the • Chairman of the Board Group Risk Committee Saradar Private Bank sal and Audi Saradar Investment Bank sal, • Member of the Group Audit Committee International Chamber of Commerce, the RDCL (Rassemblement and Chairman of their respective Risk Committees. (since May 2012) des Dirigeants et des Chefs d’entreprises Libanais) and the YPO (Young Presidents’ Organisation). Khalil Bitar holds a Bachelor of Science degree in Physics from the American University of Beirut, a Master’s of Science He holds a DESS (“Diplôme d’Etudes Supérieures Spécialisées”) in degree in Physics, and a PhD in Theoretical Physics from Yale Financial Instruments from the Institut des Techniques de Marché de University in the United States. Paris and a BSc in Economics from the University College of London. Abdullah I. AL HOBAYB

Abdullah Al Hobayb is the Chairman of Audi Capital (KSA) (an Investment Banking subsidiary of Bank Audi, incorporated in the Kingdom of Saudi Arabia) and a member of the Board of Directors of Bank Audi sae in Egypt and Odeabank A.Ş. in Turkey. He also was an advisor to the previous Board of Directors of Bank Audi. He is the Chairman of several leading companies in Saudi Arabia, comprising ABB Saudi Arabia (a leader in power and automation technologies), General Lighting Company Ltd (one of the largest manufacturers in the Middle East lighting industry), Ink Products Company Ltd (manufacturer of industrial ink) and United Industrial Investments Company Ltd (a leading paint manufacturing company).

Board Member Abdullah Al Hobayb holds a Master’s degree in Electrical Engineering from Karlsruhe University in Germany. Age: 70 – Saudi Arabia Director since April 2010

Term expires at the 2016 Annual General Assembly of shareholders

• Non-executive Director • Member of the Corporate Governance and Remuneration Committee • Member of the Group Audit Committee

20 21 Management of Bank Audi sal - Audi Saradar Group Standing Management Committees

Asset-Liability Credit Information Technology H.E. Mr. Raymond W. Audi Chairman – General Manager Committee Committee Committee Group Executive Committee Voting Chair Mr. Samir N. Hanna(1) Mr. Samir N. Hanna(1) Mr. Samir N. Hanna(1) Executive Vice-chair Dr. Freddie C. Baz(1) Mr. Elia S. Samaha Mr. Danny N. Dagher Executive Directors (Voting Members) Member Mr. Marc J. Audi(1) Dr. Imad I. Itani(1) Dr. Imad I. Itani(1) Member Mr. Michel E. Aramouni Mr. Marc J. Audi(1) Mr. Naoum J. Moukarzel Chair Mr. Samir N. Hanna General Manager – Group Chief Executive Officer Member Mr. Elia S. Samaha Mr. Khalil I. Debs Mr. Hassan A. Saleh Vice-chair Dr. Freddie C. Baz General Manager – Group Chief Financial Officer & Strategy Director Member Mr. Elie J. Kamar Mr. Elie J. Kamar Mr. Tamer M. Ghazaleh Mr. Marc J. Audi General Manager – Country Manager Lebanon Member Mr. Ibrahim M. Salibi Mr. Marwan O. Arakji Non-voting Dr. Imad I. Itani General Manager – Head of Group Retail Banking Mr. Adel N. Satel Mr. Adel N. Satel Non-directors (Non-voting Members) Permanent Invitees

Mr. Chahdan E. Jebeyli General Manager – Group Chief Legal & Compliance Officer Dr. Marwan S. Barakat Mrs. Bassima G. Harb Mr. Yehia K. Youssef Mr. Khalil G. Geagea Mr. Jamil R. Shocair Mr. Antoine G. Boufarah Mr. Adel N. Satel General Manager – Group Chief Risk Officer Mr. Tamer M. Ghazaleh Mr. Adel N. Satel Mr. Naim H. Hakim

(Continued on Page 214) (1) Member of the Group Executive Committee.

22 23 levant Bank Audi’s wide presence throughout the Levant enables it to be at the forefront of universal banking services providers in the region. The Bank’s resilient performances in a tough regional operating environment bears witness to its high flexibility and strong financial standing in the face of political and economic developments.

24 25 1. Introduction All references to the Bank’s peer group in the MENA management discussion region are to the top regional Arab banking groups as compiled by the Bank’s Research department. Bank Audi sal - Audi Saradar Group (“Bank Audi”) is a full fledged bank with operations in Lebanon, and analysis Lebanon’s economic and banking data are derived Europe, the Middle East and North Africa region, from the International Monetary Fund, the Central and Turkey. Founded in 1830 in Lebanon and Bank of Lebanon, various Lebanese governmental incorporated in its present form in 1962 as a private entities and the Bank’s internal sources. The region’s joint stock company with limited liability (“société economic and banking data are derived from anonyme libanaise”), Bank Audi offers universal the International Monetary Fund, the Economist banking products and services covering Corporate, Intelligence Unit, Bloomberg, the region’s central Commercial, Individual and Private Banking services banks and the Bank’s internal sources. to a diversified client base, mainly in the MENA region and Turkey. It ranks first among Lebanese banks as This discussion and analysis starts with an overview per major banking aggregates and stands among the of the Bank’s strategy, followed by a review of the top Arab banking groups. In addition to its historic operating environment and a comparative analysis presence in Lebanon, Switzerland and France, it is of the Group’s financial conditions and results of present in Jordan, Egypt, Syria, Sudan, Saudi Arabia, operations for the periods ended December 31, Qatar, Abu Dhabi (through a representative office), 2012 and December 31, 2011. An overview of risk Monaco and Turkey. management comes next, followed by an extensive coverage of share information and dividend policy, The dicussion and analysis that follows covers investor relations, resources deployed, and Corporate the consolidated performance of Bank Audi in Social Responsibility. 2012, based on the audited consolidated financial statements of the Bank as at and for the fiscal years ended December 31, 2011 and December 31, 2012. 2. Strategy Terms such as “Bank Audi”, “the Bank” or “the Group” refer to Bank Audi sal and its consolidated The year 2012 was yet another differentiating year subsidiaries, principally Audi Saradar Private Bank for Bank Audi sal - Audi Saradar Group, confirming sal, Audi Saradar Investment Bank sal, Banque Audi once again the Group's ability to sustain its strong (Suisse) sa, Bank Audi Saradar France sa, Bank Audi growth track record and reinforce its financial sam (Monaco) (now Audi Capital Gestion sam), Bank standing, despite difficult operating conditions and Audi sal - Jordan Branches, Bank Audi Syria sa, Bank even embarking on lucrative expansion. Performance Audi sae (Egypt), National Bank of Sudan, Audi wise, Bank Audi managed to sustain positive assets Capital (KSA) cjsc, Bank Audi LLC (Qatar), Arabeya and earnings growth in 2012 (respectively at 8.9% Online Brokerage (AoLb) and Odeabank A.Ş. (Turkey). and 5%), improve risk coverage with the allocation of USD 121 million of net loan loss provisions as All figures are expressed in US Dollars (“USD”), unless a result of the unstable operating environment specifically otherwise stated. US Dollar amounts are in some countries of presence and reinforce the translated from Lebanese Pounds at the closing financial standing across all entities, both domestic rate of exchange published by the Central Bank of and abroad. Business wise, the Bank succeeded in Lebanon (1,507.5 as of each of December 31, 2012 and obtaining the first license in Turkey since 14 years, an December 31, 2011). All references to the Lebanese achievement which underlines its capacity to develop, banking sector are to the 53 commercial banks expand and diversify, even in the most atypical operating in Lebanon as published by the Central operating environments witnessed in decades. Bank of Lebanon (“BDL”). All references to the Bank’s peer group in Lebanon are to the Alpha Bank Group Those achievements represent additional consisting of 13 banks with total deposits in excess acknowledgements of Bank Audi’s highly of USD 2.0 billion each, as determined by Bankdata differentiated and innovative profile, Financial Services WLL (publishers of Bilanbanques). characterised by:

26 27 • A universal banking profile with core businesses uncertainties, remains a core growth market by activity was more to the favour of the Lebanese the opposite since the beginning of the year, with focusing on Commercial and Corporate Banking, virtue of scale and abundant resources triggering Pound in 2012, as there were more conversions the Central Bank’s foreign assets reaching a high of Retail and Individual Banking and Private Banking; self-sustained economic and financial growth from foreign currencies to Lebanese Pounds than USD 35.7 billion at its end. • A wide regional footprint, present in 12 countries prospects; (namely Lebanon, Syria, Jordan, Egypt, Sudan, Saudi • The implementation of the business plan in Turkey Arabia, Qatar, France, Switzerland, Monaco and and the mobilisation of all group resources to that Lebanon's Major Economic Indicators newly in Turkey) through 11 banks, 1 investment end; (USD Million) company, 1 asset management company and 1 • Leveraging the existing footprints in the GCC to 2011 2012 Change brokerage company; shore up Private Banking. • A strong proven expertise in cross-border expansion; Macroeconomy • A two-digit growth track record, robust financial In executing this “large Levant bank” strategy, the GDP 39,707 42,443 6.9% standing and large financial flexibility; Bank remains committed to levy all required resources Real GDP growth (%) 5.2% 2.0% -3.2% • Firm risk management philosophies combined with and invest at pace to consolidate its various business GDP per capita (USD) 10,032 10,584 5.5% best Corporate Governance practices, thorough lines, while building long-lasting relationships with Monetary sector Management vision and wise strategic planning customers. Var M3 5,085 6,780 33.3% systems; Velocity 0.65 0.59 -8.8% • The most diversified shareholder base gathering Cleared checks 72,103 71,020 -1.5% around its historical shareholders large regional 3. Economic Environment Average CPI inflation (%) 5.7% 5.7% 0.0% investors and international institutional investors. 3.1. Domestic Operating Public sector Gross domestic debt 32,730 33,300 1.7% Despite the changes in the operating conditions in Environment the Bank’s markets of presence, the fundamentals Foreign debt 20,927 24,387 16.5% of the diversification strategy launched more than a The past year was characterised by a slowdown in Total gross debt 53,657 57,687 7.5% decade ago have not changed and the Bank continues the Lebanese economy, amidst domestic political Gross debt/GDP (%) 135% 136% 0.8% to adapt to arising challenges and opportunities, bickering and regional spillover effects in the realms Deficit 2,341 2,676 14.3% mitigating the impact of the former and managing of investment, trade and tourism, the IMF having Deficit/GDP (%) 5.9% 6.3% 0.4% transitions. In this context, Management remains estimated Lebanon’s real GDP growth at 2% for External sector committed to the expansion strategy, while the full-year 2012. While the wait-and-see attitude Imports 20,158 21,280 5.6% objective is still focused on capitalising on the governing investors amidst uncertainties continues Exports 4,265 4,483 5.1% important cross-border flows between the Near East, to delay major investment decisions, consumption Trade deficit 15,893 16,797 5.7% the Middle East, North Africa and Turkey, in the aim managed to report a “relative” resilience, partly Gross financial inflows 13,897 15,260 9.8% of developing a fully integrated pan regional group supported by the favourable incoming of Lebanese Balance of payments -1,996 -1,537 -23.0% by business lines and countries of presence, ranking expatriates and the spending of Syrian refugees. , in the inner circle of large regional players. Sources: Ministry of Finance, Central Bank of Lebanon, the concerned public and private organisms, Bank Audi s Research department. Lebanon’s sluggish aggregate demand actually led The strategy over the coming period would be to a growth in imports of 5.6% driven both by price focused on shaping the Group as a large “Levant effects and quantity effects. In parallel, exports rose by 5.1% over the year 2012, driven by maritime bank” with Lebanon, Turkey and Egypt constituting Within this environment, the Lebanese banking Bank deposits, a traditional growth driver for exports as land exports continued to contract amidst the main development pillars. The development sector witnessed in 2012 a year of satisfactory activity the sector at large, registered a similar 8.0% the security escalation in Syria. As such, a growth of for the coming five years will evolve around the growth in a challenging operating environment yearly increase, moving from USD 115.7 billion at 5.7% in Lebanon’s trade deficit in 2012 added to the following channels: characterised by persistently narrow banking margins end-December 2011 to a new high of USD 125.0 15.9% rise reported in the previous year. With the in a prolonged low interest rate environment globally, billion at end-December 2012. The USD 9.3 billion totality of inflows unable to fully offset the country’s • Consolidating and strengthening its leadership in growing provisioning requirements amidst regional in additional deposits at Lebanese banks proved trade deficit, further pressures were reported on Lebanon (the home market), with a particular focus uncertainties and a weaker fee income generation 9.1% higher than the growth achieved over the the balance of payments that recorded a deficit of on the improvement of the overall efficiency and a capacity in a slow economic growth context. Banks’ previous year. In parallel, Lebanese banks saw a USD 1.5 billion in 2012, after a circa USD 2 billion greater generation of productivity gains; activity managed to pull out an 8.0% year-on-year 10.4% increase in lending activity last year, with deficit in full-year 2011. At the monetary level, • Strengthening the market background and growth throughout 2012, with total assets reaching loans to the private sector reaching a new high of a relaxed mood governed the foreign exchange positioning in Egypt, which, despite the persisting USD 151.9 billion at end-December 2012. USD 43.5 billion at end-December 2012 and market throughout the past year. The year’s net

28 29 progressing at a pace almost similar to that of 2011, the context of regional security developments. On with a USD 4.1 billion increase in lending volumes the overall, such downward pressures on banks’ during 2012. revenue base offset the quantity-effect tied to satisfactory lending activity growth and, as per the Last but not least, Lebanese banks’ profitability latest available statistics, the sector reported a mere continues to be weighed down by a tight spread 0.6% decline in domestic net profits on a yearly basis environment adding to slower fee income generation in 2012. and growing provisioning requirements within

Lebanon's Banking Sector Activity Indicators (USD Million)

Growth 2011 2012 Change 12/11 Assets 140,576 151,883 11,307 8.0% Equity 10,720 12,642 1,922 17.9% Deposits 115,714 124,998 9,284 8.0% o.w. in LBP 39,433 43,977 4,544 11.5% o.w. in FC 76,281 81,021 4,740 6.2% Loans 39,375 43,452 4,077 10.4% o.w. in LBP 8,510 9,726 1,216 14.3% o.w. in FC 30,865 33,726 2,861 9.3% Deposit dollarization ratio (%) 65.9% 64.8% -1.1% -1.1% Loan dollarization ratio (%) 78.4% 77.6% -0.8% -0.8% Loans/Deposits (%) 34.0% 34.8% 0.7% 0.7% Deposits/Assets (%) 82.3% 82.3% 0.0% 0.0% Equity/Assets (%) 7.6% 8.3% 0.7% 0.7% , Sources: Central Bank of Lebanon, Bank Audi s Research department.

3.2. Operating Environment in growth. They have witnessed a marked decline in the MENA Region exports in 2012, tourism arrivals are recovering only slowly and foreign direct investment inflows remain At the regional level, the operating environments subdued, all generating a mild growth of about 2% were varying in the different markets of presence of per annum. the Bank in the region, namely in the Near East, in North Africa and in the GCC. In parallel, at the banking sectors’ level, the sound USD 151 billion deposit growth in 2012 in the MENA First, economic conditions of the Middle East and region (61% above previous year’s level) and the North Africa region were mixed during the year 2012. satisfactory USD 98 billion of MENA loan growth are Most of the region’s oil exporting countries have mainly driven by oil exporters, while oil importers been growing at healthy rates, while oil importers barely saw their deposit and loan bases growing. Not faced subdued economic performances. The region’s less importantly, the latter’s net banking profitability oil exporters are indeed set to post a solid real GDP remained under pressure within the context of growth of 6.5% in 2012, supported by expansionary relatively tough operating conditions in their fiscal policies and accommodative monetary respective economies, underlined by narrowing net conditions. For the other regional economies, interest margins, growing provisioning requirements ongoing political transitions are weighing on and slow fee income growth generation at large.

30 31 Banking Sector in the MENA Region GDP reported a growth of 2.0% in 2012, while Egypt’s 3.3. Operating Environment Activity Indicators (USD Million) inflation rate dropped to a single digit rate of 8.7% in Turkey in 2012. But Egypt’s financial vulnerabilities have Assets 2011 2012 Change % risen owing to a decline in international reserves and In Turkey, where Bank Audi launched its operations Regional countries of presence an increase in the fiscal deficit. International reserves in the second half-year, economic imbalances are Egypt 216.7 238.3 21.6 9.9% closed the year at USD 15.0 billion at end-2012, unwinding after two years of rapid growth. The reporting a yearly decline of USD 3.1 billion after the Jordan 53.2 55.5 2.3 4.4% economy has cooled off on the back of slower drastic decline of the previous year. At the banking Lebanon 140.6 151.9 11.3 8.0% domestic demand, with real GDP growth forecast by sector level, activity has been more or less faring well Qatar 190.7 225.4 34.7 18.2% the IMF at 3% in 2012. The Turkish banking sector in a relatively cloudy economic environment, bearing Saudi Arabia 411.8 462.4 50.6 12.3% witnessed a satisfactory activity growth in a year witness to a relative resilience on the overall. Bank Sudan 17.4 15.2 -2.2 -12.8% of slowing down domestic economic performances assets increased by 9.9% between end-2011 and and amidst global sluggishness driven by European Syria 44.6 44.6 0 0.0% end-November 2012 compared with a nil growth neighbours’ fiscal demise. Total deposits grew in United Arab Emirates 452.6 489 36.4 8.1% a year earlier. While operating conditions are still parallel by 18.6% in 2012. The healthy progression Other countries in Arab MENA tough, banks’ net profits underwent a relative in bank lending this year triggered a favourable Algeria 119.2 120.9 1.8 1.5% recovery as the economy emerged gradually from quantity effect, amid slightly lower funding costs, Bahrain 67.2 70.7 3.5 5.2% the wider conflicts it had witnessed in 2011. thus boosting banks’ net interest income, despite the Kuwait 158.3 168.1 9.8 6.2% relatively tight margin environment. The solid rise Libya 56.4 62.4 6 10.6% in banks’ core revenues managed to offset sluggish Morocco 121.9 134.2 12.3 10.1% fee income generation, rising expenses and higher Oman 47.8 54.4 6.7 14.0% special provisions for non-performing loans, thus Tunisia 42.6 42.4 -0.2 -0.5% leading to a 15% rise in net profits in 2012. Yemen 8.1 10.7 2.6 31.7% Arab MENA 2,149.1 2,346.1 197 9.2% , Turkey Main Macro and Banking Sources: central banks, Thomson Reuters, Bank Audi s Research department. Figures in italic are the latest available. Aggregates (USD Million)

2011 2012 Change The main regional markets where Bank Audi has In Syria, the impact of the strife was heavily felt on Nominal GDP 774 783 1.2% substantial presence besides Lebanon are Jordan, the economy which has been bearing the brunt of Real GDP growth 8.5% 3.0% -5.5% Syria and Egypt. In Jordan, a combination of a an exodus of businesses and the depletion of its Population 74.7 74.9 0.2% fragile economy coupled with spillover fears from pre-war enterprise base. As widespread security drifts GDP per capita 10,522 10,456 -0.6% conflict-stricken countries have curtailed economic practically depleted economic activity throughout

activity, with the most significant impact felt on Syria, the country’s real GDP contracted by 15.2% agriculture and mining and quarrying. Still, real GDP in 2012, following another decline of 3.4% in 2011, Domestic banks’ assets 606.3 732.8 20.9% growth reported 3.0% in 2012, from 2.6% in 2011, as as per the same source. Within this environment, Domestic banks’ deposits 362.9 430.6 18.6% per IMF estimates. The economy has mainly benefited listed banks’ activity reported a decline in September Domestic banks’ loans 338.1 426.9 26.3% from the low base effect in the first half of this year, 2012 relative to end-2011. Customers’ deposits Domestic banks’ equity 76.6 100.9 31.8% mainly in the category of trade, restaurants, and edged down by 22.5% in USD terms. Net loans and Domestic banks’ net profits 11.2 12.9 14.7% hotels. Within this environment, consolidated assets advances dropped by 35.4% from end-2011, within , Sources: IMF, Central Bank of Turkey, Bank Audi s Research department. of domestic banks rose slightly by 4.4% between the context of weakened economic activity. Listed end-2011 and end-2012. Deposits and credit facilities banks’ net profits contracted during the first nine grew by 2.6% and 12.6% over the same period, months of 2012 by 35.6% year-on-year in USD terms. respectively. Listed Jordanian banks reported a 16.4% rise in profits in the first nine months of 2012, mainly Throughout 2012, the Egyptian economy has supported by quantity effects stemming from new witnessed a slow recovery from a relatively low base lending volumes that offset to a certain extent in the previous year. As the local macro environment tighter interest margins. has been slightly better than that seen in 2011, real

32 33 3.4. Operating Environment • A positive activity growth in Lebanon, consolidating • On July 26, 2012, the Executive Committee resolved development in Egypt, to write off USD 14 million of in West Europe the Bank’s leading position in the domestic market, to liquidate Bank Audi sam (Monaco) and replace it goodwill impairment on its investment. while still sustaining the margin focus policy to with a more efficient financial company, Audi Capital West Europe witnessed challenging conditions improve yields on the various asset classes; Gestion, to be an affiliate of Banque Audi (Suisse). 4.2. Balance Sheet Management during the year 2012, with stalling growth and • A positive activity growth in Egypt, which despite Accordingly, the results of Bank Audi sam were recession threats coupled with sluggish external the persisting political uncertainties prevailing in deconsolidated and accounted for in discontinued The evolution of the Group’s balance sheet in 2012 demand from key trading partners and lingering the country, led the contribution of regional entities operations, along with USD 6.6 million of goodwill primarily reflects the business opportunities, as uncertainties regarding sovereign fiscal and debt to consolidated assets and earnings, along with impairment and related liquidation costs; well as the strength of the customer franchise. It woes weighing on both consumer and investor Odeabank; • Meanwhile, on September 28, 2012, Odeabank A.Ş., also highlights Management’s overall risk appetite sentiment and, accordingly, private sector demand. • The launch of Odeabank in Turkey on November 1, the Bank’s fully-owned subsidiary in Turkey, obtained amid the prevailing challenging environment. Governments continued to adopt fiscal restraint which achieved, in two months of activities, a license to operate from the Banking Regulation Consolidated assets rose by USD 2.6 billion during the policies throughout the year amid worries about noticeable preliminary results, driving consolidated and Supervisory Authority, after completing all year 2012 to reach USD 31.3 billion at end-December the sustainability of public finances which, though assets growth. The banking activities in Turkey are necessary establishment procedures. This comes 2012 and USD 39.7 billion when accounting for practically proceeding according to set plans, expected to constitute one of the main pillars of after the Bank was granted, on October 27, 2011, the fiduciary deposits, security accounts and assets under have exerted additional downward pressures on growth for the Group in the coming years; first permission to establish a banking subsidiary in management. economic activity in West Europe. Amidst such an • Continuing asset contraction in Syria still facing Turkey in 14 years; environment, labour market conditions remain tight instability, offsetting to a large extent deposits and • In addition, Management decided, in December The below table shows the evolution of Bank and unemployment levels at or near peaks. lending growth registered in other entities; 2012, following the revision of the business plan Audi’s financial position at end-December 2012, as • Strengthening the Bank’s asset quality and of Arabeya Online in light of the recent adverse compared to end-December 2011. The financial system continues to display some signs resilience in the face of spillover effects of regional of sluggishness which warranted rather difficult developments by maintaining a conservative risk Balance Sheet (USD Million) borrowing conditions across the region in a period strategy at group level, resulting in the allocation of continued banking sector deleveraging. Bank of USD 121 million in net loan loss provisions, in Dec-11 Dec-12 Vol. % lending actually remained more or less sluggish and abidance with the most rigorous precautionary Primary liquidity 8,957 9,820 863 9.6% appetite for risk dampened by prevailing economic management policies; Portfolio securities 10,186 10,153 -33 -0.3% and financial uncertainties. As a result, the somewhat • Reinforcement of the revenue generation capacity in Loans to customers 8,594 10,428 1,834 21.3% muted quantity effect, adding to persistently almost all entities, reaching USD 1.1 billion in 2012 Other assets 634 484 -150 -23.7% tight margins in an extended low interest rate (or a growth by 11.6%), coupled with improved Fixed assets 366 417 51 13.9% environment, slow fee income generation capacity efficiency levels; Assets = Liabilities 28,737 31,302 2,565 8.9% and provisioning requirements, weighed on banking • The significant currency depreciation in Sudan and Bank deposits 757 1,317 560 74.0% sector profitability throughout the year. Syria and, to a lesser extent, in Egypt. Customers’ deposits 24,798 26,805 2,007 8.1% Other liabilities 825 503 -322 -39.0% In addition, four non-operating events also impacted Shareholders' equity (profit included) 2,357 2,677 320 13.6% the performance of Bank Audi in 2012 as follows: 4. 2012 Activity and AUMs + fid. dep. + cust. acc. 7,928 8,447 519 6.5% Performance Analysis • On June 27, 2012, Bank Audi sold 81% of its majority Assets + AUMS 36,665 39,749 3,084 8.4% stake in LIA insurance sal, with Management’s sole 4.1. Business Overview in 2012 driver being to disinvest from the underwriting Breakdown between Lebanon and Abroad insurance business following more and more In 2012, Bank Audi sal - Audi Saradar Group was restrictive regulatory constraints on insurance Dec-11 Dec-12 Change again able to differentiate itself by performing companies owned by banking institutions, particularly Total assets favourably in the most difficult operating conditions, at the level of capital adequacy ratio computations. Lebanon 72.0% 67.6% -4.4% and even embarking on lucrative expansion. The As of this date, the results of LIA Insurance were Abroad 28.0% 32.4% 4.4% Bank managed to sustain positive assets and earnings deconsolidated from the Group financial statements, Total deposits growth (respectively at 8.9% and 5%), improve risk and USD 42 million of net profits from the sale were Lebanon 75.1% 72.9% -2.2% coverage and reinforce the financial standing across accounted for in discontinued operations as per IFRS. Abroad 24.9% 27.1% 2.2% all entities, both domestic and abroad. The sale purchase agreement included an option for Total loans the buyer to buy the remaining 19% at end-May Lebanon 62.7% 59.2% -3.5% A detailed performance analysis of the operations in 2015. As a result of the sale, Bank Audi revalued its Abroad 37.3% 40.8% 3.5% 2012 highlights that it was driven by opposite trends remaining 17% stake in LIA Insurance sal at fair value as follows: through P&L as per IFRS;

34 35 Sources of assets growth remained well distributed by increase in the contribution of Lebanese entities. At 4.2.1. Funding Sources In Lebanon, the USD 912 million increase represents geography and by business lines. Despite the contraction end-December 2012, Lebanese entities accounted an increase by USD 1,165 million in Group Audi of assets of Bank Audi Syria by an additional half a for 67.6% of consolidated assets (versus 72% at The Bank’s core funding resources come principally Lebanon and a drop by USD 253 million reported billion US Dollars in 2012 (to reach by end-December end-December 2011), while MENA entities accounted from stable retail and individual clients, while at Audi Saradar Private Bank. Relative to a deposits’ 32% of the end-2010 level), the rise in consolidated for 18.1% (versus 19.9% at end-December 2011), and corporate and commercial customers’ deposits increase by USD 9.3 billion in commercial banks in assets stems in particular from Odeabank in Turkey the Turkish entity accounted for 6.5%. Within the constitute supplementary sources of funding. Lebanon, Bank Audi would have achieved a share which achieved, in two months, through a network context of almost similar contribution of European in the increase by 11.2%, a level below its 14.4% of 6 branches and 398 employees, USD 1.4 billion in entities to consolidated assets, the share of entities Within that scope, balance sheet growth in 2012 was market share in its domestic market, reflecting the deposits and USD 966 million in loans, translating into abroad rose from 28.0% at end-December 2011 to largely driven by a growth in customers’ deposits margin focus strategy adopted by Management USD 2 billion in assets. This achievement is to be added 32.4% at end-December 2012. The Bank’s objective reported in most entities, with the exception of Bank since 2010. A detailed analysis by currency reveals to an assets’ growth at the level of Bank Audi Lebanon continues to revolve around reaching a balanced Audi Syria. Consolidated customers’ deposits grew by that Lebanese Pounds deposits at Group Audi and Bank Audi Egypt by respectively USD 990 million distribution of assets and profits over the different 8.1% in 2012, the equivalent of USD 2 billion, moving Lebanon accounted for a mere 4.7% of the total and USD 445 million, amidst varying performances at entities in Lebanon and abroad over the medium from USD 24.8 billion at end-December 2011 to increase in the sector (increasing by USD 215 million), the level of other entities. term. USD 26.8 billion at end-December 2012. A flow while deposits in foreign currencies rose by USD 973 analysis of consolidated deposits by quarters million, representing 20.2% of the sector’s increase. Despite the decrease in the contribution of the Syrian The table below presents a summary of the evolution reveals that the USD 2 billion increase results Adjusted to the USD 383 million one-off deposit entity to consolidated assets, the significant increase of activity highlights of Bank Audi (Egypt), Bank from a contraction in the first quarter by USD 409 withdrawals reported in February and April and in the contribution of the newly launched Odeabank Audi Syria and Odeabank at end-December 2012, as million, followed by increases by USD 318 million, the issuance of the USD 150 million of Series “F” and in that of the Egyptian entity totally offset the compared to end-December 2011. USD 170 million and USD 1,928 million successively in preferred shares in May 2012 sold in the network, the second, third and fourth quarters. deposits in foreign currencies would have increased Evolution of Assets and Net Earnings in by USD 1,493 billion, representing an adjusted share in the sector’s increase of 31.5%. On the overall, Egypt, Syria and Turkey (USD Million) By entity, the USD 2 billion increase reflects increases by USD 1,404 million in Turkey, USD 912 the domestic market share of Group Audi Lebanon BAEGY BASY Odeabank million in Lebanese entities, and USD 184 million contracted slightly to 14.4% at end-December 2012, Dec-11 Dec-12 Change % Dec-11 Dec-12 Change % Dec-12 in European entities, offsetting a decrease by from 14.5% at end-December 2011. In parallel, the Balance sheet data USD 493 million in entities in the MENA region. dollarization ratio of Group Audi Lebanon moved Assets 2,979 3,425 446 15.0% 1,152 636 -516 -44.8% 2,029 Within deposit increases in Bank Audi (Qatar) and from 70.5% to 71.2% over the same period, while the Deposits 2,621 2,642 21 0.8% 976 522 -454 -46.5% 1,404 Bank Audi (Egypt) by respectively USD 18 million and dollarization rate in commercial banks in Lebanon Loans 1,315 1,528 213 16.2% 523 270 -253 -48.4% 966 USD 21 million, the contraction in the MENA reached 64.8% at end-December 2012, from 65.9% Equity 230 284 54 23.5% 124 89 -35 -28.2% 297 region is accounted principally by Bank Audi Syria at end-December 2011. Cumulative LCs 221 201 -20 -9.0% 159 27 -132 -83.0% 2 (-USD 454 million) witnessing deposits’ outflows Outstanding LGs 246 229 -17 -6.9% 149 92 -57 -38.3% 48 driven by the prevailing political turmoil and by Evolution of Dollarization Rate Earnings data Management’s policy to reduce size and exposure Net interest income 72.3 107.3 35.0 48.4% 34.1 17.4 -16.7 -49.0% 17.5 to Syria. Deposits of Bank Audi (Jordan) decreased + Non-interest income 24.0 32.0 8.0 33.3% 26.8 26.2 -0.6 -2.2% 16.8 by USD 36 million, while those of National Bank of = Total income 96.3 139.3 43.0 44.7% 60.9 43.6 -17.3 -28.4% 34.3 Sudan decreased by USD 43 million. Adjusting to the - General operating expenses 47.0 54.5 7.5 16.0% 21.8 14.1 -7.7 -35.3% 35.0 non-recurrent money market flows, Bank Audi (Egypt) = Operating profits 49.3 84.8 35.5 72.0% 39.1 29.5 -9.6 -24.6% -0.7 succeeded in 2012 to increase its individual and - Requested LLPs as per credit policy in 14.9 16.6 1.7 11.4% 11.6 9.2 -2.4 -20.7% -- retail deposits’ base by USD 192 million, a noticeable compliance with IFRS achievement, particularly in view of the fierce market - Income tax 13.2 30.7 17.5 132.6% 4.0 1.0 -3.0 -75.0% -0.1 competition on deposits among banks and between = Net recurrent profits 21.2 37.5 16.3 76.9% 23.5 19.3 -4.2 -17.9% -0.6 banks and the sovereign, as depositors increasingly - Collective provisions and/or general banking risk provisions as per Management’s decision, placed their savings in 2012 in higher yielding local abiding by strict precautionary policies 20.9 - -20.9 -100.0% 21.3 19.5 -1.8 -8.5% Treasury bills. In parallel, assets under management = Net profits 0.3 37.5 37.2 - 2.2 -0.2 -2.4 - -0.6 in Egypt made principally of securities held for customers, which at maturity could constitute a source 2006 2007 2008 2009 2010 2011 2012 of deposits, increased by USD 83 million, reaching Audi Lebanon USD 1,120 million at end-December 2012. Lebanese banking sector

36 37 Nonetheless, on a consolidated basis, Bank Audi deposits contributing to 60.2% of the increase. At 4.2.2. Asset Utilisation continue to represent, at end-December 2012, 85.6% achieved the highest increase in deposits among end-December 2012, time deposits represented (Balance Sheet Allocation) of total liabilities, while primary liquidity accounted direct peers in 2012, translating in a deposit 74.0% of total deposits, followed by 16.1% for sight for 49.1% of total deposits and the loans to deposits differential in excess of USD 6.3 billion with the deposits, 4.3% for saving deposits, 1.7% for related The analysis of the financial position at end-December ratio stood at 38.9% at the same date, displaying second ranked bank. parties’ deposits and 3.9% for other deposits. This is 2012 demonstrates that the Group continues to sustain our ample capacity to grow loans while continuing to be compared to 78.4%, 15.2%, 1.5%, 0.8% a strong balance sheet, highly liquid, diversified to optimise liquidity management. Deposits’ growth in 2012 was well balanced across and 4.1% respectively at end-December 2011, and conservative. Consolidated customers’ deposits different types, with growth in time and saving underscoring a stable mix of deposits.

Assets Breakdown Liabilities Breakdown Breakdown of Customers' Deposits by Type (USD Million) 3% 8% 2011 2012 Change 6% Volume Structure Volume Structure Volume Structure 33% Deposits from customers 24,798 100.00% 26,805 100.00% 2,007 100.00% Sight deposits 3,762 15.17% 4,316 16.10% 554 27.60% 33% Time deposits 19,434 78.37% 19,837 74.00% 403 20.08% Saving accounts 382 1.54% 1,149 4.29% 767 38.22% Related parties’ accounts 189 0.76% 457 1.71% 268 13.35% Margins and others deposits 1,031 4.16% 1,046 3.90% 15 0.75%

31% 86%

In parallel, funding sources also reinforced with Porfolio securities Customers’ deposits deposits from banks increasing year-on-year by Bank placements Other liabilities USD 560 million, from USD 757 million at Net loans Shareholders’ equity end-December 2011 to USD 1,317 million at Other assets end-December 2012, principally in Bank Audi (Egypt) benefiting from repo agreement extended by the Central Bank of Egypt and allowing for Although the asset liability management at Bank In what follows, we analyse the evolution of arbitrage opportunities. Audi favours placements in activities with the the various assets classes and their respective highest positive impact on the Group’s profitability, key indicators at end-December 2012 relative to balance sheet allocation is determined by specific end-December 2011. limits set internally based on Management’s risk appetite and underlying volumes. Covering Consolidated Loan Portfolio lending, placements with financial institutions and Consolidated loans to customers rose in 2012 by investment in portfolio securities, these limits are 21.3%, the equivalent of USD 1.8 billion, moving applied by all entities over and above the abidance from USD 8.6 billion at end-December 2011 to to local regulations requirements. As per the Group’s USD 10.4 billion at end-December 2012. Consolidated Corporate Governance guidelines (Article 2.8.), loans flows in 2012 stem from USD 1,964 million of limits are subject to annual review by the Board of new loans to new customers (of which USD 966 million Directors. Meanwhile, Management may submit on at Odeabank), USD 1,738 million of loan increases an ad hoc basis to the Board of Directors for approval, to existing customers offsetting USD 635 million changes in the limits in response to changing business of loan reimbursements and USD 1,233 million or market conditions. On a day-to-day basis, the of decreases in existing facilities during the year. responsibility of monitoring the limits lies within the Driven by a stronger growth in loans to customers Group’s Credit Risk department. than in customers’ deposits, the loan-to-deposit

38 39 ratio increased steadily over the same period from contraction of the loan book in Bank Audi Syria, The following analysis covers the breakdown of as compared to a split of respectively 53% 19%, 34.7% to 38.9%. reaching, at end-December 2012, USD 270 million, the consolidated loan portfolio by customer type, 14% and 14% at end-December 2011. A detailed of which USD 38 million in foreign currencies and economic sector, maturity, collaterals and currency. analysis of loans flows in 2012 reflects that corporate By geography, loans in newly launched Odeabank USD 232 million denominated in Syrian Pounds. A loans accounted for 71.5% of the increase in the led the increase with USD 966 million, ahead of loans detailed dynamic analysis of loans’ flows in Syria Loan Breakdown by Customer Type consolidated portfolio, mainly driven by the growth granted to the Lebanese private sector increasing reveals that the USD 253 million drop results to the At end-December 2012, the consolidated loan in Turkey, followed by 12% for sole proprietorship by USD 873 million and loans in European entities extent of USD 126 million from the depreciation of portfolio was broken down over 56% corporate and Private Banking loans, 12.2% consumer loans increasing by USD 86 million, offsetting decreases in Syrian Pounds versus the USD, with the remaining loans, 17% loans to SMEs, 14% consumer loans and 4.3% for loans to SMEs. loans booked in Lebanon and granted to regional USD 127 million accounted for by collected loans. and 13% Individual and Private Banking loans, corporates by USD 93 million, within the context At end-December 2012, the loan portfolio of Bank of stable loans in MENA entities. The loan book of Audi Syria represented 2.6% of the total portfolio, Bank Audi (Egypt) resumed its growth despite the down from 6.1% a year ago. In parallel, the size of Breakdown of Net Loans and Advances by Breakdown of Net Loans and Advances by persisting uncertainties in the country, increasing the overall exposure to Egypt and Lebanon remains Type of Customer in 2011 Type of Customer in 2012 by USD 212 million, within an increase in lending almost stable, at respectively 14.6% and 59.2%, by USD 38 million in Bank Audi (Jordan) and while the new loan portfolio in Turkey accounted for USD 32 million in Bank Audi (Qatar). These increases 9% of the total. were totally offset by the additional USD 253 million 14% 14% 17% 19%

Breakdown of Net Loans and Advances by Breakdown of Net Loans and Advances by 13% 13% Booking Entity in 2011 Booking Entity in 2012

15% 20% 53% 56%

9% 37% SME SME 41% 10% Corporate clients Corporate clients Sole proprietorships and B/S Private Banking Sole proprietorships and B/S Private Banking Consumer loans Consumer loans

35% 33% Loan Breakdown by Economic Sector largest concentration by sector was to manufacturing The concentration of the loan portfolio by economic industries (18%), financial intermediaries (15.1%), sector remains within BOD’s approved concentration trade (14.1%), consumer loans (13.8%), and real Loans booked in Lebanon for non-residents Loans booked in Lebanon for non-residents Cash collaterals and bank guarantees against Lebanese risk Cash collaterals and bank guarantees against Lebanese risk limits relative to each of the loan portfolio and estate services and developers (13.6%), a structure Net Lebanese risk Net Lebanese risk consolidated equity. At end-December 2012, the almost similar to that at end-December 2011. Loans booked in foreign subsidiaries Loans booked in foreign subsidiaries

40 41 Breakdown of Net Loans and Advances Breakdown of Net Loans and Advances Loan Breakdown by Currency 60% of its loans denominated in Turkish Lira, 5% in by Economic Sector in 2011 by Economic Sector in 2012 The charts below highlight the breakdown of the Euros and the remaining in USD. In parallel, the share loan portfolio by currency. Although USD remains the of loans denominated in Lebanese Pounds increased dominant currency at end-December 2012 standing from 8.7% to 9.5%, underscoring the increased at 55.7%, its share has decreased by 6.8% from 62.5% lending activity in Lebanese Pounds, focusing on 3% 5% at end-December 2011, reflecting the direct impact government-subsidised LBP-denominated loans 8% 17% 7% 18% of the launch of the new subsidiary in Turkey with (mainly housing loans).

12% 14%

15% 17% Breakdown of Net Loans and Advances Breakdown of Net Loans and Advances 14% 14% by Currency in 2011 by Currency in 2012

14% 15% 14% 14% 4%1% 6% 2% 5% 4% Manufacturing industries RE services and developers Manufacturing industries RE services and developers 2% 11% Financial intermediaries Others Financial intermediaries Others Trade Transportation and comm. Trade Transportation and comm. 11% Consumer loans Contractors Consumer loans Contractors 9% 56% 9% Loan Breakdown by Maturity 62% 8% In parallel, the consolidated loan portfolio also has and corporate loans, supported by subsidy programs 10% a similar maturity profile as that at end-December backed by the Ministry of Finance and the Central 2011. Short-term facilities, with maturities of less Bank of Lebanon. The maturity profile of the Turkish than one year reflecting mainly working capital portfolio structured toward short-term facilities financings to customers, accounted for 51.4% of (57% maturing in less than one year), with the USD SYP USD SYP EUR the consolidated loan portfolio, while long-term remaining being medium-term facilities, offset the JOD EUR JOD LBP TRY LBP TRY loans accounted for 36.5% of the portfolio as a growing contribution of subsidised long term retail EGP Other EGP Other result of the lengthening maturity of both retail and corporate loans.

Breakdown of Net Loans and Advances Breakdown of Net Loans and Advances Loan Breakdown by Collateral by Maturity in 2011 by Maturity in 2011 Notwithstanding the fact that lending decisions rely end-December 2012, secured loans represented more primarily on the availability and sustainability of than 44.5% of total loan portfolio. Loans covered cash flows as a first source of repayment, Bank Audi’s by personal guarantees represented 17.1% of the loan portfolio remains adequately collateralised. At portfolio as compared to 19.4% at end-December 2011.

36% 37%

52% 51%

12% 12%

Short-term facilities Short-term facilities Medium-term facilities Medium-term facilities Long-term facilities Long-term facilities

42 43 Breakdown of Net Loans and Advances by Breakdown of Net Loans and Advances by Asset Quality (USD Million) Collaterals in 2011 Collaterals in 2012 Dec-11 Dec-12 Change Gross NPLs 258.3 290.0 31.7 o.w. Corporate 218.8 246.0 27.2 o.w. Retail 39.5 44.0 4.5 18% 18% Gross SLs 88.5 11.8 -76.7 Net loans 8,594.3 10,428.5 1,834.2 35% 38% o.w. Corporate 7,749.7 9,458.0 1,708.3

15% 17% o.w. Retail 844.6 970.5 125.9 Specific provisions 144.0 182.5 38.5 o.w. Corporate 112.0 150.5 38.5 o.w. Retail 32.0 32.0 0.0 12% 10% 19% 17% Collective provisions 100.5 110.5 10.0 o.w. Corporate 77.7 86.1 8.6

Cash co. and bank guarantee Personal guarantee Cash co. and bank guarantee Personal guarantee o.w. Retail 22.8 24.4 1.6 Real estate mortgage Unsecured Real estate mortgage Unsecured Gross NPLs/Gross loans 2.90% 2.70% -0.21% Securities (bonds and shares) Securities (bonds and shares) o.w. Corporate 2.73% 2.53% -0.21% o.w. Retail 4.39% 4.28% -0.11% Net DLs/Gross loans 0.66% 0.64% -0.02% Off-balance Sheet Flows USD 3 million in entities in Europe, USD 10 million in o.w. Corporate 0.67% 0.63% -0.05% As a result of the political and economic turmoil, the Bank Audi (Egypt), USD 31 million in Bank Audi Syria o.w. Retail 0.58% 0.78% 0.20% Bank’s trade finance activities have generally declined and USD 8 million in Bank Audi (Jordan). In parallel, Coverage (specific) 77.16% 76.26% -0.90% over the period. Outstanding letters of credit decreased specific provisions reached USD 182 million, broken o.w. Corporate 75.41% 75.26% -0.15% by 8.6% in 2012 to USD 235 million at end-December down over principally USD 91 million in Lebanese o.w. Retail 86.83% 81.84% -4.99% 2012 from USD 257 million at end-December 2011, entities (of which USD 28 million of unallocated Collective prov./Net loans 1.17% 1.06% -0.11% while outstanding letters of guarantee decreased by provisions), USD 18 million in entities in Europe, o.w. Corporate 1.00% 0.91% -0.09% 13.5% in 2012 to USD 1,534 million at end-December USD 28 million in Bank Audi (Egypt), USD 18 million o.w. Retail 2.70% 2.51% -0.19% 2012 from USD 1,773 million at end-December 2011. in Bank Audi Syria and USD 26 million in Bank Audi (Jordan). When adjusting to interest in suspense Asset Quality on doubtful loans, loan loss reserves stood at Lending growth was coupled with a strengthening of USD 221 million, translating in doubtful loans the lending portfolio quality through the allocation coverage by specific provisions of 76.3%. In absolute terms, Bank Audi’s gross doubtful loans A detailed analysis of the evolution of asset quality of additional net provisions amounting to USD 121 moved from USD 258 million at end-December 2011 indicators in Egypt revealed an improvement in In parallel, the gross doubtful loans to gross loans million in 2012, most of which in the form of collective to USD 290 million at end-December 2012, reflecting spite of the persisting uncertainties. Gross doubtful ratio improved, moving from 2.9% at end-December provisions. Total collective provisions reached an increase by USD 32 million, broken down loans to gross loans ratio moved from 3.2% at 2011 to 2.7% at end-December 2012, while net USD 111 million at end-December 2012, the equivalent geographically principally over USD 22.4 million end-December 2011 to 2.2% at end-December doubtful loans stabilised at 0.64% of gross loans, a of 1.1% of the consolidated net loans portfolio, in Bank Audi Syria, USD 13.7 million in Bank Audi 2012, while the coverage on those loans by relatively low level, especially given the uncertain broken down over USD 59 million in Lebanese (Jordan), USD 8.3 million in Bank Audi Saradar France, specific provisions rose from 60.1% to 83.8%. In regional conditions, particularly in Syria. entities (of which USD 18 million earmarked for Syria), offsetting a decrease by USD 9.7 million in Bank Audi absolute terms, gross doubtful loans decreased by (Egypt), and USD 5.6 million in Group Audi Lebanon. USD 9.7 million, reaching USD 33.9 million at By business segments, corporate doubtful loans end-December 2012, while provision coverage on increased by USD 27.2 million and retail doubtful those loans increased by USD 2.2 million. As a result, loans by USD 4.5 million over the same period. net doubtful loans that are predominantly covered by real guarantees contracted by USD 11.9 million to USD 5.5 million, while collective provisions reached USD 10 million, representing 0.65% of net loans.

44 45 Evolution of Asset Quality in Egypt Breakdown of Placements with Breakdown of Placements with and Syria (USD Million) Banks by Region in 2012 Banks by Rating in 2012

BAEGY BASY Dec-11 Dec-12 Change % Dec-11 Dec-12 Change % Gross DLs/Gross loans 3.2% 2.2% -1.0% 5.6% 16.6% 11.0% 1% 6% 14% 14% 5% LLRs on DLs/DLs (excluding real guarantees) 60.1% 83.8% 23.7% 52.5% 39.3% -13.2% Gross DLs 43.6 33.9 -9.7 -22.2% 31.0 53.4 22.4 72.3% 6% LLRs on DLs 26.2 28.4 2.2 8.4% 16.3 21.0 4.7 28.8% Net DLs (predominantly covered by real guarantees) 17.4 5.5 -11.9 -68.4% 14.7 32.5 17.8 121.1% 45% Collective provisions 24.7 10.0 -14.7 -59.5% 19.3 31.0 11.7 60.6%

Opposite trends were reported in Syria witnessing provisions. Subsequently, doubtful loans coverage 38% significant deterioration in the operating environment, by specific and collective provisions represented at impacting asset quality of Bank Audi Syria. the same date 97% and would exceed 115% when 71% Gross doubtful loans to gross loans ratio leaped including real guarantees.

from 5.6% at end-December 2011 to 16.6% at MENA Aaa to Aa3 Not rated end-December 2012, as a result of Management’s Changes in Primary Liquidity G10 countries A1 to A3 voluntary shrinkage of the gross loan portfolio 23.2% of the total growth in assets during 2012 was Other Europe Baa1 to Baa3 Other Ba1 to Ba3 within an increase in gross doubtful loans by used to increase broad primary liquidity (composed USD 22.4 million. The latter increase was met by of placement with banks, placements with BDL an increase in specific provisions by USD 4.7 million and BDL CDs), the equivalent of USD 595 million, Exposures to banks are continuously monitored Changes in Portfolio Securities and in collective provisions by USD 11.7 million. At reaching USD 13.2 billion at end-December 2012 and by the Risk Management department, in close The size of the consolidated portfolio securities end-December 2012, gross doubtful loans reached representing 49.1% of customers’ deposits. The table coordination with the Group Financial Institutions stabilised in 2012, reaching, at end-December USD 53.4 million, covered by USD 21 million of below highlights the breakdown of primary liquidity and Correspondent Banking department (Group FI). 2012, USD 10,153 million versus USD 10,186 million specific provisions and USD 31 million of collective by type and currency. Regular portfolio reviews are conducted throughout the previous year. A detailed flow analysis reveals the year to assess the Bank’s risk profiles and ensure a structural shift with a decrease in Lebanese Breakdown of Liquidity at End-December 2012 that related positions remain within the overall risk exposure, namely BDL certificates of deposits, appetite of the Group. During these reviews, specific by USD 268 million, Lebanese Eurobonds by LBP USD EUR SYP EGP TRY JOD Others Total attention is paid to concentration risk levels to ensure USD 157 million, and other Lebanese securities Central banks 3,268 4,952 682 159 147 152 85 162 9,607 that these remain well under control. by USD 115 million, more than matched by an o.w. Reserves requirements 301 2,345 8 22 134 65 3 2,878 increase in other non-Lebanese Treasury securities o.w. Cash deposits 1,054 1,190 674 137 13 152 20 159 3,399 by USD 492 million (from USD 2,079 million to o.w. BDL's certificates of deposits 1,913 1,417 3,330 USD 2,571 million), mainly originating in Egypt, Placement with banks 66 2,510 524 13 6 28 396 3,543 benefitting from increasing yields on local Treasuries. Total liquidity 3,334 7,462 1,206 172 153 152 113 558 13,150 Changes in Portfolio Securities Relative to end-December 2011, broad primary MM placements and nostros with banks, representing (USD Million) liquidity increased by 4.7%, from USD 12.6 billion USD 3.0 billion or 23% of primary liquidity at 2011 2012 Change to USD 13.2 billion, with the composition remaining end-December 2012, are mostly placed with LBP cv FC Total LBP cv FC Total LBP cv FC Total broadly unchanged, except for the USD 0.5 billion highly-rated and financially sound banks, mainly BDL certificates of deposits 2,228 1,370 3,598 1,913 1,417 3,330 -315 47 -268 new reverse repo transactions booked in 2012 based in low risk OECD and GCC countries Net Lebanese Treasury bills & Eurobonds 2,141 896 3,037 2,274 708 2,982 133 -188 -55 in Odeabank. Subsequently, primary liquidity characterised by high levels of solvency and financial Risk-ceded Lebanese Eurobonds 1,073 1,073 971 971 -102 -102 remains mainly concentrated on placements with and monetary stability. 83% of these placements are central banks, although their share has dropped held in banks rated A3 or better. Other non-Lebanese governmental securities 1,466 1,466 1,853 1,853 387 387 year-on-year from 74.6% to 73.1%. Bank placements, Equity instruments 4 179 183 32 166 198 28 -13 15 including money market (MM) deposits, nostros and The charts below show the breakdown of money Other Lebanese securities 216 216 101 101 -115 -115 short-term loan participations and reverse repo market placements held as at end-2012 by ratings Other non-Lebanese securities 613 613 718 718 105 105 balances, accounted for the remaining 26.9% (up and geographic location. Total 4,373 5,813 10,186 4,219 5,934 10,153 -154 121 -33 from 25.4% in 2011).

46 47 Lebanese Bond Portfolio The international fixed income portfolio enjoys a Operating profits before provisions and taxes rose At end-December 2011, Bank Audi’s exposure to The relatively high concentration on banks is high average rating, with 89% of the total being by 7.7% over the year and by 10.6% when including Lebanese sovereign Eurobonds in foreign currency mitigated by good issuer diversification and invested in issues rated AA- or better. The portfolio is profits from discontinued operations. stood at USD 1,679 million, of which USD 971 million relatively short tenor maturities (under 2 years), also characterised by a good level of diversification, of bonds whose risk has been ceded to customers, making these investments somewhat similar to with the highest single issuer position representing The Group’s income stream continues to be well thus leading to a net exposure of USD 708 million, ordinary placements with banks in terms of implied 11% of the total portfolio and the second largest diversified. With the exception of Syria facing representing 7.0% of the Bank’s total securities risk profile and market risk exposure. representing 6%, whilst the remaining positions do significantly tough operating conditions, all entities portfolio and 3.5% of adjusted foreign currency not exceed individually 4% of the portfolio size. The delivered positive growth and our newly launched denominated customers’ deposits. In terms of geographical allocation, 40% of non- top exposure at end-December 2012 relates to an A entity in Turkey broke even 2 months after the official Lebanese governmental securities relate to issuers rated issue. operations launch. The contribution of entities Non-Lebanese Securities domiciled in developed markets (mostly G10), 51% abroad to consolidated net earnings improved by In parallel, the international securities portfolio in GCC markets, and a relatively low 9% in other 4.3. Results of Operations 11.6% from 11.8% to 23.4%, principally justified by stabilised in 2012, reaching, at end-December emerging markets. The portfolio does not include the zero contribution of the Egyptian subsidiary to 2012, USD 2,571 million broken down over any direct exposure to Greece, Ireland, Italy, Portugal Net earnings of Bank Audi sal grew by 5% in 2011 net profits, following Management’s allocation USD 1,853 million of non-Lebanese governmental or Spain, while the direct exposure to the rest of the 2012, moving from USD 365 million in 2011 to of all profits in those entities to collective provisions securities and USD 718 million of other international Euro zone is immaterial, representing less than 2% of USD 384 million. Adjusting to net profits from at a consolidated level as a precautionary measure fixed income securities. Well diversified across sectors, consolidated loans portfolio at end-December 2012. discontinued operations stemming from the sale of against the prevailing adverse development. placements in these securities are skewed towards LIA Insurance sal and the liquidation of Bank Audi highly-rated financial institutions, which accounted, at The charts below show the breakdown of the sam (Monaco), Bank Audi’s net earnings would have The table below presents an overview of Bank Audi’s end-December 2012, for 60% of the total international international bond portfolio by geographical reported an almost flat growth (0.5%), moving from consolidated financial results in 2012 as compared bond portfolio, while corporate issuers accounted for location and by ratings. USD 359 million in 2011 to USD 361 million in 2012. to 2011: 25% and sovereign names for 15% of the total.

Income Statement (USD Million) Non-Lebanese Bonds Allocation Non-Lebanese Bonds Allocation by Zone in 2012 by Rating in 2012 Dec-11 Dec-12 Vol. % Interest income(1) 549.7 598.4 48.7 8.9% Non-interest income 437.5 502.9 65.4 14.9% Total income 987.2 1,101.3 114.1 11.6% 9% 9% Operating expenses 444.0 516.5 72.5 16.3% 2% -Loans loss provisions 91.3 121.0 29.7 32.6% -Net other provisions 0.0 0.1 0.1 -Tax 92.6 102.5 9.9 10.7% 40% = Total cost 627.9 740.1 112.2 17.9% 24% = Profit before 359.3 361.2 1.9 0.5% + Results of discontinued operations 5.9 22.4 16.5 279.7% 51% 65% = Profits after tax and discontinued operation 365.2 383.6 18.4 5.0% Cost to income 44.7% 46.0% 1.3%

(1) Includes interest revenues from financial assets or liabilities at fair value through P&L.

Developed markets BBB to BBB+ AA- to AAA GCC NR A- to A+ Emerging markets

48 49 Breakdown between Lebanon and Abroad

2011 2012 Change Total income Lebanon 65.4% 63.5% -1.9% Abroad 34.6% 36.5% 1.9% Total expenses Lebanon 53.3% 60.4% 7.1% Abroad 46.7% 39.6% -7.1% Net income(2) Lebanon 88.2% 76.6% -11.6% Abroad 11.8% 23.4% 11.6%

(2) Includes profits from discontinued operations.

This growth in net earnings from operations results Evolution of Interest Income from an 11.6% increase in total income and a 16.3% rise in general operating expenses, justified to a The increase in interest income is attributed to a price large extent by the launch of the Turkish entity. The effect reflected by the widening of the spread by 14 contribution of entities abroad to total revenues basis points, as well as a volume effect with average increased slightly from 34.6% in 2011 to 36.5% in assets increasing by 1.47%. A weighted contribution 2012. On the opposite, their share in consolidated by entity in 2012 reveals that Bank Audi (Egypt) led expenses decreased by 7.1% from 46.7% to 39.6% the widening of the spread by contributing 12 basis over the same period. points within the context of a contribution by 2 basis points in each Lebanon and Jordan and 4 basis points The increase in revenues by USD 114.1 million is split from Odeabank, offsetting a negative contribution over a USD 48.7 million increase in interest income from Bank Audi Syria by 6 basis points, justified by (8.9%) and a USD 65.4 million increase in non-interest the tough operating conditions in the country. income (14.9%).

Spread Evolution (USD Million)

FY-11 FY-12 12/11 Net interest income 549.7 598.4 48.7 Yield on assets 4.84% 5.11% 0.27% Cost of funds 2.93% 3.06% 0.13% Spread 1.91% 2.05% 0.14%

On the backdrop of tough operating conditions in By currency, the increase in interest income is broken Lebanon in 2012, weighed down by persisting low down over a USD 4.9 million increase in the interest international reference rates impacting yields on income denominated in Lebanese Pounds and an primary liquidity and increased market competition increase in the interest margin denominated in with tightening yields on portfolio securities, interest foreign currencies by USD 6.6 million. income at Group Audi Lebanon, representing 57.1% of the consolidated interest income, grew by a mere The improvement in interest margin in LBP reflects 3.5%, the equivalent of USD 12 million, mainly driven primary a price effect, with the spread in LBP by a quantity effect. moving from 2.17% in 2011 to 2.21% in 2012. The expansion of the spread is mainly attributed to

50 51 a decrease in the cost of deposits by a further 17 by USD 514 million within stable spread underscoring million of gains in 2012 resulting from the revaluation and syndication revenue within the context of the basis points, amid renewal of maturing TBs at lower heightening competition in the marketplace. of the structural position in Bank Audi Syria tough regional operating conditions. Subsequently, yields. The improvement in interest margin in LBP (USD 19 million) and the operational positions in non-interest income (excluding profits from is also driven by increased lending in LBP, focusing Evolution of Non-interest Income Bank Audi (Sudan) (USD 29 million) and Odeabank discontinued operations) represented in 2012 44.7% on government-subsidised LBP-denominated loans (USD 12 million)), with the remaining decrease of total income (44.3% in 2011) and 1.61% of total (mainly housing loans). The increase in non-interest income by USD 65.4 million accounted for by other operating income. By activity, assets (1.52%) in 2011. is broken down over a USD 6.9 increase in net the USD 65.4 million stem from increases in all business In parallel, the improvement in interest margin in commissions, a USD 34.4 million increase in net gains lines of the Group, with the exception of Commercial The table below presents a segmental breakdown of FC is attributed almost entirely to a quantity effect, from portfolio securities, a USD 41.2 million of net and Corporate Banking posting a contraction by non-interest income by markets and business lines. with average assets in foreign currencies increasing gains on profits from foreign exchange (amid USD 57 USD 8.1 million justified by lower trade finance

Non-Interest Income (USD Million)

2011 2012 Change Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total Commercial and Corporate Banking 52.0 3.7 30.9 86.6 48.0 3.6 3.0 23.9 78.5 -4.0 -0.1 3.0 -7.0 -8.1 o.w. Lending operations 15.3 0.2 4.9 20.4 15.0 0.2 4.9 20.1 -0.3 0.0 -0.0 -0.3 o.w. Syndication fees 11.5 0.2 5.4 17.1 10.6 0.3 3.0 3.2 17.1 -0.9 0.2 3.0 -2.2 0.0 o.w. Trade finance 20.2 2.8 16.1 39.1 17.6 2.6 0.0 12.5 32.7 -2.6 -0.2 0.0 -3.6 -6.4 o.w. Other banking operations 0.4 0.3 1.0 1.7 0.3 0.3 0.0 0.6 1.2 -0.1 0.0 0.0 -0.4 -0.5 o.w. Foreign exchange 4.6 0.2 3.5 8.3 4.5 0.2 2.7 7.4 -0.1 0.0 -0.8 -0.9 Private Banking 6.7 36.4 8.9 52.0 7.5 36.2 0.0 9.5 53.2 0.8 -0.2 0.0 0.6 1.3 o.w. Brokerage and custody 2.9 12.9 7.7 23.5 4.0 12.8 8.0 24.8 1.1 -0.1 0.3 1.2 o.w. Fiduciary operations 0.9 2.5 0.2 3.6 0.9 2.4 0.1 3.4 0.0 -0.1 -0.1 -0.2 o.w. Other banking operations 1.3 7.5 1.1 9.9 1.4 9.9 0.0 1.3 12.6 0.1 2.4 0.0 0.2 2.7 o.w. Foreign exchange 1.6 13.5 0.0 15.0 1.2 11.1 0.1 12.4 -0.3 -2.4 0.2 -2.6 Retail and Personal Banking 47.2 2.2 27.1 76.5 54.3 2.4 0.1 28.5 85.3 7.1 0.2 0.1 1.4 8.8 o.w. Lending operations 1.6 0.4 4.3 6.3 2.2 0.8 0.0 5.6 8.6 0.6 0.4 0.0 1.3 2.3 o.w. Retail products 18.9 0.2 4.3 23.4 24.7 0.1 3.8 28.6 5.8 -0.1 -0.5 5.2 o.w. Other banking operations 20.8 1.0 8.6 30.4 21.4 0.9 0.1 10.5 32.9 0.6 -0.1 0.1 1.9 2.5 o.w. Foreign exchange 5.9 0.6 9.9 16.4 6.0 0.6 8.6 15.2 0.1 -0.1 -1.3 -1.2 Treasury and Capital Markets 172.1 -0.7 4.3 175.7 198.4 4.2 1.8 5.7 210.1 26.3 4.9 1.8 1.4 34.4 o.w. Dividends 18.3 0.0 1.6 19.9 20.0 0.0 0.2 20.2 1.7 0.0 -1.4 0.3 o.w. Trading/Sale of financial instruments 148.3 0.0 -2.4 145.9 177.3 0.5 1.8 1.5 181.1 29.0 0.5 1.8 3.9 35.2 o.w. Revaluation 5.5 -0.7 5.1 9.9 1.1 3.7 4.0 8.8 -4.4 4.4 -1.1 -1.1 Other non-interest income 7.5 1.5 37.7 46.7 18.7 0.5 12.0 44.5 75.7 11.2 -1.0 12.0 6.8 29.0 o.w. Insurance 0.2 -0.3 -0.1 1.8 -0.2 1.6 1.6 0.0 1.7 o.w. Outsourcing 26.4 26.4 -26.4 -26.4 o.w. Investment Banking 0.1 0.1 0.2 0.2 0.1 0.1 o.w. Foreign exchange 11.3 11.3 12.1 45.1 57.2 12.1 33.8 45.9 o.w. Other 7.3 1.5 0.2 9.0 16.9 0.5 -0.1 -0.6 16.7 9.6 -1.0 -0.1 -0.8 7.7 Total non-interest Income 285.5 43.1 - 108.9 437.5 326.9 46.9 16.9 112.1 502.8 41.4 3.8 16.9 3.2 65.3

52 53 Evolution of General Evolution of Loan At the time of the sale, assets of LIA Insurance were Key Performance Metrics Operating Expenses Loss Provision Charges USD 298 million (USD 289 million at end-December 2011) and were deconsolidated from the Group’s Management measures and evaluates the General operating expenses increased year-on-year Within the tough economic conditions prevailing in financial position starting end-June 2012. Assets performance of the consolidated operations and by 16.3%, the equivalent of USD 72.5 million, several countries of presence of the Group, Bank Audi of Bank Audi sam (Monaco) were USD 148 million each business unit using a number of financial broken down over USD 20.5 million of additional allocated in 2012 USD 121 million of net loan loss (USD 202 million at end-December 2011) and were metrics. The ultimate goal continues to be staff expenses, USD 32.7 million of other operating provisions, as compared to USD 91.3 million in 2011. deconsolidated starting end-September 2012. As maximising shareholders’ return through achieving expenses and USD 19.3 million of depreciation, By entity, net loan loss provision charge is broken addressed above, Bank Audi sam (Monaco) was a return on average common equity at a premium of which a one-time USD 14 million goodwill down over USD 60.9 million in Lebanese entities, spanned off into a more efficient financial company of the weighted average cost of equity of the banks. impairment on the Bank’s investment in AoLB, as USD 28.6 million in Syria, USD 16.6 million in Bank named Audi Capital Gestion sam. The table below highlights in details the evolution of prescribed by the revision of the company’s business Audi (Egypt), USD 6.2 million in Bank Audi Saradar the component of return on average common equity plan in view of the persisting uncertainties in Egypt. France, USD 7.7 million in Bank Audi (Jordan) and in 2012. By geography, the increase in general operating USD 1 million in Bank Audi (Sudan). expenses is broken down over USD 70.2 million in Lebanese entities and USD 35 million of direct cost Evolution of Income Tax Key Performance Metrics booked in Odeabank, totally offsetting a contraction by USD 30.1 million and USD 2.7 million, respectively 2011 2012 Change Income tax increased in 2012 from USD 92.5 million in entities in the MENA region and in Europe. While Spread 1.91% 2.05% 0.14% in 2011 to USD 102.5 million in 2012, translating the decrease in the MENA entities is principally + Non-interest income/AA 1.54% 1.80% 0.26% in an increase in effective tax rate from 20.5% to justified by the depreciation of the currency in Syria = Asset utilisation 3.46% 3.85% 0.40% 22.1% over the same period. The evolution of the and Sudan and by the deconsolidation of Capital x Net operating margin 36.77% 34.14% -2.64% effective tax rate highlights changing profits mix and Outsourcing, the drop in entities in Europe reflects o.w. Cost to income 44.71% 45.96% 1.25% increased up-front taxes on interest received on the the deconsolidation of Bank Audi sam (Monaco). o.w. Provisions 9.20% 10.78% 1.58% investment portfolio in Egypt. The increase in expenses in Lebanon is principally o.w. Tax cost 9.32% 9.12% -0.20% justified by the high cost of living adjustment = ROAA 1.27% 1.32% 0.04% Net Profits from on salaries and non-recurrent expenses tied x Leverage 12.02 11.54 -0.48 principally to the establishment cost of Odeabank Discontinued Operations = ROAE 15.29% 15.18% -0.11% booked in Beirut (USD 9.8 million). Adjusting to all ROACE 16.39% 16.49% 0.10% non-recurrent flows and to Odeabank, the increase In 2012, Bank Audi reports USD 22.4 million of net in recurrent consolidated general operating expenses profits from discontinued operations, reflecting in 2012 relative to 2011 reaches USD 17 million USD 42.4 million of net profits arising from the sale On a backdrop of a higher increase in revenues (3.8%). Adjusted to only Odeabank’s cost, general of 81% of the Bank’s majority stake in LIA Insurance Earnings per Share than in average assets, Bank Audi’s consolidated operating expenses would have increased by 6.3%. Company and a net loss of USD 19.9 million from the spread expanded by 14 basis points, coupled with Subsequently, the cost-to-income ratio (including liquidation of Bank Audi sam (Monaco) described Bank Audi’s basic common earnings per share an improvement in non-interest income to average profits from discontinued operations) moves from earlier. The latter represent USD 5.6 million of reached USD 1.01, as compared to USD 1.0 in 2011, assets ratio by 26 basis points, boosting the asset 44.7% in 2011 to 46.0% in 2012 and 43.2% when operating losses in the first nine months of 2012 until reflecting a growth of 1.2%. Similarly, the diluted utilisation ratio by 40 basis points to 3.85%. excluding operating expenses in Turkey which mainly liquidation date, and USD 6.5 million of goodwill common earnings per share reached USD 1.01 in consisted of non-recurring expenses attributed to impairment charges, with the remaining accounted 2012, as compared to USD 1.0 in 2011, a growth of The interaction of the asset utilisation ratio with a the launch of activities. for by liquidation expenses. 1.3%. Basic earnings per share are calculated based deteriorating net operation margin (from 36.77% The table below presents a segmental breakdown on the weighted number of common shares actually in 2011 to 34.14% in 2012) resulted in a slight of consolidated general operating expenses by type issued and net profits after tax including profits from improvement in the Bank’s profitability ratios, with and region. discontinued operations. the return on average assets reporting 1.32% and Breakdown of General Operating Expenses by Geoghraphy (USD Million) the return on average common equity amounting The table below represents the evolution of Bank to 16.49%. Audi’s common earnings per share including net 2011 2012 Change Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total profits from discontinued operations over the past Staff expenses 152.8 28.5 71.3 252.6 167.8 29.8 24.7 50.8 273.1 15.0 1.3 24.7 -20.5 20.5 5 years. Other operating expenses 95.2 20.9 44.9 161.0 129.6 17.3 8.3 38.5 193.7 34.4 -3.6 8.3 -6.4 32.7 Depreciation 13.7 2.8 13.9 30.4 34.5 2.5 2.0 10.7 49.7 20.8 -0.3 2.0 -3.2 19.3 Total 261.7 52.2 130.1 444.0 331.9 49.6 35.0 100.0 516.5 70.2 -2.6 35.0 -30.1 72.5

54 55 Earnings per Common Share Growth (USD) cooperation, financially and operationally, between in 2011, corresponding to a growth by 3.8%. The our Arab and Turkish client base. USD 10 million increase in total revenues is mainly attributed to a USD 13 million increase in interest CAGR 13.8% This expansion consolidates the Group’s aim to income, driven by an improvement in spread become the core corporate and commercial bank following the re-pricing of loans, along with a 1.00 1.00 1.01 1.01 0.96 0.94 for the Levant to pan regional clients. The Corporate decrease in non-interest income of USD 3 million. 0.80 0.78 and Commercial Banking team at Bank Audi is 0.65 0.62 committed to build scale in local markets, particularly Retail and Individual Banking 0.53 0.50 in Lebanon and Egypt, which have shown great resilience in light of the regional difficulties. In Syria, Retail and Individual Banking bestow a wide the Bank’s strategy will continue to hinge around spectrum of innovative products and services significantly reducing the exposure to the country, covering consumer lending, accounts’ offering, while preserving the network, whereas in France, bancassurance, credit cards, internet banking and 2007 2008 2009 2010 2011 2012 Jordan and Qatar, the corporate portfolio is set for a mobile banking, through a network of more than moderate growth. 150 branches and 309 advanced ATMs servicing the Diluted Basic growing needs of a clientele base counting more Total assets generated by the corporate and than half a million clients in a seamless manner. commercial segment reached USD 8,125 million Saudi Arabia, Qatar, Sudan, France and Switzerland. 4.4. Analysis by Business Segments at end-December 2012, up 24.8% relative to Consumers today, evolving towards a different set Despite the continuing challenging economic and end-December 2011 (USD 6,510 million). The of needs encompassing digital innovation and political conditions prevailing in several key markets Bank Audi is managed on the basis of a substantial growth in net asset reflects the rapid mobile technology, drove a complete transformation that triggered a slowdown in new lending in some cross-sectional organisation matrix of business lines but solid expansion, through Odeabank, into the in the way people bank, translating into changes in markets and a decrease in exposure in other markets, and markets, reflecting the following four major Turkish market. the retail strategy. business segments: Corporate and Commercial Bank Audi still managed to achieve a double-digit growth of its consolidated corporate and commercial Banking, Retail and Individual Banking, Private Bank Audi was also able to sustain its presence in To that end, several initiatives were undertaken in loan portfolio in 2012 (22.4%). This growth was the Banking and Treasury and Capital Markets activities. the fields of project and structured finance by 2012, as follows: outcome of a strategy followed by the Corporate Those business segments are determined based extending new loans covering a variety of sectors and Commercial Banking department to stay close on the products and services provided, or the type including fertilizer production, oil and gas, retail • Rapid implementation of the Turkish entity which was to customers during those challenging times by of customers served, and constitute the basis for and commercial development, construction and geared up from a retail standpoint with a platform providing them with suitable solutions across our Management’s evaluation of financial results. Results contracting, real estate, cement, steel, hotels, airlines supporting a wide variety of innovative features network, deepening relationships with them. In of each business segment are intended to reflect and insurance. and functionalities, in addition to a full-fledged parallel, the Bank continued, throughout 2012, the performance of each business line, namely in quantitative and qualitative market assessment to leverage its crossroad position in the Near East terms of total assets and total revenues. Senior Subsequently, Bank Audi continues to be the process covering customer needs and competition “Levant” region, taking advantage of the increasing Management sets the business segment reporting largest commercial and corporate lender in the monitoring on products and channels; cross-border trade flows opportunities within the methodology which is approved by the Group Lebanese sector, with a corporate and commercial • Revamping the Online Banking gateway, adding various markets of presence. Executive Committee. A detailed description of the loan portfolio standing at USD 7.6 billion at new functionalities, while supporting the ever business segment reporting methodology is provided end-December 2012, a level almost equivalent to the growing traffic. The improved channel promises to Corporate and Commercial Banking activities were in Note 4 of the Consolidated Financial Statements. consolidated portfolio of its immediate peers. LCs offer customers unlimited possibilities to fulfil their further reinforced with the launch of Odeabank in openings during 2012 moved from USD 2,121 million banking needs in the most efficient, intuitive and The performance of the four principal business Turkey, one of Europe’s fastest-growing economies. in 2011 to USD 1,795 million in 2012, contracting by secure way through a state-of-the-art platform that segments of Bank Audi in 2012 is discussed and Bank Audi is currently focused on expanding its 15.4% and reflecting subdued trade finance activity will be rolled out throughout 2013; analysed in what follows: corporate regional franchise to include top tier Turkish as a result of the recent unrest in the MENA region. • Enhancing the retail approach from the typical clients by developing a sustainable and long-lasting Notwithstanding, the increased trade finance activity “product-based” where retail offering was universal Corporate and Commercial Banking franchise serving not only customers’ borrowing of the Turkish operations in the first months of 2013 to all clients to “customer-centric approach” where needs, but also their trade finance, advisory, cash is offsetting all this decrease, leaving a net growth. specific retail products are created for a specific Bank Audi provides integrated Corporate and management and Treasury needs, all of which are segment of customers matching their profile. Commercial Banking solutions, with a coverage span opportunities to grow the Bank’s profits and deposit Based on the above, the corporate and commercial This segmentation helped increase customers’ entailing the Middle East, GCC, Africa and Europe base. The Bank’s value proposition revolves around business generated total revenues of USD 258 satisfaction and create loyalty. Under this through its established headquarters in Lebanon and differentiating our services while enhancing the million in 2012, as compared to USD 248 million transformation, the role of the branches moved from its entities operating in Turkey, Egypt, Syria, Jordan, Turkish-Arab commercial activities, fostering greater

56 57 being transaction-oriented to advice-oriented. to 8.27% as at end-December 2012. The consumer “discretionary”, “advisory” and “execution only” at end-December 2011 to USD 16,460 million at The introduction of the following technologies lending portfolio reported a 40% increase, mainly services globally and regionally under a unified set end-December 2012. Still, total revenues of this supported the transformation: driven by home loan growth which registered of best practices are becoming the norm. business segment reported a growth of 21.7%, moving a 57.9% growth. Personal loans and car loans from USD 447 million in 2011 to USD 544 million in 2012. - Novo: the first interactive banking channel in grew respectively by 28.0% and 20.7% over the Leveraging its regional footprint and strong brand the region enabling customers to navigate on year. The Retail cross-selling per customer as at and making Switzerland, where it has been operating 4.5. Capital Management multi-touch screen, applying for loans, and getting the end-December 2012 reached 4.55 products, versus for 36 years the center of excellence of its Private assistance of advisors through video conferencing. 4.40 in 2011. The Bank’s market penetration in terms Banking and wealth management activities, will Capital management at Bank Audi focuses on - Smart ATMs: a new generation of ATMs makes it of customers reached 25% in 2012, ranking first enable the Private Banking business line to become sustaining a long-term capital position sufficient to possible to fully automate all cash transactions among competitors, versus 23% in 2011, supported an ever increasing key growth driver in the Group in cover all material risks underlying from its various in the branch. Bank Audi owns more than 60 by the best brand image in the domestic market. 2013 and beyond. business activity and report a “well-capitalised” smart ATMs. status, while considering the requirements of - E-banking: in line with granting customers the most Based on the above, the retail business generated Treasury and Capital Markets regulators, rating agencies, depositors and efficient tools to manage their funds from the total revenues of USD 198 million in 2012 as Bank Audi’s capital market activities encompass shareholders and the Group’s internal capital ratio comfort of their house, mobile banking remains compared to USD 175 million in 2011, corresponding Investment banking (market-making, research, targets set in our business plans. Management’s one of the most popular channels with growing to a growth by 13.0%. The USD 23 million increase advisory and corporate finance), asset management goal is to optimise the capital usage while providing potential. At Bank Audi, audimobile and Pin-Pay in total revenues is mainly attributed to a and securities services. The Bank is leveraging its support for the expansion of business segments applications both strive in this direction. USD 6 million increase in interest income driven by an regional scale to develop further its securities services and entities, benefiting from arising inorganic - Customer relationship management: providing improvement in spread following the re-pricing of and brokerage platform, consolidating the business growth opportunities and protecting depositors and branch staff with access to a CRM solution which loans, along with a increase in non-interest income towards increased intra-group synergies. shareholders’ interests. Changes in shareholders’ is fully-integrated with their day-to-day work of USD 17 million. equity, net earnings of the year and dividends environment – and makes it easy to translate In Lebanon, Bank Audi stays a major market-making policies are inter-linked with the preservation of centralised marketing campaigns into successful Private Banking and player, accounting by itself for a 34.3% market share capital strength. customer interactions – will be critical in enabling Wealth Management on the Beirut Stock Exchange in 2012. The Bank also them to manage the customer experience and to has a dominant share of the Lebanese Eurobond and Evolution of Shareholders’ Equity drive sales. Bank Audi benefits from a leading position in Private Treasury notes markets, with an annual turnover of Banking, servicing the needs of high networth USD 8.3 billion in 2012. Bank Audi is also notably Consolidated shareholders’ equity increased by • Introducing a range of market consumer lending individuals through its subsidiaries. Bank Audi’s active in equities and fixed income markets of USD 320 million, representing the issuance of products and third party instalment loans, as well Private Banking business line comprises Banque Audi Saudi Arabia and Egypt where the Bank reported a USD 150 million Series “F” preferred shares in as a host of innovative high tech retail products (Suisse) sa, Audi Saradar Private Bank sal, Bank Audi LLC turnover of USD 2.5 billion in 2012. Those activities in May 2012 and USD 201 million of internal capital and services developed in association with leading (Qatar), Audi Capital (KSA) cjsc and Audi Capital Lebanon and the MENA region are supported by an generation in 2012, within the context of a partners. Entities leverage on the group resources to Gestion sam (Monaco). Despite continuing adverse extensive fixed income research coverage. decrease in minority shares by USD 29 million. anticipate and answer the needs of an increasingly operating conditions in Europe and the recent Shareholders’ equity moved from USD 2,357 million demanding customer base, while ensuring product issues regarding bank secrecy and tax reporting, In 2012, Bank Audi established an institutional fixed at end-December 2011 to USD 2,677 million at diversification, pricing optimisation and risk consolidated assets under management of Bank income desk aiming at developing and maintaining end-December 2012, almost entirely composed of mitigation; Audi stood at USD 8.4 billion at end-December 2012, new and existing institutional coverage of Lebanese Tier 1 capital. Tier 1 capital rose from USD 2,286 • Introducing Islamic products in Egypt on the backdrop by far the largest portfolio managed by a Lebanese securities. This marketing effort for Lebanese risk million at end-December 2011 to USD 2,606 million of an increasing demand combining the traditional banking group and which compares competitively comes in a current global environment where fund at end-December 2012, while Tier 2 capital remained Islamic values with the technology and innovation with portfolios managed by leading banks in the managers are searching for high yield rather than stable at USD 71 million over the same period. that characterise the best of modern banking. GCC. The Private Banking activity in 2012 turned high rating investment solutions, which makes the With the stock of preferred equity representing total revenues of USD 33 million, growing by 48.4% Lebanese high Beta bonds particularly attractive. USD 400 million at end-December 2012, as compared Driven by the above developments, the consolidated relative to 2011. to USD 250 million at end-December 2011, core Tier consumer lending portfolio registered a steady In parallel, the Bank’s asset management, corporate 1 equity would have moved from USD 2,036 million growth throughout 2012 by 18.4%, reaching A clearer definition of the Group’s Private Banking finance and advisory businesses are currently focused at end-December 2011 to USD 2,206 million at USD 1.4 billion at end-December 2012, with total perimeter (4 booking centres and 4 sales antennas) on the Saudi Arabian market and are also supported end-December 2012. As a percentage of consolidated housing loans exceeding USD 582 million, followed was achieved in 2012 in parallel to an acceleration of by extensive equity research coverage. assets, consolidated shareholders’ equity represented by personal loans with USD 419 million, car the convergence of the different teams that compose 8.6% at end-December 2012, as compared to 8.2% at loans with USD 227 million and credit cards with the Private Banking family; unified front offices In line with the consolidated position, assets of end-December 2011. USD 194 million. Bank Audi’s market share in retail allowing clients to book in the entity best suited the Treasury and capital market activities posted a lending in Lebanon increased from 6.84% in 2011 for their needs, and an investment office offering contraction, decreasing from USD 16,752 million

58 59 Regulatory Requirements – Basel III (2.5.) Regulatory Requirements – ICAAP the Bank further developed and refined various risk methodologies and included more sensitive risk In October 2011, the Central Bank of Lebanon issued As part of the implementation of Pillar 2 of Basel measures able to capture risk more adequately. The a circular requiring banks to report capital ratio II framework, the Central Bank of Lebanon, in its assessment was based on quantitative and qualitative following the Basel III framework, setting higher basic Circular No. 119 dated July 21, 2008, followed methods. In preparation for moving towards more capital requirements to be achieved gradually in by the Banking Control Commission of Lebanon advanced methods in the Basel framework, the Bank phase-in arrangements, as described below: (BCCL) Memorandum 9/2010 dated October 20, adopted the Foundation-IRB approach within the 2010, required Lebanese banks to report the Internal internal credit risk capital charges calculations for Capital Adequacy Assessment Process (ICAAP) at the certain asset classes in order to better capture the BASEL III Implementation in Lebanon: start of an assessment parallel run period set on quality and riskiness of the portfolios. Phase-in Arrangements June 30, 2011. In 2011, Bank Audi, aligning with best The ICAAP was conducted for the Group on a practice, submitted its consolidated ICAAP report to consolidated basis and on an individual basis for As of December 31 2011 2012 2013 2014 2015 the Central Bank of Lebanon, after it was challenged some material entities to ensure that stand alone Minimum common equity (including CB): CETl (a) 5.0% 6.0% 7.0% 8.0% by the Group Executive Committee and the Board capital is appropriate. The result of the ICAAP shows Minimum Tier 1 equity (including CB): TIE (b) 8.0% 8.5% 9.5% 10.0% Group Risk Committee and approved by the Board that, when taking all relevant and material risks to Minimum total equity (including CB): TE (c) 10.0% 10.5% 11.5% 12.0% of Directors. the Bank, including various stress testing scenarios, Bank Audi’s capital adequacy ratio remained well During 2012, the Bank submitted to Senior above the minimum requirement. Management and the Board of Directors the second Since January 1, 2012, Management started to rely (9% at end-December 2011), while additional Tier 1 Internal Capital Adequacy Assessment Process (ICAAP) Common Book per Share on the Basel III requirements before making any reached 2.1% (1.4% at end-December 2011). Relative report. The Bank views the ICAAP as an important decision affecting capital strength outlook, although to end-December 2011 (10.7%), the 110 basis points internal initiative rather than just a regulatory one In addition to the regulatory ratios mentioned it has been computing it on an indicative basis change in the capital adequacy ratio is accounted by calculating both regulatory and economic capital. earlier, Management, investors and analysts use the starting 2010. for by internal generation (33 basis points), the LIA This is being reflected by the ICAAP becoming an common book per share as a measure to assess capital insurance divesture (47 basis points), the issuance of integral part of the Bank’s decision-making process adequacy. Common equity represents total equity At end-December 2012, Basel III capital adequacy ratio the USD 150 million of Series “F” preferred shares (83 and an essential tool used by Management and the less minority shares less preferred shares. Common reached 11.79%, versus a 10% minimum regulatory basis points), offsetting the increase in risk-weighted Board for capital planning. It also acts as an important equity per share is based on the outstanding number requirement. Common Tier 1 ratio reached 9.45% assets consuming additional 53 basis points. exercise that drives the Bank to develop and better of common shares net of Treasury stocks. The use risk measurement techniques. Building on the table below presents the evolution of common Capital Adequacy Ratio as per BASEL III approaches used within the ICAAP 2011 submission, equity per share between end-December 2011 and (USD Million) end-December 2012.

Dec-11 Dec-12 Change Equity Metrics (USD 000's) Risk-weighted assets 18,131 18,956 825 Dec-11 Dec-12 Change Percent o.w. Credit risk 16,408 17,029 621 Shareholders' equity 2,356,981 2,677,408 320,427 13.6% o.w. Market risk 413 434 21 - Minority shares 93,646 64,238 -29,408 -31.4% o.w. Operational risk 1,310 1,493 183 = Shareholders' equity group share 2,263,335 2,613,170 349,835 15.5% - Preferred stock (including dividends) 267,187 423,187 156,000 58.4% Core common Tier 1 capital 1,644 1,791 147 = Common shareholders' equity 1,996,148 2,189,983 193,835 9.7% (including profits after dividend distribution) Outstanding number of shares (net of Treasury stock) 340,942,545 347,851,669 6,909,124 2.0% Tier 1 ratio 10.45% 11.56% 1.11% Common book per share 5.85 6.30 0.45 7.7% Tier 2 ratio 0.24% 0.23% -0.01% Share price at December 31 5.64 6.09 0.45 8.0% Total ratio 10.69% 11.79% 1.10% P/Common book 0.96 0.97 0.01 1.0%

60 61 Common equity per share of Bank Audi increased unspecified banking risks, which forms an integral iv- Risk Methodologies using the most appropriate and from USD 5.85 at end-December 2011 to USD 6.3 part of the Bank’s Tier I Capital. The aggregate 6. Risk Management advanced measurement techniques to assess risk. at end-December 2012. Accordingly, on the basis of this reserve should be equivalent to 1.25% of The main theme for 2012 was for the Bank to continue of a price of USD 6.09 at end-December 2012, the risk-weighted assets within 10 years from Decision Risk Governance moving towards advanced approaches and adopt the common share is traded at 1 times the common book 7129’s issuance and 2.0% of risk-weighted assets best practices in Risk Management. This was achieved value, versus an average of 2 times for regional and within 20 years. In addition, the Bank is required to The Risk division at Bank Audi operates independently while maintaining the formalisation process and emerging markets. establish a special reserve for properties acquired from the business and provides oversight on the alignment of the risk management framework in satisfaction of debts and not liquidated within risk management and controls. The Risk function is across our entities. A concerted effort was made to the required delays, and the balance; headed by the Chief Risk Officer who is a non-voting 5. Dividend Policy get our Turkish subsidiary, Odeabank, up to speed • To holders of common shares. member of the Executive Committee and reports with Group risk-aligned charter and policies and to directly to the Chief Executive Officer. The Chief Risk Since 1996, it has been the policy of the Board of put in place a solid foundation for the Turkish risk The common dividends distributions are made Officer has access to the Board of Directors through Directors of the Bank to recommend the distribution practices, in line with local regulations. In addition, annually on the dates specified by the General the Board Group Risk Committee. to holders of common shares of a dividend payment the Bank developed a risk training academy to be Meeting. Under Lebanese law, dividends not claimed of at least 30% of after-tax profits in each year, launched in the coming year, compounded between within five years of the date of payment become The Bank’s Group Risk division is composed of the subject to the approval of the Bank’s shareholders core risk courses developed and delivered in-house barred by statute of limitations; half of these following functions: and to the availability of distributable net income and an online solution with sessions scheduled in a unclaimed dividends revert to the Bank, while the for the year. classroom setting. A training policy was put in place balance is paid over to the Lebanese government. • Corporate Credit Risk based on various principles and guidelines. The • Counterparty Credit Risk As per the Bank’s by-laws and applicable Lebanese purpose of the Risk Academy includes strengthening • Retail Risk law, the annual net profits shall be distributed in the The table below highlights the dividends distribution awareness of risk management and fostering Bank • Market Risk following order of priority: practices at Bank Audi for the 2007 exercise till that Audi’s risk culture. • To legal reserve, in amounts equivalent to 10% of of 2012. • Operational Risk • Risk Integration and Analytics the net profits after tax that will be transferred During its meeting held on April 10, 2012, the From a strategic perspective, the Bank’s risk • Corporate Information Security and Business each year until such reserve reaches one-third of the Ordinary General Assembly resolved the payment management objectives are to: Bank’s share capital. The legal reserve is distributable of dividends on preferred shares of respectively Continuity only upon the liquidation of the Bank; USD 7.75, USD 6, USD 4 respectively per Series “D”, • Accompany the business in its growth and support • Risk Infrastructure • To payment of Series “F”, “E” and “D” preferred “E” and “F” preferred shares, and a common dividend Management in the implementation of the Bank’s shares dividends, as approved by the Ordinary per share of LBP 603 (before the 5% withholding strategy; Bank Audi has defined the following key guiding General Meeting; tax) (USD 0.4). Total dividends paid for the exercise • Preserve and contribute to the enhancement of the principles that underpin its approach to risk • To general or special reserves and/or to profits represented 42.4% of net earnings in 2012. On the Bank’s financial strength by ensuring that risks and management, which include: to be carried forward; as per Banque du Liban’s basis of a share price of listed shares and GDRs of rewards are properly balanced and by minimising the Decision 7129, the Bank is required to set aside respectively USD 6.25 and USD 6.50 as at March 12, impact of undesirable events on capital and profits; - Bank Audi’s risk management responsibilities follow a minimum of 0.2% and a maximum of 0.3% of 2012, the dividend yield reached 6.4% for listed • Formulate the risk appetite which determines the a three-line of defence structure: the first being the the Bank’s risk-weighted assets as a reserve for shares and 6.2% for GDRs. risk boundaries within which Management operates; business lines; the second being Risk and Compliance; • Constantly monitor the risk profile to ensure that the and the third line of defence being Internal Audit Bank is operating within set risk appetite and limits. and external auditors; Consolidated Payout Ratio(1) - Risks are properly disclosed to various internal and In USD '000s 2007 2008 2009 2010 2011 2012 The Bank’s achievement of these objectives rests on four pillars: external stakeholders in a transparent, systematic, Common earnings 181,834 219,634 279,263 337,560 348,021 360,420 structured, timely and accurate manner, in order Dividends on common shares 65,805 77,110 120,466 138,422 139,487 139,420 i- Risk Governance: ensuring a clear and effective to allow various stakeholders to make prompt and Dividends per common shares (USD) 0.20 0.23 0.35 0.40 0.40 0.40 organisational structure with proper accountability informed decisions; Payout ratio on common shares 36.2% 35.1% 43.1% 41.0% 40.1% 38.7% and responsibility at the Management and Board Dividends on preferred shares 18,437 18,437 9,687 14,687 17,188 23,188 levels as it relates to risk; - The Risk function is independent from business Total dividends 84,242 95,548 130,154 153,201 156,675 162,608 ii- Risk Institutionalisation through risk appetite setting, lines and decision-makers, yet supports them in Net earnings 200,272 238,071 288,950 352,247 365,208 383,608 Internal Capital Adequacy Assessment Process making informed choices and distinguishing among Total payout ratio 42.1% 40.1% 45.0% 43.5% 42.9% 42.4% (ICAAP), and policies and procedures; alternative courses of action. iii- Risk Infrastructure, with state-of-the-art IT systems The responsibilities of Bank Audi’s Board of Directors (1) Adjusted to the 10:1 stock split approved by the Extraordinary General assembly held on 02/03/2010, and the Central Bank of Lebanon on that enable better data aggregation, monitoring with regards to risk management are to ensure that 21/04/2010, and in effect since 24/05/2010. and reporting;

62 63 the risk management framework is designed in a Risk Institutionalisation Committee and Board of Directors depending on the independent risk assessment that identifies the key way to enhance and facilitate the Bank’s ability to materiality and relevance of the stress test at hand. risks, as well as the return, on a risk-adjusted basis pursue its strategic objectives, while ensuring that Risk Charter within the underlying transaction. no excessive risk is taken beyond its approved risk The Bank continuously monitors areas of concerns to At Bank Audi, the major sources of credit risk within appetite and tolerance. Mainly conducted through The Risk Charter is a Board-approved set of guiding probe for vulnerabilities within the loan portfolio. the Bank stem from sovereign, financial institutions, the Board Group Risk Committee (BGRC) which principles underpinning the responsibilities, This practice was especially accentuated during 2012 corporate, commercial and retail exposures. met on a quarterly basis during 2012, the Board authority and functioning of risk management given the political situation in Syria and Egypt, where Measurement is performed to effectively assess of Directors’ responsibilities also include setting across Bank Audi. The purpose of the Charter is to regular stress tests were conducted on liquidity, asset the probability of risk occurrence and to make the risk appetite, approving and reviewing the risk set out consistent and unified Risk Management quality and currency devaluation. assumptions as to their potential severity. During framework and policies, and reviewing and following practices across the Group by defining the mission, 2012, the rating models for SMEs have been rolled up on the development of the risk function. scope, principles, risk management framework, risk Risk Infrastructure out. One model was aimed at SMEs with reliable This year, Board risk committees were set up in most management process, internal governance, as well financial statements, while the other targeted SMEs entities in an effort to further enhance the Bank’s risk as roles and responsibilities of the Risk function Group Risk and Group Finance have maintained their with less reliable financial statements. Moreover, the governance and overall risk coverage of the Group. designed to support the Bank’s strategic objectives. joint effort towards a strategic project aiming at Bank initiated one additional modelling workshop creating an analytical and reporting platform for the to design and implement a fully-integrated internal The following chart depicts the key components of Group from a unified set of data. This project, named rating model for project finance and to refine the Group Audi’s risk management framework: Integrated Finance and Risk Management (IFRM) existing generic corporate model. framework, will allow data aggregation to be made Strategy & Risk Appetite in a meaningful manner with a timely, consistent In an effort to optimise the use of capital, the Bank

Monitor, Review & Improve Monitor, Review and consolidated view of enterprise data. It will also has incorporated a Risk Adjusted Performance Governance & Infrastructure allow the Bank to rely on advanced analytical tools Measurement (RAPM) as part of its credit approval Risk Management Process as part of its decision-making process. process to ensure a proper risk and return balance on any transaction, while contributing to Risk Identification Risk Measurement Risk Monitoring Risk Mitigation & Control The Bank is moving forward with the various phases shareholder value. of the IFRM. In the meantime, it is running on tactical projects to address its risk-reporting requirements The Bank’s effort to enhance the retail empirical and Risk Reporting & Consultation and risk aggregation. expert scorecards was initiated in 2012. The coming year will see the design and roll-out of several Monitor, ReviewMonitor, & Improve People & Culture Risk Methodologies scorecards within the retail entities of the Group. Systems & Risk Architecture

Bank Audi has taken a strategic decision to move Measurement models and related assumptions are toward advanced approaches in risk management, routinely subject to internal model review, empirical Risk Appetite Stress Testing which require both competent quantitative skills validation and benchmarking, with the goal of and adequate analytical tools. The Bank has made ensuring that the Bank’s risk estimates are reasonable The risk appetite, which is set on an annual basis, Stress testing is used by Bank Audi to measure the several efforts to strengthen the framework around and reflective of the risk of the underlying positions. is meant to provide the boundaries within which Bank’s vulnerability to exceptional but plausible model validation by adopting best practices for business lines operate. The setting of the risk appetite events. Bank Audi has formalised stress testing the development, calibration, validation and Liquidity Risk Management at Bank Audi is a result of a formal dialogue between within a Board of Director-approved document and maintenance of various risk-related models. Such Group Risk, business lines, Senior Management and conducts regular stress testing for material risks models will not only allow a better quantification Liquidity risk is the risk that the Group will be unable the Board Group Risk Committee. to which it is exposed and resulting from both on of risk, but also support the business in its to meet its payment obligations when they fall due The risk appetite, which is approved by the Board and off-balance sheet transactions. Considered as decision-making process. under normal and stress circumstances. of Directors, is expressed in both qualitative and an integral part of the ICAAP, stress tests’ results quantitative statements. The latter include a set of also feed into the yearly capital planning and Credit Risk Management Liquidity risk can manifest in the following metrics covering risk appetite or targets, tolerances budgeting process. two forms: and limits. Credit risk is the risk that the Group will incur a The selection of stress testing scenarios is the result loss because its customers or counterparties fail to • Funding liquidity risk is the risk that the Bank’s financial The Bank maintains constant communication of the of discussion between Group Risk, Group Finance discharge their contractual obligations. condition is adversely affected as a result of its inability risk appetite to business lines and monitors the risk and business lines, in consultation with the Group The credit risk culture is embedded within every to meet both expected and unexpected current and profile to ensure that it always remains within the Research department. The results are reported to person taking a commercial decision at Bank Audi. future cash flow and collateral needs in a timely and Board of Directors’ approved limits. the Group Executive Committee, Board Group Risk Each commercial transaction is accompanied with an cost-efficient manner;

64 65 • Market liquidity risk is the risk that the Bank financial institutions relative to maturing deposits Monitoring and setting of risk appetite for liquidity The Bank has a very low tolerance to market cannot easily offset or eliminate a position at over 1-month and 3-month horizons) are at healthy occur independently for each entity. Given the Bank’s risk stemming from changes in equity prices and the market price because of inadequate market levels. For example, the 1-month ratio is nearly 28%. operating environment, the Bank monitors liquidity foreign exchange rates. Its main exposure to depth or market disruption ultimately leading adequacy in each currency separately, especially for changes in FX rates stems from its structural FX to loss. The Bank maintains pools of liquid unencumbered significant currency positions. The Bank employs a position resulting from its equity investments in securities and short-term placements. It also actively variety of metrics to monitor and manage liquidity. banking subsidiaries in currencies that cannot be The Bank addresses these risks in two distinct monitors the availability of funding across various One set of analyses used by the Bank relates to the hedged against. This leaves interest rate risk in the environments: geographic regions and in various currencies. Its timing of liquidity sources versus liquidity uses (eg. banking book (IRRBB) as the main contributor to ability to generate funding from a range of sources liquidity gap analysis). A second set of analyses market risk. 1. Normal conditions where the Bank must satisfy in a variety of geographic locations and in a range focuses on ratios of funding and liquid assets/ daily liquidity needs (flows) and the liquidity risk of tenors is intended to enhance financial flexibility collateral (e.g., measurements of the Bank’s reliance IRRBB associated with those needs (e.g. in conjunction and limit funding concentration risk. on short-term unsecured funding as a percentage of with expanding product or business mix, settlement, total liabilities, as well as analyses of the relationship Interest rate risk in the banking book arises out deposit/loan growth, etc.); In Syria, additional measures are in place to further of short-term unsecured funding to highly-liquid of the Bank’s interest-sensitive asset, liability and 2. Stressed conditions where the Bank is facing liquidity strengthen liquidity adequacy compared with normal assets, the loans-to-deposits ratio, and other balance derivative positions. The mismatch in the repricing strains due to idiosyncratic or systemic conditions periods. The 1-month liquidity ratio (as defined sheet measures). dates of these positions creates interest rate risk for and may invoke the Contingency Funding Plan (CFP) above) stands at nearly 48% for Bank Audi Syria. The Bank performs liquidity stress tests as part the Bank which is inherent in its banking activities. as a result. Measures taken include daily or intraday monitoring of its liquidity monitoring. The purpose is to of cash note availability, scale-down of lending ensure sufficient liquidity for the Bank under both The sensitivity of net interest income for major Liquidity Adequacy activity, and maintenance of short-term liquid assets idiosyncratic and systemic market stress conditions. currencies is listed below at the consolidated (placements with their respective central banks or These stress tests are produced for the parent and group level. Management considers the Bank’s liquidity position bank counterparts). Contact and reporting to parent major bank subsidiaries. to be strong, based on its liquidity metrics as of Senior Management, Treasury and Market Risk December 31, 2012, and believes that the Bank’s functions are maintained on a regular basis. Liquidity management at the parent level takes into funding capacity is sufficient to meet its on and account regulatory restrictions that limit the extent off-balance sheet obligations. In terms of governance, the process is designed to to which bank subsidiaries may extend credit to ensure that its liquidity position remains strong at both the parent and vice versa, and to other non-bank The Bank’s funding strategy is intended to ensure entity and parent levels. The Asset-Liability Committee subsidiaries. Although considered as a source of sufficient liquidity and diversity of funding sources (ALCO) formulates and oversees the execution of available liquidity, the Bank does not view borrowing to meet actual and contingent liabilities through the Bank’s liquidity policy (which essentially lays capacity at central bank discount windows in the both normal and stress periods. down the Bank’s liquidity management strategy). jurisdictions it operates in as a primary source of The liquidity risk policy for identifying, measuring, funding, but rather as a secondary one. In addition, The Bank’s primary sources of funding include a monitoring, and reporting liquidity risk, and the the Bank holds high-quality, marketable securities stable customer deposit base constituting 84% of contingency funding plan are recommended by Risk available to raise liquidity, such as corporate and its funding (liabilities + equity), which was USD Management, reviewed by ALCO, approved by the sovereign debt securities. 26.4 billion at December 31, 2012, rising by USD Executive Committee, and finally ratified by the Board 1.7 billion from 2011. Nearly 76% of deposits are of Directors. Measurement, monitoring and reporting Market Risk Management Retail/Personal Banking accounts, whereas about are performed for the most part by either Treasury 24% are corporate/SME. The large Retail/Personal or Risk Management, each of which inform and may Market risk is defined as the potential loss in both Banking base emphasises the Bank’s reliance escalate to ALCO based on key risk indicators and both on and off-balance sheet positions resulting from on sources of funding that are considered to be regulatory and internal limits. Treasury is responsible movements in market risk factors, such as foreign the most stable, as evidenced by their treatment for executing the Bank’s liquidity policy, as well as exchange rates, interest rates and equity prices. under the recent Basel III Liquidity Standards (not maintaining the Bank’s liquidity risk profile according in effect yet, but approved in final form by the to ALCO directives, all within the risk appetite set by Basel Committee). the Board of Directors. The parent bank’s Treasury and The Bank’s consolidated short-term liquidity ratios Capital Markets division communicates with entity (defined as net current accounts and maturing Treasury departments to ensure adequate liquidity placements with central banks plus banks and conditions at the Group level.

66 67 Sensitivity of Net Interest Income neither insured nor so predictable as to be priced, relations activity in 2012 revolved around maintaining (LBP Million) as well as setbacks to budgeted revenue (lost the investment community, investors and sell-side income). When these happen, they are escalated to analysts informed of current status and outlook of Change the relevant Manager or Management committee the Group, highlighting the strategies adopted by (Basis Points) Increase Decrease and followed up for possible recoveries and process Management in the face of these developments, EUR ± 25 2,103 -2103 improvements. managing the underlying risks and sustaining the USD ± 50 21,050 -21,050 Group’s performance. Henceforth, communication LBP ±100 -902 902 The Bank complies with the qualifying standards of with the institutional investor community was Basel II’s standardised approach (Paragraph 663 of the focused on ensuring they have a good knowledge of Basel II Capital Accord) and has tested, documented the Group’s strategy going forward, have confidence It is important to note that interest rates on assets business. To monitor and control operational risk and discussed with regulatory authorities the in the opportunities and rewards what a diversified do not change in tandem with liability rates. The so as to maintain it within Board-approved risk mapping necessary to calculate the capital charge institution like Bank Audi has to offer. stickiness of customer deposit rates in Lebanon, an tolerances, operational risks are assessed on a according to the standardised approach. Currently, observed phenomenon in the Lebanese market, has regular basis by evaluating the effectiveness of the however, the Bank applies the basic indicator To that end, Bank Audi participated in 2012 in 7 been incorporated in the above table. It has been control design against risk scenarios mapped to approach for the calculation of its capital charge for equity conferences, fulfilling 68 meetings with 60 quantified for the Lebanese USD customer deposit internal risk registries and implementing corrective operational risk. institutional investment companies, represented by market whereby a relationship between changes actions where needed. These internal risk registries 73 fund managers based principally in the United in deposit rates has proven statistically reliable and are mapped to seven standardised categories used Finally, the operational risk framework is audited States, the United Kingdom and the MENA region, reflects historical behaviour. For LBP, the estimated for reporting to Management and to the Board of yearly, as per regulatory requirements and standard but also South East Asia, Australia and Eastern relationship is based on relatively recent history, Directors: internal and external fraud, employment industry practice. Europe. While somehow underscoring the limited which Management believes is more relevant in the practices and workplace safety, clients, products and equity institutional investors’ appetite prevailing in current economic environment. The relationship, business practices, damage to physical assets, business 2012 as a result of global and regional woes, Bank along with Senior Management’s view of current disruption and system failures, and execution, 7. Investor Relations Audi’s investor relations activity in 2012 reflects market dynamics, is incorporated for customers’ delivery and process management. only an extension of the Bank’s long-standing deposits in Lebanese entities only, whereas other 7.1. Investor Relations track record since 1995. The table below illustrates entities are calculated on purely contractual terms. In addition, a system of incident reporting and a set Activity in 2012 Bank Audi’s participation since 2005 in It is worth noting that the relationship does not of risk indicators together help confront ex-ante risk equity conferences highlighting Management’s incorporate the lag in the response of deposit rate assessments to reality and improve controls before Within the current political uncertainties in several commitment to Investor Relations: changes to changes in market rates. a situation develops into lost income exceeding markets of presence of the Group, the investor tolerances. The interest rate risk profile of the Bank is within acceptable bounds. The negative impact of a fall in The Bank has recently been in the process of rolling Participation in Equity Conferences/ USD interest rates, as indicated above, constitutes out a special purpose operational risk management Non-deal Roadshows less than 2.3% of net interest income for the Group. tool which closely mirrors the methodologies it had Given the prevailing low interest rate environment already developed internally. This tool is designed to 2005 2006 2007 2008 2009 2010 2011 2012 Total in USD, the Bank views a falling rate scenario as ensure a more efficient group-wide implementation Equity conferences 4 3 6 2 10 13 14 7 59 unlikely. of the operational risk policy. Number of meetings 87 66 139 68 201 207 170 68 1,006 Number of companies met 74 54 120 66 141 151 116 60 782 Operational Risk Management As an additional layer of mitigation against Number of portfolio managers met 122 88 171 94 244 248 185 73 1,225 operational events, the Bank purchases comprehensive Company/Equity conferences 18.5 18.0 20.0 33.0 14.1 11.6 8.3 8.6 13.3 Operational risk is the risk of loss arising from system insurance coverage from highly-rated reinsurers. Meeting/Company 1.2 1.2 1.2 1.0 1.4 1.4 1.5 1.1 1.3 failure, human error, fraud or external events. This coverage is purchased wherever economically Portfolio manager/Company 1.6 1.6 1.4 1.4 1.7 1.6 1.6 1.2 1.6 feasible and includes coverage against political Operational risk exists in all activities and can violence, strikes, riots and terrorism in some countries materialise in various ways such as errors, frauds, or that experienced unrest in 2012. business interruptions that can result in direct and indirect lost income, such as reputational damage. Notwithstanding its efforts to control operational risks, Bank Audi does incur unexpected operational At Bank Audi, the primary responsibility for the losses, in particular as the sum of losses incurred management of operational risk resides in the below the insurance deductible, losses that are

68 69 Several site visits were also scheduled for institutional Relations webpage (including the Investor Relations complete the enhancement of our alternative 2. Transformation Program investors that were not able to secure meetings presentation) on a quarterly basis. channels. All the above goes in line with the Bank’s during the equity conferences and for those investors strategy to alleviate traffic on the traditional Bank Audi also kicked-off its IT transformation interested in visiting the corporate head office to 7.2. Bank Audi's Stock delivery channels (branches) by re-directing clients to Program in 2012 where it will replace most of its complement their knowledge on Bank Audi. Research Coverage alternative channels where they can now perform all legacy systems with state-of-the-art products and kinds of operations within the self-service initiative. technologies. To get the most of this transformation, The sell-side and buy side communities were also Since 2010, several London-based banks and regional Bank Audi is implementing a best-in-class middleware constantly updated through mass mails dispatched • Improving the Bank’s performance and efficiency financial institutions initiated coverage of Bank solution that seamlessly integrates different business on regular basis, with the Bank’s quarterly earnings by an internal restructuring of the key operational Audi’s stock. The table below lists institutions that applications through service-enabled back-end releases and related corporate actions, as well departments, automating processes reengineering cover the Bank’s stock till April 2012: applications via the middleware. Bank Audi is as through constant updates of the Investor workflows to reduce turnaround time, and accomplishing this through a robust environment incorporating new systems to meet with the current of web services for fast integration and re-use of operational challenges and workload. functionality across multiple applications and legacy Bank Audi's Stock Coverage systems. The middleware is the first step for proper • Insuring business continuity to respond to any and futurist IT architecture. Oracle Service Bus Institutions Country Analyst Initiation Date unforeseen situation which might affect the Bank’s (Middleware) was selected and procured in 2012, EFG Hermes Egypt Elena Sanchez-Cabezudo Jan-06 operations. A disaster recovery site has been and went live early in 2013. FFA Private Bank sal Lebanon Nadim Kabbara Oct-09 launched and a contingency business plan prepared Beltone Financial Egypt David Mikhail Dec-09 and communicated to concerned parties. The disaster 3. Odeabank IT Implementation HSBC United Kingdom Shirin Panicker Feb-10 recovery site can respond to any system failure or Deutsche Bank United Kingdom Rahul Shah Nov-10 incidents generated by local turmoil. Bank Audi expanded to Turkey and set up a Arqaam Capital United Arab Emirates Jaap Meijer Feb-12 greenfield bank (Odeabank). Bank Audi's IT team led 8.2. Information Technology the selection of two key local IT strategic partners (InterTech and Probil) for the core banking systems In 2012, Bank Audi’s IT supported the Bank’s growth Management was always keen on providing all Lebanon, spinning off ”credit” as a focused business and infrastructure support. The team worked side plans by launching new applications, kick-starting necessary resources for in-house meetings or and offering our Relationship Managers a unique by side with the providers and Bank Audi business the transformation program and completing the conference calls with the sell-side community, and professional environment, while allowing to cater to team members in setting up the core banking system set-up of Odeabank’s IT organisation, in addition to to answer all information requests in a transparent, our clients’ needs and using a pro-active approach and third party applications, configured Odea enhancing its operational efficiencies by optimising effective and timely manner, in full compliance with with a competitive response time; competitive products, established complete policies efficient utilisation of resources and ensuring the Bank’s disclosure policy. and procedures, set up a business continuity centre transparent monitoring of capital consumption. A • Upgrading the quality of the service through the and disaster recovery, and ensured compliance with heightened importance was also given to enhancing introduction of a comprehensive quality program the local banking regulators (BRSA). In addition, Bank the existing security measures and emphasising 8. Deployed Resources comprised of mystery shopping, phone calls to clients Audi’s IT team completed the set-up of Odeabank’s business continuity. IT organisation by recruiting a local team to support 8.1. Operations and branch visits. This program was coupled up with prizes and incentives offered to the best branches the business and the growth of Odeabank. Bank on a monthly basis and communicated to the whole 1. New Applications Audi’s IT is currently supporting Odeabank in the In 2012, the Bank’s operations Management focused bank. In addition, key performance indicators have implementation of its Treasury platform (Murex). on developing its operating model, ensuring a high In 2012, Bank Audi launched several new applications: been put in place to measure the operational front service quality, while introducing new technologies 1) Cash and Cheque deposit functionality on the liners’ performance which helped the assessment 4. Operational Efficiencies and guaranteeing a high level of security. largest ATM network in Lebanon; 2) Capital Market of additional recruitment needs and resources' Module on the new Treasury platform (Murex); 3) re-allocation. Academic trainings were also delivered • Internal Organisation In line with the above, operations Management at Operational Risk Management system; 4) Internal to keep the branch staff updated with the most Bank Audi’s IT team initiated an internal restructuring Bank Audi concentrated its efforts on: Branch Mailing System that automates and tracks the recent regulatory and compliance frameworks; of the infrastructure unit with an aim to transform internal mail between branches and departments; it into a “service-oriented department”. The • Continuing to develop the current operating model and 5) Visa Business Debit that allows companies • Enhancing our alternative delivery channels to Infrastructure unit was split in two: an Operations by deploying the concept of personal bankers. to manage their everyday expenses (e.g. limits) and meet the new technology challenges. This led to team with dedicated resources for daily operational The objective behind this new structure is to move cash flow through a convenient and secure payment the deployment of the “Novo” concept, as well work, and a Support and Infrastructure team tasked from a product-centric approach towards a bank card, as an alternative to cash and cheques, and also as the Cash and Cheque deposit services on the with project fulfilment. revolving around customer centricity. To that end, a gives business owners full control over their staff Bank’s ATMs around the country. Late 2012, a teller restructuring plan has been put in place through the expenses through profiling and blocking balance drive-through concept was also implemented to creation of Commercial Business Centres throughout inquiry function.

70 71 As for enhancing its technical capabilities to support 5. Security and Business Continuity Business School in Boston, and 2) a lunch gathering retention strategies were developed for identified the transformation, Bank Audi’s IT (a) created two at the Bank’s headquarters for Lebanese students high-potential individuals/future leaders. In the new functions within the Solution Delivery unit, In response to the existing global security threats, from top American, British and French universities. case of the Group Risk Management department, a Software Quality Control (Testing) and Integration Bank Audi’s IT formulated a comprehensive security These events presented a significant occasion to succession plan was also mapped for key/critical risk to better serve the Bank in terms of operational plan with a USD 2 million approved budget. The meet high-performing students and discuss their positions, paving the way for the future development efficiency and project delivery, (b) extensively trained objective is to enhance the Bank’s network security career/internship opportunities at the Bank. of a comprehensive workforce succession plan SDM professionals, and (c) upsized the Architecture by placing internal firewalls and intrusion/threat covering all branches/departments. unit and hired external consultants to assist in prevention systems, to improve the information system On the level of Relationship Management, HR designing the target architecture. security by hardening the different IT components experts maintained strong rapport with stakeholders Bank Audi is continuously delivering valuable based on best practices, and to increase the Bank’s in branches and head office departments through trainings and promoting professional development • Resource Efficiency internal advanced threat detection capabilities by continuous field visits and follow-up. 440 employees to its human capital, which encompasses all types Bank Audi’s IT worked on enhancing its resource implementing new monitoring tools. In addition, the were transferred/promoted within the Bank, of facilitated learning opportunities, ranging from efficiency which is key to ensuring on-time delivery Bank pressed on with the design and construction and presented with opportunities to advance in training activities and coursework to development of the project pipeline. For that reason, transparency of the disaster recovery centre, in line with Tier their careers. activities and programs. In 2012, a total of 180,700 and planning were stressed by enforcing employees’ III classification as per Uptime Institute Standards training and internship hours were delivered to the use of vendor-based tools such as EPM and Time (appropriate for companies that support clients 24x7 As stated above, 2012 was characterised by the Bank’s employees, in addition to 125,370 on-the-job Sheet. This, coupled with the enhanced visibility on in multiple time zones) and the migration to a new creation of a “Training Academy” (TA) at Bank training hours. A total of 7 employees were enrolled project pipeline generated by the newly structured data centre in the head office (Bank Audi Plaza). Audi, which covers various programs targeting the in special training programs, including the Individual budget process, enabled Senior Management to development of branch employees. Accordingly, all Development Program and Specialised Credit Training better forecast the human capital required to deliver. branch employees were presented with the “Career Program, aiming at preparing potentials and high These tools provided IT Management with visibility of 9. Human Resources Progression Program” which defines requirements performers for present and future opportunities, in demand versus supply, and helped in the expansion for the development of their professional abilities alignment with their career progression plan. of the IT Organisation from 117 to 139 employees to HR Developments and career advancement (including educational cover the various projects of the Group. background, years of experience, performance levels, The year 2012 was marked by significant 2012 Training and skills and competencies). The program provides a Development Activities • Transparent Capital Monitoring achievements by Human Resources (HR), crowned range of soft/technical courses designed for each Bank Audi’s IT and Finance department designed by the launching of the “Training Academy”, a function/level within the banking field. One-on-one a new IT budget process to enhance transparency long-awaited milestone that required extensive meetings were held with each employee to hand Training in 2012 on actual spendings and properly allocate costs planning, research and preparation. Areas around over “training passports” as a road map to guide between IT and business. In addition, the new process Recruitment and Selection, Training and Development, them through the path for advancement in each ensures clear procurement planning, improved Relationship Management, and Corporate Social field. As a result, 2012 witnessed the completion 5% 3% vendor management, and a better understanding of Responsibility also had a considerable share of the of 18 sessions offered to 445 registered employees. 8% 26% resource needs. The Bank also strengthened strategic annual accomplishments. Within the same scope, the TA also targets branch partnership with suppliers such as HP, Oracle, IBM, managers/assistant branch managers through the and Cisco. Recruitment and Selection efforts during 2012 “Corporate Academy” whereby the latter are invited 16% Bank Audi’s IT CAPEX increased by 74% to reach resulted in the engagement of 185 new employees to a weekend retreat aiming at the enhancement of USD 27.4 million in 2012. This increase is mainly from diverse backgrounds. In addition, the “Student their technical/general knowledge in the financial due to the establishment of a new disaster recovery Internship Program” welcomed 455 local and 14% sector and during which internal experts from 4% centre in Kfour, a data centre in Plaza, the launch international students (undergraduates/graduates) different fields (such as Finance, Economic Research, of the Transformation Program, and the purchase from top ranking universities who were offered 11% Audit, HR, etc.) conduct informative and interactive 13% of the Oracle Unlimited License Agreement. OPEX the opportunity to gain knowledge about banking sessions with the audience. exhibited a slight increase of 6% and amounted to operations and to have a general understanding of Managerial & Organisational USD 12.5 million in 2012. the Bank’s corporate culture. 2012 also witnessed the implementation of major Banking Finance & Economy Behaviour phases of the “Talent Management and Succession Information Technology Retail & CRM Furthermore, and in line with our continuous efforts Planning” system at the Bank, whereby employees Languages Risk Management to build bridges with graduates from prestigious were categorised on the basis of performance Legal, Compliance, AML, Fraud Specialisation field international universities, 2012 was concluded with and potential using the 9-box grid methodology. two prominent events: 1) the “6th Harvard Arab Furthermore, career progression plans and Weekend” organised by the MENA Club of Harvard

72 73 In addition, while aiming at giving equal In compliance with the Central Bank’s regulations, On another note, at the international level, HR • The five-year collaboration agreement Bank Audi opportunities to all qualified employees, Bank Audi employees are continuously enrolled in specific contributed to the global expansion strategy by signed with BADER Young Entrepreneurs Program continues to encourage personal development and certifications related to regulatory banking setting up the HR function of the Bank’s greenfield to support growing businesses and empower future improve the quality of work through the Educational functions. As such, Bank Audi remains the market operation in Turkey, Odeabank. HR business entrepreneurs and the business community as a Sponsorship Initiatives. In 2012, 46 employees were leader in achieving BDL certification requirements. partners carried out several missions over a period whole. This project sustains our belief in the value selected and sponsored to pursue their higher The following table summarises the cumulative of six months, covering main HR areas, resulting in of human capital and the endeavour to boost education through 12 local and 2 international figures for certified employees: the hiring of 43 employees, and developing major entrepreneurship and innovation within our core Masters programs, 14 banking-related studies, and HR policies and practices, as per local regulations business; 18 specialised certifications. and culture. • Sustaining the “Conscientious Driver” campaign intended to increase awareness on road safety by BDL Certifications observing the United Nations Decade of Action for 10. Corporate Social Road Safety, and pursuing the signing of pledges for Responsibility this mission; Lebanese Financial Regulations 26.0% • Containing our carbon footprint on the environment At Bank Audi, accepting social responsibility in by implementing a paper recycling program within CAMS 47.0% all markets of presence is an integral part of the our branches, in addition to 3 collection hubs conduct of business. To that end, Management for plastic, tin, paper and batteries within our Financial Derivatives 76.0% devised to create a Corporate Social Responsibility head office, and creating internal awareness on (CSR) unit empowered with the necessary resources safe-keeping our environment; Risk in Financial Services 77.0% to implement our sustainability strategy and execute • Fulfilling various fund-raising requests for public, CSR actions. private, medical, welfare and humanitarian purposes; Investments & Risks 81.0% As a recognition of its practices, the Corporate Social • Promoting various other activities involving sports, Responsibility (CSR) unit of Bank Audi was selected by health orientations, employee wellness, etc. International Introduction to Investments 92.0% ISO (International Organisation for Standardisation)

Global Securities 95.0% through Libnor (the Lebanese Standards Institution A separate CSR report is published as an appendix to attached to the Ministry of Industry) as the first this one, which elaborates the Bank’s activities in this pilot organisation within the banking sector to area and measures its impact precisely. implement the ISO 26000 Social Responsibility guidelines, with the aim of being recognised as such with a high level of commitment and accountability. The core subjects of this affiliation encompass organisational governance, human rights, labour practices, the environment, fair operating practices, consumer issues, and community involvement and development. The project aims at:

• Sustaining the Bank’s position as the largest employer in the Lebanese private sector and as a non-discriminatory and equal opportunity employer; • Reinforcing its ability to attract and retain employees and maintain their morale, commitment and productivity efficiency, as well as further engage employees in volunteering; • Ensuring healthy ecosystems, social equity, and good organisational governance through our sphere of influence, especially through our supply chain.

Several CSR initiatives have so far been implemented in that regards, such as:

74 75 turkey Bank Audi extended its leading role to the wider region by launching its operations in Turkey in late 2012, building on the strong historic ties between Turkey and the Arab world on the back of significant flows of people, capital and goods. Through its newly established subsidiary, Odeabank, the Group started servicing the growing middle corporate segment, offering corporate and trade finance services, while aiming to gradually develop a value added retail franchise.

76 77 April 8, 2013 general assembly excerpts Resolution No. 1 T he Ordinary General Assembly of shareholders of the Bank approved the Bank’s accounts, in particular the balance sheet and the profit and loss statement as at and for the year ended on December 31, 2012, and granted full discharge to the Chairman and members of the Board of Directors in respect of their management of the Bank’s activities during the year 2012.

Resolution No. 2 The Ordinary General Assembly of shareholders of the Bank resolved to appropriate the stand alone profits of Bank Audi sal - Audi Saradar Group for the year 2012 as follows:

Amounts in 000s of LBP

Net profits for the year 2012* 435,987,869 Less: • Appropriation of 10% to the legal reserve 43,598,787 392,389,082

• Appropriation for general banking risks o.w. Lebanon branches: 55,000,000

337,389,082

Less: • Transfer to reserves appropriated to capital increase resulting from the liquidation of fixed assets acquired in settlement of debt 1,263,441 • Transfer to the reserves for fixed assets earmarked for liquidation and acquired in settlement of debt 0 Net profits available for distribution 336,125,641 Add: • Transfer from previous retained earnings 28,267,929 343,431,651 Less: • Unrealised profits from revaluation of financial instruments classified at fair value - not distributable in accordance with 20,961,919 Circular No. 270 issued by the Banking Control Commission

Less: • Distribution to holders of 12,500,000 series “D” preferred 14,603,906 shares on the basis of USD 0.775 per share at the exchange rate of LBP 1,507.50 per USD • - Distribution to holders of 1,250,000 series “E” preferred 11,306,250 shares on the basis of USD 6.00 per share at the exchange rate of LBP 1,507.50 per USD • Distribution to holders of 1,500,000 series “F” preferred shares 9,045,000 on the basis of USD 4.00 per share at the exchange rate of LBP 1,507.50 per USD Net profits available for distribution to holders of common shares 308,476,495 Less: • Dividends to holders of 348,550,907 common shares on the basis of LBP 603 per common share 210,176,197 Net profits after distribution 98,300,298 Less: • Transfer to general reserves 0 Profits carried forward to 2013 o.w. Lebanon branches: 98,300,298

Resolution No. 3 In line with the preceding resolution, the Ordinary General Assembly of shareholders of the Bank announced a series “D” preferred shares distribution of USD 0.775 per share, a series “E” preferred shares distribution of USD 6.00 per share, a series “F” preferred shares distribution of USD 4.00 per share, and a dividend to common shares of LBP 603 per share, all subject to the withholding of distribution tax, and resolved that all distributions and dividends will be paid starting April 10, 2013 to the holders of shares on record as at April 5, 2013 (“record date”) as per records of Midclear sal.

* On a stand alone basis.

78 79 consolidated financial statements

80 81 Consolidated Income Statement Consolidated Statement of Comprehensive Income For the Year Ended December 31, 2012 For the Year Ended December 31, 2012

(Restated)* 2012 2011 2012 2011 Notes LBP Million LBP Million Notes LBP Million LBP Million Profit for the year from continuing operations 544,475 541,652 Continuing operations Discontinued operations 33,814 8,899 Interest and similar income 4 2,208,509 2,056,972 Profit for the year 578,289 550,551 Interest and similar expense 5 (1,344,819) (1,268,750) Net interest income 863,690 788,222 Other comprehensive income (loss) Fee and commission income 6 330,562 318,952 Exchange differences on translation of foreign operations (126,143) (50,362) Fee and commission expense 7 (51,197) (50,060) Net loss/gain on hedge of net investments (3,589) 4,125 Net fee and commission income 279,365 268,892 48 (129,732) (46,237) Net gain on financial assets at fair value through profit or loss 8 197,456 126,171 Net unrealised loss on financial assets at fair value through Net gain on sale of financial assets at amortised cost 9 265,812 221,014 other comprehensive income 5,613 (29,481) Revenues from financial assets at fair value through other Net deferred income taxes (9,667) (232) comprehensive income 27 30,245 27,720 48 (4,054) (29,713) Net gain on sale of subsidiaries and associates 10 - 2,024 Other comprehensive loss for the year, net of tax 48 (133,786) (75,950) Other operating income 11 22,251 48,638 Total comprehensive income for the year, net of tax 444,503 474,601 Total operating income 1,658,819 1,482,681 Attributable to: Net credit losses 12 (182,585) (137,659) Equity holders of the Bank 430,951 468,289 Net operating income 1,476,234 1,345,022 Non-controlling interest 13,552 6,312 Personnel expenses 13 (411,746) (380,856) 444,503 474,601 Depreciation of property and equipment 29 (46,088) (38,796) Amortisation of intangible assets 30 (7,663) (7,045) Impairment of goodwill 33 (21,167) - Other operating expenses 14 (291,959) (242,679) Total operating expenses (778,623) (669,376) Operating profit 697,611 675,646 Share of profit of associates under equity method 551 5,133 Net gain on disposal of fixed assets 850 387 Profit before tax from continuing operations 699,012 681,166 Income tax 15 (154,537) (139,514) Profit after tax from continuing operations 544,475 541,652 Discontinued operations Profit from discontinued operations, net of tax 16 33,814 8,899 Profit for the period 578,289 550,551 Attributable to: Equity holders of the Bank: 564,737 544,239 Profit for the year from continuing operations 531,419 536,798 Profit for the year from discontinued operations 33,318 7,441 Non-controlling interests: 13,552 6,312 Profit for the year from continuing operations 13,056 4,854 Profit for the year from discontinued operations 496 1,458 578,289 550,551 Earnings per share: LBP LBP Basic earnings per share 1,527 1,510 Diluted earnings per share 1,526 1,507 Basic earnings per share from continuing operations 1,431 1,488 Diluted earnings per share from continuing operations 1,430 1,485

* Restated for the effect of separate presentation of profit from discontinued operations and earnings per share information.

82 83 Consolidated Statement of Financial Position Consolidated Cash Flow Statement As at December 31, 2012 For the Year Ended December 31, 2012

2012 2011 2012 2011 Notes LBP Million LBP Million Notes LBP Million LBP Million Operating activities Assets Profit before tax from continuing operations 699,012 681,166 Cash and balances with central banks 18 9,462,380 8,703,354 Profit before tax from discontinued operations 45,581 10,624 Due from banks and financial institutions 19 4,280,978 4,562,602 Adjustments to reconcile profit before tax to net cash flows: Loans to banks and financial institutions and reverse Non-cash: Depreciation and amortisation 29 & 30 55,180 47,380 repurchase agreements 20 1,060,267 219,084 Impairment of assets acquired in settlement of debt reversed 31 (4) (602) Financial assets given as collateral 21 - 17,424 Net gain on financial instruments at amortised cost 9 (265,812) (220,930) Derivative financial instruments 22 51,046 82,209 Provisions for loans and advances 12 202,104 174,436 Financial assets at fair value through profit or loss 23 510,657 823,926 Recoveries of provision for loans and advances 12 (19,628) (36,776) Share of net profit of associates (551) (5,133) Loans and advances to customers at amortised cost 24 15,416,403 12,692,177 Net gain on disposal of assets acquired in settlement of debt 11 (8,297) (5,433) Loans and advances to related parties at amortised cost 25 304,511 263,666 Net gain on sale or disposal of fixed assets (850) (230) Debtors by acceptances 182,715 280,819 Provision for risks and charges 39 24,856 4,448 Financial assets at amortised cost 26 14,549,116 14,307,303 Write-back of provisions for risks and charges 39 (7) (4,639) Provision for impairment of financial instruments 12 110 - Financial assets at fair value through other comprehensive income 27 245,793 223,984 Provision for end of service benefits 39 12,826 10,303 Investments in associates 28 34,230 43,099 Employees’ share-based payments expense 13 - 40 Property and equipment 29 528,710 511,550 Gain on sale of subsidiaries and associates 10 & 16 (48,622) (2,024) Intangible assets 30 49,600 13,508 Gain on revaluation due to loss of control 16 (20,439) - Impairment of goodwill 33 31,088 - Non-current assets held for sale 31 50,054 26,379 Effect of entities deconsolidated during the year (47,753) - Other assets 32 238,163 288,171 658,794 652,630 Goodwill 33 222,846 261,431 Working capital adjustments: Total assets 47,187,469 43,320,686 Balances with the central banks, banks and financial institutions maturing in more than 3 months (314,259) (1,990,470) Liabilities Change in derivatives and financial assets held for trading 342,227 152,092 Due to central banks 34 133,108 133,394 Change in financial assets given as collateral 17,424 (17,424) Due to banks and financial institutions 35 1,171,174 1,007,558 Change in loans and advances to customers and related parties (2,923,486) (198,120) Due to banks under repurchase agreements 35 681,487 - Change in other assets 220,171 (50,316) Change in deposits from customers and related parties 2,704,245 (75,584) Derivative financial instruments 22 56,042 58,246 Change in other liabilities (300,357) (187,518) Customers’ deposits at amortised cost 36 39,718,890 37,097,210 Proceeds from sale of assets obtained in settlement of debt 19,068 9,140 Deposits from related parties at amortised cost 37 689,101 285,297 Change in non-controlling interest (44,334) (36,278) Engagements by acceptances 182,715 280,819 Cash from (used in) operations 379,493 (1,741,848) Other liabilities 38 408,865 832,087 Provisions for risks and charges paid 39 (3,997) (4,075) End of service benefits paid 39 (2,908) (1,834) Provisions for risks and charges 39 95,096 72,925 Taxation paid 15 (131,373) (121,485) Non-current liabilities held for sale 31 14,799 - Net cash flows from (used in) operating activities 241,215 (1,869,242) Total liabilities 43,151,277 39,767,536 Investing activities Shareholders’ equity – Group share Change in financial assets – other than trading 21,776 580,609 Purchase of property and equipment and intangibles 29 & 30 (182,499) (65,301) Share capital – Common shares 40 438,586 438,197 Investments under equity method and related loans 9,420 (7,222) Share capital – Preferred shares 40 19,124 17,243 Cash collected from sale of property and equipment and intangibles 18,635 1,927 Issue premium – Common shares 41 659,206 657,846 Proceeds from sale of associates and subsidiaries 16 133,212 20,880 Issue premium – Preferred shares 41 583,876 359,633 Net cash flows from investing activities 544 530,893 Financing activities Cash contribution to capital 42 72,586 72,586 Issuance of preferred shares series “F” 40 226,125 - Non-distributable reserves 43 808,434 696,360 Increase in share capital and issue premium from stock options exercise 1,748 4,395 Distributable reserves 44 551,406 380,215 Distribution of dividends 40 (236,179) (230,813) Treasury shares 47 (20,245) (103,912) Treasury GDR transactions 59,083 (67,942) Net cash flows from (used in) financing activities 50,777 (294,360) Retained earnings 328,223 328,515 Increase (decrease) in cash and cash equivalents 292,536 (1,632,709) Other components of equity 48 (66,579) 21,056 Net foreign exchange difference 186 6,846 Result of the year 564,737 544,239 Cash and cash equivalents at January 1 5,299,740 6,925,603 3,939,354 3,411,978 Cash and cash equivalents at December 31 50 5,592,462 5,299,740 Operational cash flows from interest and dividends Non-controlling interest 49 96,838 141,172 Interest paid (1,316,918) (1,288,577) Total shareholders’ equity 4,036,192 3,553,150 Interest received 2,228,143 2,092,214 Total liabilities and shareholders’ equity 47,187,469 43,320,686 Dividends received 30,418 30,086

84 85 Consolidated Statement of Changes in Equity For the Year Ended December 31, 2012

Attributable to the equity holders of the Bank

Share Share Issue Issue Capital – Capital – Premium – Premium – Cash Non- Other Result Non- Total Common Preferred Common Preferred Contribution distributable Distributable Treasury Retained Components of the controlling Shareholders’ Shares Shares Shares Shares to Capital Reserves Reserves Shares Earnings of Equity Year Total Interest Equity LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Balance at January 1, 2012 438,197 17,243 657,846 359,633 72,586 696,360 380,215 (103,912) 328,515 21,056 544,239 3,411,978 141,172 3,553,150 Net profits for the year ------564,737 564,737 13,552 578,289 Other comprehensive income ------(133,786) - (133,786) - (133,786) Total comprehensive income ------(133,786) 564,737 430,951 13,552 444,503

Appropriation of 2011 profits - - - - 133,284 1,505 - 172,828 - (307,617) - - - Distribution of dividends on ordinary shares - - 443 - - - - (210,712) (210,269) - (210,269) Distribution of dividends on preferred shares ------(25,910) (25,910) - (25,910) Issue of preferred shares - 1,881 224,243 ------226,124 - 226,124 Employees' share-based payments 389 - 1,360 - - (587) - - (2,247) - - (1,085) - (1,085) Entities deconsolidated during the year - - - - (8,219) (19,637) - 24,690 420 - (2,746) - (2,746) Entities under equity method ------(723) - - (723) - (723) Treasury shares transactions - - - - - (24,583) - 83,667 - - - 59,084 - 59,084 Non-controlling interest share of capital ------(12,840) (12,840) Non-controlling interest share of reserves - - - - - (138) (4,308) - 5,682 43,810 - 45,046 (45,046) - Reserve for share option agreements ------6,844 - - - 6,844 6,844 Transfer between reserves - - - - - 12,086 186,781 - (200,788) 1,921 - - - Other movements - - - - - (212) 6 - 266 - - 60 - 60 Balance at December 31, 2012 438,586 19,124 659,206 583,876 72,586 808,434 551,406 (20,245) 328,223 (66,579) 564,737 3,939,354 96,838 4,036,192 Balance at January 1, 2011 before early adoption of IFRS 9 436,990 17,243 652,938 359,633 72,586 549,550 505,597 (37,163) 209,541 195,814 508,556 3,471,285 177,450 3,648,735 Effect of IFRS 9 early adoption ------(5,666) (101,875) - (107,541) - (107,541) Balance at January 1, 2011 after early adoption of IFRS 9 436,990 17,243 652,938 359,633 72,586 549,550 505,597 (37,163) 203,875 93,939 508,556 3,363,744 177,450 3,541,194 Net profits for the year ------544,239 544,239 6,312 550,551 Other comprehensive income ------(75,950) - (75,950) - (75,950) Total comprehensive income ------(75,950) 544,239 468,289 6,312 474,601

Appropriation of 2010 profits - - - - - 147,469 18,822 - 111,452 - (277,743) - - - Distribution of dividends on ordinary shares ------(208,671) (208,671) - (208,671) Distribution of dividends on preferred shares ------(22,142) (22,142) - (22,142) Employees' share-based payments 1,207 - 4,908 - - (1,720) - - - - - 4,395 - 4,395 Entities deconsolidated during the year - - - - - (348) (4,739) - 2,886 1,140 - (1,061) - (1,061) Entities under equity method ------594 - - 594 - 594 Treasury shares transactions - - - - - (1,193) (66,749) - - - (67,942) - (67,942) Non-controlling interest share of capital ------(41,145) (41,145) Non-controlling interest share of reserves - - - - (7,395) (2,295) - 11,810 (675) - 1,445 (1,445) - Reserve for share option agreements ------(126,992) - - - - (126,992) - (126,992) Transfer between reserves - - - - - 9,628 (10,187) - (2,043) 2,602 - - - - Other movements - - - - - 369 9 - (59) - - 319 - 319 Balance at December 31, 2011 438,197 17,243 657,846 359,633 72,586 696,360 380,215 (103,912) 328,515 21,056 544,239 3,411,978 141,172 3,553,150

86 87 notes to the consolidated financial statements at December 31, 2012 Notes' Index

I. Corporate Information 90 28. Investments in Associates 138 2. Accounting Policies 90 29. Property and Equipment 139 3. Segment Reporting 111 30. Intangible Fixed Assets 140 4. Interest and Similar Income 114 31. Non-current Assets Held for Sale 141 5. Interest and Similar Expense 114 32. Other Assets 142 6. Fee and Commission Income 115 33. Goodwill 143 7. Fee and Commission Expense 115 34. Due to Central Banks 144 8. Net Gain Financial Assets at Fair Value 35. Due to Banks and Financial Institutions 145 through Profit or Loss 116 36. Customers’ Deposits at Amortised Cost 146 9. Net Gain on Sale of Financial Assets 37. Deposits from Related Parties at at Amortised Cost 117 Amortised Cost 147 10. Net Gain on Sale of Subsidiaries 38. Other Liabilities 147 and Associates 118 39. Provisions for Risks and Charges 148 11. Other Operating Income 118 40. Share Capital 150 12. Net Credit Losses 119 41. Issue Premiums 152 13. Personnel Expenses 119 42. Cash Contribution to Capital 153 14. Other Operating Expenses 122 43. Non-distributable Reserves 154 15. Income Tax 123 44. Distributable Reserves 156 16. Profit from Discontinued Operations 125 45. Proposed Dividends 157 17. Earnings per Share 126 46. Share-based Payments 157 18. Cash and Balances with Central Banks 126 47. Treasury Shares 160 19. Due from Banks and Financial Institutions 127 48. Other Components of Equity 161 20. Loans to Banks and Financial Institutions 49. Non-controlling Interest 162 and Reverse Repurchase Agreements 128 50. Cash and Cash Equivalents 162 21. Financial Assets Given as Collateral 128 51. Fair Value of Financial Instruments 163 22. Derivative Financial Instruments 128 52. Contingent Liabilities, Commitments 23. Financial Assets at Fair Value through and Leasing Arrangements 167 Profit or Loss 131 53. Assets under Management 170 24. Loans and Advances to Customers 54. Related-party Transactions 170 at Amortised Cost 132 55. Risk Management 172 25. Loans and Advances to Related Parties 56. Credit Risk 174 at Amortised Cost 135 57. Market Risk 188 26. Financial Assets at Amortised Cost 136 58. Liquidity Risk 196 27. Financial Assets at Fair Value through 59. Operational Risk 204 Other Comprehensive Income 137 60. Capital Management 204

88 89 The consolidated financial statements are presented until the date when such control ceases. Control is period, during which the associate was controlled. I. Corporate Information in Lebanese Pounds (LBP) and all values are rounded achieved where the Group has the power to govern Bank Audi sal - Audi Saradar Group (the Bank) is to the nearest million, except when otherwise the financial and operating policies of an entity so 2.2. Changes in Accounting Policies a Lebanese joint stock company registered since indicated. as to obtain benefits from its activities. The financial The accounting policies adopted are consistent with 1962 in Lebanon under No. 11347 at the Register of statements of the subsidiaries are prepared for those of the previous financial year, except for the Commerce and under No. 56 on the banks’ list at the Statement of Compliance the same reporting period as the parent company, following new and amended IFRS effective as of Bank of Lebanon. The Bank’s head office is located using consistent accounting policies. All intra-group January 1, 2012: in Bank Audi Plaza, Omar Daouk Street, Beirut, The consolidated financial statements have balances, transactions, unrealised gains and losses Lebanon. The Bank’s shares are listed on the Beirut been prepared in accordance with International resulting from intra-group transactions and dividends IFRS 7 Financial Instruments: Disclosures — Enhanced Stock Exchange and London SEAQ. Financial Reporting Standards (IFRS) as issued by the are eliminated in full. International Accounting Standards Board (IASB), Derecognition Disclosure Requirements Non-controlling interest represents the portion The amendment requires additional disclosure about The Bank, together with its affiliated banks and and the regulations of the Central Bank of Lebanon of profit or loss and net assets of subsidiaries financial assets that have been transferred but not subsidiaries (collectively “the Group”), provides a and the Banking Control Commission (BCC). not owned, directly or indirectly by the Bank. derecognised to enable the user of the Group’s full range of Retail, Commercial, Investment and Non-controlling interests are presented separately financial statements to understand the relationship Private Banking activities through its headquarters, Presentation of Financial Statements in the Consolidated Income Statement, Consolidated with those assets that have not been derecognised as well as its branches in Lebanon and its presence in Statement of Comprehensive Income, and within and their associated liabilities. In addition, the Europe, the Middle East and North Africa. The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding Equity in the Consolidated Statement of Financial amendment requires disclosures about the entity’s Position, but separate from Parent Shareholders’ continuing involvement in derecognised assets to During 2012, the Group started its operations recovery or settlement within one year after the Equity. Losses within a subsidiary are attributed to enable the users to evaluate the nature of, and risks in Turkey under its newly established subsidiary, statement of financial position date (current) and the Non-controlling Interest even if that results in a associated with, such involvement. The amendment Odeabank. Besides, the Group decided to discontinue more than one year after the statement of financial deficit balance. is effective for annual periods beginning on or after its banking operations through Bank Audi Monaco position date (non-current) is presented in the Risk A change in the ownership interest of a subsidiary, July 1, 2011. The Group does not have any assets with sam pursuant to the decision of the General Assembly Management notes. without a loss of control, is accounted for as an these characteristics so there has been no effect on of Bank Audi Monaco dated July 27, 2012. Financial assets and financial liabilities are offset equity transaction. If the Group loses control over a the presentation of its financial statements. subsidiary, it: The consolidated financial statements were and the net amount is reported in the consolidated • Derecognises the assets (including goodwill) and 2.3. Early Adoption of Phase I authorised for issue in accordance with the Board of statement of financial position only when there is liabilities of the subsidiary; Directors’ resolution on March 21, 2013. a legally enforceable right to offset the recognised of IFRS 9 amounts and there is an intention to settle on a net • Derecognises the carrying amount of any basis, or to realise the assets and settle the liability non-controlling interest; In compliance with Circular 265 of the Lebanese 2. Accounting Policies simultaneously. This is not generally the case with • Derecognises the cumulative translation differences, Banking Control Commission issued on September 23, master netting agreements, therefore the related recorded in equity; 2010, the Group adopted, effective January 1, 2011, 2.1. Basis of Preparation assets and liabilities are presented gross in the • Recognises the fair value of the consideration received; Phase I of IFRS 9, as issued in November 2009 and consolidated statement of financial position. Income • Recognises the fair value of any investment retained; reissued in October 2010 and related consequential The consolidated financial statements have been and expense will not be offset in the Consolidated • Recognises any surplus or deficit in profit or loss; amendments to other International Financial prepared on a historical cost basis except for: a) Income Statement unless required or permitted by any • Reclassifies the parent’s share of components Reporting Standards. The effective application the restatement of certain tangible real estate accounting standard or interpretation, as specifically previously recognised in Other Comprehensive date stipulated by the Standard is annual periods properties in Lebanon according to the provisions of disclosed in the accounting policies of the Group. Income to Profit or Loss or Retained Earnings, as beginning on or after January 1, 2015. The initial Law No. 282 dated December 30, 1993, and b) the appropriate. application date of this standard with respect to measurement at fair value of derivative financial Basis of Consolidation the Group is January 1, 2011, in accordance with the instruments, financial assets at fair value through Where the Group loses control of a subsidiary, such transitional provisions of the standard. profit or loss and financial assets at fair value through that the former subsidiary becomes an associate other comprehensive income. The consolidated financial statements comprise the accounted for under the equity method, the effect Phase I of IFRS 9 addresses the classification and financial statements of the Group and its subsidiaries is that the Group's interest in the former subsidiary measurement of financial assets and financial The carrying values of recognised assets and liabilities as at December 31, 2012. (associate) is reported: liabilities. IAS 39 is still being followed for impairment that are hedged items in fair value hedges, and • Using the equity method from the date on which of financial assets and hedge accounting, as these otherwise carried at amortised cost, are adjusted to Subsidiaries are fully consolidated from the date control is lost in the current reporting period; and will be covered when the IASB completes phases 2 record changes in fair value attributable to the risks of acquisition, being the date on which the Group • Using full consolidation for any earlier part of the and 3 of IFRS 9. that are being hedged. obtains control, and continue to be consolidated current reporting period, and of any earlier reporting

90 91 The Group did not restate comparative information as as at January 1, 2011 following the early adoption of IAS 19 Employee Benefits (Revised) with IAS 32 Financial Instruments: Presentation. The permitted by the transitional provisions of IFRS 9 and IFRS 9 which resulted in adjustment to the opening The IASB has issued numerous amendments to disclosures also apply to recognised financial has recognised impact of early adoption of IFRS 9 as retained earnings and cumulative changes in fair IAS 19. These range from fundamental changes instruments that are subject to an enforceable at January 1, 2011, in the opening retained earnings value of financial instruments designated at fair such as removing the corridor mechanism and the master netting arrangement or similar agreement, and other components of equity as of that date. value through other comprehensive income as at concept of expected returns on plan assets to simple irrespective of whether they are set off in accordance January 1, 2011: clarifications and re-wording. The Group is currently with IAS 32. These amendments will not impact The schedule below summarises the new classification assessing the impact that this standard will have on the Group’s financial position or performance and and amendments to the Group financial statements the financial position and performance, but based become effective for annual periods beginning on or on the preliminary analyses, no material impact is after January 1, 2013. Financial Available for Financial Assets Financial expected. These amendments become effective for Assets Held Sale Financial Classified as Loans Instruments annual periods beginning on or after January 1, 2013. for Trading Instruments and Receivables Held to Maturity Total IFRS 10 Consolidated Financial Statements LBP Million LBP Million LBP Million LBP Million LBP Million IFRS 10 replaces the portion of IAS 27 Consolidated Carrying value as at December 31, 2010 IAS 28 Investments in Associates and Joint Ventures and Separate Financial Statements that addresses the according to IAS 39 1,009,099 7,677,662 7,011,522 215,031 15,913,314 Reclassification following early (as revised in 2011) accounting for consolidated financial statements. It adoption of IFRS 9: As a consequence of the new IFRS 11 Joint also includes the issues raised in SIC-12 Consolidation Financial instruments reclassified to Arrangements and IFRS 12 Disclosure of Interests in — Special Purpose Entities. IFRS 10 establishes a single fair value through profit or loss: Debt securities 782,159 5,481 137,920 - 925,560 Other Entities, IAS 28 Investments in Associates has been control model that applies to all entities including Equity instruments 74,588 32,397 - - 106,985 renamed IAS 28 Investments in Associates and Joint special purpose entities. The changes introduced Debt securities reclassified at Ventures, and describes the application of the equity by IFRS 10 will require Management to exercise amortised cost 138,994 7,260,479 6,872,357 215,031 14,486,861 method to investments in joint ventures, in addition significant judgment to determine which entities Equity instruments reclassified to fair value through other comprehensive to associates. The revised standard is not expected to are controlled, and therefore, are required to income 6,293 255,716 - - 262,009 impact the Group’s financial position or performance be consolidated by a parent, compared with the Total reclassified 1,002,034 7,554,073 7,010,277 215,031 15,781,415 and becomes effective for annual periods beginning Effect on opening cumulative fair requirements that were in IAS 27. The Group is value changes on financial on or after January 1, 2013. currently assessing the impact that this standard instruments designated at fair value through other will have on its financial position and performance. comprehensive income - (126,233) - - (126,233) IAS 32 Offsetting Financial Assets and Financial This standard becomes effective for annual periods Less: deferred taxes - 16,437 - - 16,437 Liabilities — Amendments to IAS 32 beginning on or after January 1, 2013. Effect of previous amendments to - IAS 39 7,921 - - 7,921 These amendments clarify the meaning of “currently Effect on opening cumulative fair value - has a legally enforceable right to set-off”. The IFRS 11 Joint Arrangements changes on financial instruments at fair value through other comprehensive amendments also clarify the application of the IAS IFRS 11 replaces IAS 31 Interests in Joint Ventures income, net (101,875) - - (101,875) 32 offsetting criteria to settlement systems (such as and SIC-13 Jointly-Controlled Entities — Non-monetary Effect on opening retained earnings (7,065) 2,644 (1,245) - (5,666) central clearing house systems) which apply gross Contributions by Venturers. IFRS 11 removes the option settlement mechanisms that are not simultaneous. to account for jointly-controlled entities (JCEs) using 2.4. Standards Issued but not IAS 1 Financial Statement Presentation – Presentation These amendments are not expected to impact proportionate consolidation. Instead, JCEs that meet yet Effective of Items of Other Comprehensive Income (OCI) the Group’s financial position or performance and the definition of a joint venture must be accounted The amendments to IAS 1 change the grouping become effective for annual periods beginning on or for using the equity method. IFRS 11 is not expected to Standards issued but not yet effective up to the of items presented in OCI. Items that could be after January 1, 2014. impact the Group’s financial position or performance date of issuance of the Group’s financial statements reclassified (or “recycled”) to profit or loss at a future and becomes effective for annual periods beginning are listed below. This listing of standards and point in time (for example net gain on hedge of net IFRS 7 Disclosures — Offsetting Financial Assets on or after January 1, 2013. interpretations issued are those that the Group investment, exchange differences on translation and Financial Liabilities — Amendments to IFRS 7 reasonably expects to have an impact on disclosures, of foreign operations, and net movement on cash These amendments require an entity to disclose IFRS 12 Disclosure of Involvement with Other Entities financial position or performance when applied at flow hedges) would be presented separately from information about rights to set-off and related IFRS 12 includes all of the disclosures that were a future date. The Group intends to adopt these items that will never be reclassified (for example arrangements (e.g. collateral agreements). The previously in IAS 27 related to consolidated financial standards when they become effective. actuarial gains and losses on defined benefit plans, disclosures would provide users with information statements, as well as all of the disclosures that revaluation of land and buildings, and net loss or that is useful in evaluating the effect of netting were previously included in IAS 31 and IAS 28. gain on financial assets at fair value through OCI). arrangements on an entity’s financial position. These disclosures relate to an entity’s interests in The amendment affects presentation only and The new disclosures are required for all recognised subsidiaries, joint arrangements, associates and has no impact on the Group’s financial position or financial instruments that are set off in accordance structured entities. A number of new disclosures are performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012.

92 93 also required, but have no impact on the Group’s 2.5. Summary of Significant into the Bank’s presentation currency at the rate of Any goodwill arising on the acquisition of a foreign financial position or performance. This standard Accounting Policies exchange as at the reporting date, and their income operation and any fair value adjustments to the becomes effective for annual periods beginning on statements are translated at the weighted average carrying amounts of assets and liabilities arising on or after January 1, 2013. Foreign Currency Translation exchange rates for the year. Exchange differences the acquisition are treated as assets and liabilities of arising on translation are taken directly to a separate the foreign operations and translated at closing rate. IFRS 13 Fair Value Measurement The consolidated financial statements are presented component of equity. On disposal of a foreign entity, IFRS 13 establishes a single source of guidance under in Lebanese Lira which is the Group’s presentation the deferred cumulative amount recognised in The table below presents the exchange rates of the IFRS for all fair value measurements. IFRS 13 does not currency. Each entity in the Group determines its equity relating to that particular foreign operation currencies used to translate assets, liabilities and change when an entity is required to use fair value, own functional currency and items included in the is recognised in the Consolidated Income Statement. statement of income items of foreign branches and but rather provides guidance on how to measure financial statements of each entity are measured subsidiaries: fair value under IFRS when fair value is required or using that functional currency. permitted. This standard will require the Group to review its fair value measurement policies across all (i) Transactions and Balances 2012 2011 asset and liabilities classes. The Group is currently Transactions in foreign currencies are initially Year-end Rate Average Rate Year-end Rate Average Rate assessing the impact that this standard will have on recorded at the functional currency rate of exchange LBP LBP LBP LBP the financial position and performance, but based ruling at the date of the transaction. US Dollar 1,507.50 1,507.50 1,507.50 1,507.50 on the preliminary analyses, no material impact is Euro 1,987.79 1,948.85 1,948.59 2,102.20 expected. This standard becomes effective for annual Monetary assets and liabilities denominated Swiss Franc 1,645.38 1,616.84 1,602.87 1,704.78 periods beginning on or after January 1, 2013. in foreign currencies are retranslated at the Syrian Lira 19.48 22.4 27.05 31.30 functional currency rate of exchange at the date of Turkish Lira 841.14 837.52 786.18 902.69 Annual Improvements May 2012 the statement of financial position. All differences Jordanian Dinar 2,123.24 2,127.09 2,126.23 2,126.62 are taken to “Net Gain on Financial Assets at Fair Egyptian Pound 243.58 248.2 249.97 253.67 These improvements will not have an impact on the Value through Profit or Loss” in the Consolidated Sudanese Dinar 251.15 402.81 563.15 566.19 Group, but include: Income Statement. Saudi Riyal 401.94 401.97 401.98 401.97 Qatari Riyal 414.05 414.03 413.99 413.98 IAS 1 Presentation of Financial Statements Non-monetary items that are measured in terms of This improvement clarifies the difference between historical cost in a foreign currency are translated voluntary additional comparative information and using the exchange rates as at the dates of the initial the minimum required comparative information. financial asset not at fair value through profit or loss, transactions. Non-monetary items measured at fair Financial Instruments – Classification Generally, the minimum required comparative particular transaction costs. Assets are subsequently value in a foreign currency are translated using the and Measurement information is the previous period. measured at amortised cost or fair value. exchange rates at the date when the fair value was (i) Date of Recognition determined. The gain or loss arising on retranslation All financial assets and liabilities are initially An entity may, at initial recognition, irrevocably IAS 32 Financial Instruments’ Presentation of non-monetary items is treated in line with the recognised on the trade date, i.e. the date that designate a financial asset as measured at fair value This improvement clarifies that income taxes arising recognition of gain or loss on change in fair value the Group becomes a party to the contractual through profit or loss if doing so eliminates or from distributions to equity holders are accounted of the item (i.e. translation differences on items provisions of the instrument. This includes “regular significantly reduces a measurement or recognition for in accordance with IAS 12 Income Taxes. whose fair value gain or loss is recognised in “Other way trades”: purchases or sales of financial assets inconsistency (sometimes referred to as an Comprehensive Income” or “Profit or Loss” is also “accounting mismatch”) that would otherwise arise IAS 34 Interim Financial Reporting that require delivery of assets within the time frame recognised in “Other Comprehensive Income” or from measuring assets or liabilities or recognising the The amendment aligns the disclosure requirements generally established by regulation or convention in “Profit or Loss” respectively). gains and losses on them on different bases. An entity for total segment assets with total segment liabilities the market place. is required to disclose such financial assets separately in interim financial statements. This clarification also Any goodwill arising on the acquisition of a foreign (ii) Classification and Measurement from those mandatorily measured at fair value. ensures that interim disclosures are aligned with operation and any fair value adjustments to the of Financial Instruments annual disclosures. carrying amounts of assets and liabilities arising on a. Financial Assets Financial Assets at Amortised Cost the acquisition are treated as assets and liabilities of The classification of financial assets depends on the Debt instruments are subsequently measured at These improvements are effective for annual periods the foreign operations and translated at closing rate. basis of each entity's business model for managing amortised cost less any impairment loss (except for beginning on or after January 1, 2013. the financial assets and the contractual cash flow debt instruments that are designated at fair value (ii) Group Companies characteristics of the financial asset. Assets are through profit or loss upon initial recognition) if On consolidation, the assets and liabilities of initially measured at fair value plus, in the case of a they meet the following two conditions: subsidiaries and overseas branches are translated

94 95 • The asset is held within a business model whose Balances with Central Banks, Due from Banks and Financial These financial assets are recorded in the Consolidated • Financial liabilities that arise when a transfer of a objective is to hold assets in order to collect Institutions, and Loans and Advances to Customers and Statement of Financial Position at fair value. Changes financial asset does not qualify for derecognition or contractual cash flows; and Related Parties – at Amortised Cost in fair value and dividend income are recorded under when the continuing involvement approach applies; • The contractual terms of the instrument give After initial measurement, “Balances with Central “Net Gain on Financial Assets at Fair Value through • Financial guarantee contracts and commitments rise on specified dates to cash flows that are Banks”, “Due from Banks and Financial Institutions”, Profit or Loss” in the Consolidated Income Statement. to provide a loan at a below-market interest rate solely payments of principal and interest on the and “Loans and Advances to Customers and Related Gains and losses arising from the derecognition of which, after initial recognition, are subsequently principal amount outstanding. Parties” are subsequently measured at amortised equity instruments at fair value through profit or measured at the higher of the amount determined in cost using the EIR, less allowance for impairment. loss are also reflected under “Net Gain from Financial accordance with IAS 37 Provisions, Contingent Liabilities These financial assets are initially recognised at cost, Amortised cost is calculated by taking into account Assets at Fair Value through Profit or Loss” in the and Contingent Assets and the amount initially being the fair value of the consideration paid for the any discount or premium on acquisition and fees Consolidated Income Statement. recognised less, when appropriate, cumulative acquisition of the investment. All transaction costs and costs that are an integral part of the EIR. The amortisation recognised in accordance with directly attributed to the acquisition are also included amortisation is included in “Interest and Similar Financial Assets at Fair Value through Other IAS 18 Revenue. in the cost of investment. After initial measurement, Income” in the Consolidated Income Statement. Comprehensive Income these financial assets are measured at amortised cost The losses arising from impairment are recognised Investments in equity instruments designated The Group may, at initial recognition, irrevocably using the effective interest rate method (EIR), less in the Consolidated Income Statement in at initial recognition as not held for trading are designate a financial liability as measured at fair allowance for impairment. Amortised cost is calculated “Net Credit Losses”. classified at fair value through other comprehensive value through profit or loss when: by taking into account any discount of premium on income. • Doing so results in more relevant information, acquisition and fees and costs that are an integral Financial Assets at Fair Value through Profit or Loss because it either eliminates or significantly reduces part of the effective interest rate. The amortisation is Included in this category are those debt instruments These financial assets are initially measured at fair a measurement or recognition inconsistency included in “Interest and Similar Income” in the Income that do not meet the conditions in “Financial value plus transaction costs. Subsequently, they (sometimes referred to as “an accounting mismatch”) Statement. The losses arising from impairment are Assets at Amortised Cost” above, debt instruments are measured at fair value, with gains and losses that would otherwise arise from measuring assets or recognised in the Income Statement in “Impairment designated at fair value through profit or loss upon arising from changes in fair value recognised in liabilities or recognising the gains and losses on them Losses on Other Financial Assets”. initial recognition, and equity instruments at fair other comprehensive income and accumulated on different bases; or value through profit or loss. under equity. The cumulative gain or loss will not be • A group of financial liabilities or financial assets and Although the objective of an entity's business reclassified to the consolidated income statement on financial liabilities is managed and its performance model may be to hold financial assets in order to Debt Instruments at Fair Value through Profit or Loss disposal of the investments. is evaluated on a fair value basis, in accordance collect contractual cash flows, the entity need not These financial assets are recorded in the Consolidated with a documented risk management or investment hold all of those instruments until maturity. Thus Statement of Financial Position at fair value. Changes Dividends on these investments are recognised strategy, and information about the Group is an entity's business model can be to hold financial in fair value and interest income are recorded under under “ Revenue from Financial Assets at Fair Value provided internally on that basis to the Group's key assets to collect contractual cash flows even when “Net Gain on Financial Assets at Fair Value through through Other Comprehensive Income” in the Management personnel. sales of financial assets occur. However, if more than Profit or Loss” in the Consolidated Income Statement, Consolidated Income Statement when the Group’s an infrequent number of sales are made out of a showing separately those related to financial assets right to receive payment of dividend is established The amount of changes in fair value of a financial portfolio, the entity needs to assess whether and designated at fair value upon initial recognition in accordance with IAS 18: “Revenue”, unless the liability designated at fair value through profit how such sales are consistent with an objective of from those mandatorily measured at fair value. Gains dividends clearly represent a recovery of part of the or loss at initial recognition that is attributable to collecting contractual cash flows. If the objective and losses arising from the derecognition of debt cost of the investment. changes in credit risk of that liability is recognised of the entity's business model for managing those instruments and other financial assets at fair value in “Other Comprehensive Income”, unless such financial assets changes, the entity is required to through profit or loss are also reflected under “Net b. Financial Liabilities recognition would create an accounting mismatch in reclassify financial assets. Gain on Financial Assets at Fair Value through Profit Liabilities are initially measured at fair value plus, the Consolidated Income Statement. Changes in fair or Loss” in the Consolidated Income Statement, in the case of a financial liability not at fair value value attributable to changes in credit risk are not Gains and losses arising from the derecognition showing separately those related to financial assets through profit or loss, particular transaction costs. reclassified to Consolidated Income Statement. of financial assets measured at amortised cost designated at fair value upon initial recognition Liabilities are subsequently measured at amortised are reflected under “Net Gain on Sale of Financial from those mandatorily measured at fair value. cost or fair value. Debt Issued and Other Borrowed Funds and Assets at Amortised Cost” in the Consolidated Subordinated Notes Income Statement. Equity Instruments at Fair Value through Profit or Loss The Group classifies all financial liabilities as Financial instruments issued by the Group, which Investments in equity instruments are classified at subsequently measured at amortised cost using the are not designated at fair value through profit or fair value through profit or loss, unless the Group effective interest method, except for: loss, are classified as liabilities where the substance designates at initial recognition an investment that • Financial liabilities at fair value through profit or loss of the contractual arrangement results in the is not held for trading as at fair value through other (including derivatives); Group having an obligation either to deliver cash comprehensive income.

96 97 or another financial asset to the holder, or to satisfy in the fair value of derivatives are recognised in “Net If a financial asset is reclassified so that it is (ii) Financial Liabilities the obligation other than by the exchange of a fixed Gain on Financial Assets at Fair Value through Profit measured at fair value, its fair value is determined A financial liability is derecognised when the amount of cash or another financial asset for a fixed or Loss” in the Consolidated Income Statement. at the reclassification date. Any gain or loss arising obligation under the liability is discharged or number of own equity shares. from a difference between the previous carrying cancelled or expires. Where an existing financial An embedded derivative is separated from the host amount and fair value is recognised in “Profit liability is replaced by another from the same lender After initial measurement, debt issued and other and accounted for as a derivative if, and only if: or Loss”. If a financial asset is reclassified so on substantially different terms, or the terms of borrowings and subordinated notes are subsequently (a) The hybrid contract contains a host that is not that it is measured at amortised cost, its fair an existing liability are substantially modified, measured at amortised cost using the effective an asset within the scope of IFRS 9; value at the reclassification date becomes its new such an exchange or modification is treated as interest rate method. Amortised cost is calculated (b) The economic characteristics and risks of the carrying amount. a derecognition of the original liability and the by taking into account any discount or premium on embedded derivative are not closely related recognition of a new liability. The difference the issue and costs that are an integral part of the to the economic characteristics and risks of the Derecognition of Financial Assets and between the carrying value of the original financial effective interest rate method. host; Financial Liabilities liability and the consideration paid is recognised in (c) A separate instrument with the same terms the Consolidated Income Statement. A compound financial instrument which contains as the embedded derivative would meet the (i) Financial Assets both a liability and an equity component is separated definition of a derivative; and A financial asset (or, where applicable a part ofa Repurchase and Reverse at the issue date. A portion of the net proceeds of (d) The hybrid contract is not measured at fair financial asset or part of a group of similar financial Repurchase Agreements the instrument is allocated to the debt component value with changes in fair value recognised in assets) is derecognised when: on the date of issue based on its fair value (which is “Profit or Loss”. Securities sold under agreements to repurchase at generally determined based on the quoted market • The rights to receive cash flows from the asset a specified future date are not derecognised from prices for similar debt instruments). The equity (iii) Day 1 Profit or Loss have expired; the Consolidated Statement of Financial Position component is assigned the residual amount after When the transaction price differs from the fair value • The Group has transferred its rights to receive cash as the Group retains substantially all the risks and deducting from the fair value of the instrument of other observable current market transactions in the flowsfrom the asset or has assumed an obligation to rewards of ownership. The corresponding cash as a whole the amount separately determined for same instrument or based on a valuation technique pay the received cash flows in full without material received is recognised in the Consolidated Statement the debt component. The value of any derivative whose variables include only data from observable delay to a third party under a “pass-through” of Financial Position as an asset with a corresponding features (such as a call option) embedded in the markets, the Group immediately recognises the arrangement; and either: obligation to return it, including accrued interest compound financial instrument other than the equity difference between the transaction price and fair - The Group has transferred substantially all the as a liability within “Cash Collateral on Securities component is included in the debt component. value (a “Day 1” profit or loss) in the Consolidated risks and rewards of the asset, or Lent and Repurchase Agreements”, reflecting the Income Statement. In cases where fair value is - The Group has neither transferred nor retained transaction’s economic substances as a loan to Due to Central Banks, Banks and Financial Institutions and determined using data which is not observable, the substantially all the risks and rewards of the asset, the Group. The difference between the sale and Customers’ and Related Parties’ Deposits difference between the transaction price and model but has transferred control of the asset. repurchase prices is treated as interest expense and After initial measurement, due to banks and financial value is only recognised in the Consolidated Income is accrued over the life of the agreement using the institutions, customers’ and related parties’ deposits Statement when the inputs become observable, or When the Group has transferred its rights to receive EIR. When the counterparty has the right to sell or are measured at amortised cost less amounts repaid when the instrument is derecognised. cash flows from an asset or has entered intoa repledge the securities, the Group reclassifies those using the effective interest rate method. Amortised pass-through arrangement, and has neither securities in its Statement of Financial Position to cost is calculated by taking into account any discount (iv) Reclassification of Financial Assets transferred nor retained substantially all the risks “Financial Assets Given as Collateral”. or premium on the issue and costs that are an integral The Group reclassifies financial assets if the objective and rewards of the asset nor transferred control of part of the effective interest rate method. of the business model for managing those financial the asset, the asset is recognised to the extent of the Conversely, securities purchased under agreements assets changes. Such changes are expected to be very Group’s continuing involvement in the asset. In that to resell at a specified future date are not recognised c. Derivatives Recorded at Fair Value through infrequent. Such changes are determined by the case, the Group also recognises an associated liability. in the Consolidated Statement of Financial Position. Profit or Loss Group’s Senior Management as a result of external The transferred asset and the associated liability The consideration paid, including accrued interest, is The Group uses derivatives such as interest rate or internal changes when significant to the Group’s are measured on a basis that reflects the rights and recorded in the Consolidated Statement of Financial swaps and futures, credit default swaps, cross operations and demonstrable to external parties. Position within “Cash Collateral on Securities Borrowed” currency swaps, forward foreign exchange contracts obligations that the Group has retained. and “Reverse Purchase Agreements”, reflecting the and options on interest rates, foreign currencies and If financial assets are reclassified, the reclassification transaction’s economic substance as a loan by the equities. is applied prospectively from the reclassification Continuing involvement that takes the form of a Group. The difference between the purchase and date, which is the first day of the first reporting guarantee over the transferred asset is measured resale prices is recorded in “Net Interest Income” and Derivatives are recorded at fair value and carried period following the change in business model that at the lower of the original carrying amount of the is accrued over the life of the agreement using the EIR. as assets when their fair value is positive and as results in the reclassification of financial assets. Any asset and the maximum amount of consideration If securities purchased under ”Agreement to Resell” liabilities when their fair value is negative. Changes previously recognised gains, losses or interest are that the Group could be required to repay. are subsequently sold to third parties, the obligation not restated.

98 99 to return the securities is recorded as a short sale one or more events that has occurred after the initial Loans, together with the associated allowance, are used for estimating future cash flows are reviewed within “Financial Liabilities at Fair Value through recognition of the asset (an incurred “loss event”) written off when there is no realistic prospect of regularly to reduce any differences between loss Profit or Loss” and measured at fair value with any and that loss event (or events) has an impact on future recovery and all collateral has been realised or estimates and actual loss experience. gains or losses included in “Net Gain on Financial the estimated future cash flows of the financial has been transferred to the Group. If, in a subsequent Instruments at Fair Value through Profit or Loss” in asset or the group of financial assets that can be year, the amount of the estimated impairment loss (ii) Renegotiated Loans the Consolidated Income Statement. reliably estimated. increases or decreases because of an event occurring Where possible, the Group seeks to restructure loans after the impairment was recognised, the previously rather than to take possession of collateral. This may involve extending the payment arrangements and Determination of Fair Value Evidence of impairment may include indications recognised impairment loss is increased or reduced the agreement of new loan conditions. Once the that the borrower or a group of borrowers by adjusting the allowance account. If a future The fair value for financial instruments traded in terms have been renegotiated, any impairment is is experiencing significant financial difficulty, the write-off is later recovered, the recovery is credited active markets at the statement of financial position measured using the original effective interest rate probability that they will enter bankruptcy or other to the “Net Credit Losses” in the Consolidated date is based on their quoted market price or dealer as calculated before the modification of terms and financial reorganisation default or delinquency in Income Statement. price quotations (bid price for long positions and ask the loan is no longer considered past due. The loans interest or principal payments, and where observable price for short positions), without any deduction for continue to be subject to an individual or collective data indicates that there is a measurable decrease The present value of the estimated future cash flows transaction cost. impairment assessment, calculated using the loan’s in the estimated future cash flows, such as changes is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the original effective interest rate. For all other financial instruments not traded in in arrears or economic conditions that correlate with defaults. discount rate for measuring any impairment loss is an active market, the fair value is determined by (iii) Collateral Repossessed the current effective interest rate. The calculation of using appropriate valuation techniques. Valuation The Group occasionally acquires properties in the present value of the estimated future cash flows techniques include the discounted cash flow method, (i) Financial Assets at Amortised Cost settlement of loans and advances. Upon initial of a collateralised financial asset reflects the cash comparison to similar instruments for which market For financial assets carried at amortised cost (such recognition, those assets are measured at fair flows that may result from foreclosure less costs of observable prices exist, options pricing models and as due from banks and financial institutions, debt value as approved by the regulatory authorities. obtaining and selling the collateral, whether or not other relevant valuation models. instruments at amortised cost, loans and advances Subsequently, these properties are measured at the the foreclosure is probable. to customers and related parties), the Group first lower of carrying value or net realisable value. Certain financial instruments are recorded at fair assesses individually whether objective evidence For the purpose of a collective evaluation of value using valuation techniques in which current of impairment exists for financial assets that are Upon sale of repossessed assets, any gain or loss impairment, financial assets are grouped on the market transactions or observable market data are individually significant, or collectively for financial realised is recognised in the Consolidated Income basis of the Group’s internal credit grading system not available. Their fair value is determined using a assets that are not individually significant. If the Statement under “Other Operating Income” or that considers credit risk characteristics such as asset valuation model that has been tested against prices Group determines that no objective evidence of “Other Operating Expenses”. Gains resulting from type, industry, geographical location, collateral type, or inputs to actual market transactions and using impairment exists for an individually assessed the sale of repossessed assets are transferred to past-due status and other relevant factors. the Group’s best estimate of the most appropriate financial asset, it includes the asset in a group of “Reserves for Capital Increase” in the following model assumptions. Models are adjusted to reflect financial assets with similar credit risk characteristics financial year. Future cash flows on a group of financial assets the spread for bid and ask prices to reflect costs and collectively assesses them for impairment. Assets that are collectively evaluated for impairment are to close out positions, credit and debit valuation that are individually assessed for impairment and Hedge Accounting estimated on the basis of historical loss experience adjustments, liquidity spread and limitations in the for which an impairment loss is, or continues to be, for assets with credit risk characteristics similar The Group makes use of derivative instruments models, credit models and other relevant valuation recognised are not included in a collective assessment to those in the Group. Historical loss experience is to manage exposures to interest rate, foreign models. Also, profit or loss calculated when such of impairment. adjusted on the basis of current observable data to financial instruments are first recorded (“Day 1” currency and credit risks, including exposures arising reflect the effects of current conditions on which the from forecast transactions and firm commitments. In profit or loss) is deferred and recognised only when If there is objective evidence that an impairment historical loss experience is based and to remove the order to manage particular risks, the Group applies the inputs become observable or on derecognition loss has been incurred, the amount of the loss is effects of conditions in the historical period that do hedge accounting for transactions which meet the of the instrument. measured as the difference between the asset’s not exist currently. specified criteria. carrying amount and the present value of estimated Impairment of Financial Assets future cash flows (excluding future expected credit Estimates of changes in future cash flows reflect, and At inception of the hedge relationship, the Group The Group assesses at each statement of financial losses that have not yet been incurred). The carrying are directionally consistent with, changes in related formally documents the relationship between the position date whether there is any objective evidence amount of the asset is reduced through the use of observable data from year to year (such as changes hedged item and the hedging instrument, including that a financial asset or a group of financial assets an allowance account and the amount of the loss is in unemployment rates, property prices, commodity the nature of the risk, the objective and strategy is impaired. A financial asset or a group of financial recognised in the Consolidated Income Statement. prices, payment status, or other factors that are for undertaking the hedge, and the method that assets is deemed to be impaired if, and only if, there indicative of incurred losses in the Group and their will be used to assess the effectiveness of the is objective evidence of impairment as a result of magnitude). The methodology and assumptions hedging relationship.

100 101 At each hedge effectiveness assessment date, a (ii) Cash Flow Hedges of whether the fulfilment of the arrangement is of payments or receipts. The adjusted carrying hedge relationship must be expected to be highly For designated and qualifying cash flow hedges, the dependent on the use of a specific asset or assets and amount is calculated based on the original effective effective on a prospective basis and demonstrate effective portion of the gain or loss on the hedging the arrangement conveys a right to use the asset. interest rate and the change in the carrying amount that it was effective (retrospective effectiveness) for instrument is initially recognised directly in equity is recorded as “Interest and Similar Income” for the designated period in order to qualify for hedge in the “Cash Flow Hedge” reserve. The ineffective Group as a Lessee financial assets and “Interest and Similar Expense” accounting. A formal assessment is undertaken portion of the gain or loss on the hedging instrument Leases which do not transfer to the Group for financial liabilities. to ensure the hedging instrument is expected to is recognised immediately in the Consolidated substantially all the risks and benefits incidental to be highly effective in offsetting the designated Income Statement. When the forecast transaction ownership of the leased items are operating leases. Once the recorded value of a financial asset on a risk in the hedged item, both at inception and at subsequently results in the recognition of a Operating lease payments are recognised as an group of similar financial assets has been reduced each quarter end on an ongoing basis. A hedge is non-financial asset or a non-financial liability, the expense in the Consolidated Income Statement on due to an impairment loss, interest income continues expected to be highly effective if the changes in fair gains and losses previously recognised in the other a straight line basis over the lease term. Contingent to be recognised using the rate of interest used to value or cash flows attributable to the hedged risk comprehensive income are removed from the reserve rental payables are recognised as an expense in the discount the future cash flows for the purpose of during the period for which the hedge is designated and included in the initial cost of the asset or liability. period in which they are incurred. measuring the impairment loss. are expected to offset in a range of 80% to 125% and are expected to achieve such offset in future When the hedged cash flow affects the Consolidated Group as a Lessor (ii) Fee and Commission Income periods. Hedge ineffectiveness is recognised in the Income Statement, the gain or loss on the hedging Leases where the Group does not transfer The Group earns fee and commission income from a Consolidated Income Statement in “Net Gain (Loss) instrument is recorded in the corresponding substantially all the risks and benefits of ownership diverse range of services it provides to its customers. from Financial Instruments at Fair Value through income or expense line of the consolidated income of the asset are classified as operating leases. Initial Fee income can be divided into the following two Profit or Loss”. For situations where that hedged statement. When a hedging instrument expires, direct costs incurred in negotiating operating leases categories: item is a forecast transaction, the Group also or is sold, terminated, exercised, or when a hedge are added to the carrying amount of the leased asset and recognised over the lease term on the same basis assesses whether the transaction is highly probable no longer meets the criteria for hedge accounting, Fee Income Earned from Services that are Provided as rental income. Contingent rents are recognised as and presents an exposure to variations in cash any cumulative gain or loss existing in equity at that over a Certain Period of Time revenue in the period in which they are earned. flows that could ultimately affect the consolidated time remains in equity and is recognised when the Fees earned for the provision of services over a period income statement. hedged forecast transaction is ultimately recognised Recognition of Income of time are accrued over that period. These fees in the Consolidated Income Statement. When a include commission income and asset management, (i) Fair Value Hedges forecast transaction is no longer expected to occur, and Expenses custody and other management and advisory fees. For designated and qualifying fair value hedges, the the cumulative gain or loss that was reported in Revenue is recognised to the extent that it is change in the fair value of a hedging derivative is equity is immediately transferred to the Consolidated probable that the economic benefits will flow to the Loan commitment fees for loans that are likely to recognised in the Consolidated Income Statement. Income Statement. Group and the revenue can be reliably measured. be drawn down and other credit-related fees are Meanwhile, the change in the fair value of the The following specific recognition criteria must also deferred (together with any incremental costs) and hedged item attributable to the risk hedged is (iii) Hedge of a Net Investment be met before revenue is recognised. recognised as an adjustment to the EIR on the loan. recorded as part of the carrying value of the hedged Hedges of net investments in a foreign operation, When it is unlikely that a loan be drawn down, item and is also recognised in “Net Gain on Financial including a hedge of a monetary item that is (i) Interest and Similar Income and Expense the loan commitment fees are recognised over the Assets at Fair Value through Profit or Loss” in the accounted for as part of the net investment, are For all financial instruments measured at amortised commitment period on a straight line basis. Consolidated Income Statement. accounted for in a way similar to cash flow hedges. cost, interest income or expense is recorded using Gains or losses on the hedging instrument relating the EIR, which is the rate that exactly discounts Fee Income from Providing Transaction Services If the hedging instrument expires or is sold, to the effective portion of the hedge are recognised estimated future cash payments or receipts through Fee arising from negotiating or participating in the terminated or exercised, or where the hedge no directly in equity while any gains or losses relating the expected life of the financial instrument or a negotiation of a transaction for a third party, such longer meets the criteria for hedge accounting, to the ineffective portion are recognised in the shorter period, where appropriate, to the net carrying as the arrangement of the acquisition of shares or the hedge relationship is terminated. For hedged Consolidated Income Statement. On disposal of amount of the financial asset or financial liability. The other securities or the purchase or sale of businesses, items recorded at amortised cost, the difference the foreign operation, the cumulative value of any calculation takes into account all contractual terms are recognised on completion of the underlying between the carrying value of the hedged item on such gains or losses recognised directly in equity is of the financial instrument and includes any fees or transaction. Fee or components of fee that are termination and the face value is amortised over transferred to the Consolidated Income Statement. incremental costs that are directly attributable to the linked to a certain performance are recognised after the remaining term of the original hedge using Leasing instrument and are an integral part of the effective fulfilling the corresponding criteria. the effective interest rate. If the hedged item is interest rate, but not future credit losses. derecognised, the unamortised fair value adjustment The determination of whether an arrangement is a (iii) Dividend Income is recognised immediately in the Consolidated lease, or contains a lease, is based on the substance The carrying amount of the financial asset or financial Dividend income is recognised when the right to Income Statement. of the arrangement and requires an assessment liability is adjusted if the Group revises its estimates receive the payment is established.

102 103 (iv) Net Gain on Financial Assets at Fair Value satisfied. All other repair and maintenance costs are is expected to have been completed within one year to “Other Comprehensive Income”. If the contingent through Profit or Loss recognised in the Consolidated Income Statement from the date of classification. consideration is classified as equity, it should not be Results arising from financial assets at fair value as incurred. The present value of the expected cost remeasured until it is finally settled within equity. through profit or loss, include all gains and losses for the decommissioning of an asset after its use In the Consolidated Statement of Comprehensive from changes in fair value and related income is included in the cost of the respective asset if the Income of the reporting period, and of the Goodwill is initially measured at cost being the excess or expense and dividends for financial assets at recognition criteria for a provision are met. comparable period of the previous year, income and of the aggregate of the consideration transferred and fair value through profit or loss. This includes any expenses from discontinued operations are reported the amount recognised for non-controlling interest ineffectiveness recorded in hedging transactions. Changes in the expected useful life are accounted separately from income and expenses from continuing over the net identifiable assets acquired and liabilities This caption also includes the results arising from for by changing the depreciation period or method, operations, down to the level of profit after taxes, assumed. If this consideration is lower than the fair trading activities including all gains and losses from as appropriate and treated as changes in accounting even when the Bank retains a non-controlling value of the net assets of the subsidiary acquired, the changes in fair value and related income or expense estimates. interest in the subsidiary after the sale. The resulting difference is recognised in “Profit or Loss”. and dividends for financial assets held for trading. profit or loss (after taxes) is reported separately in Depreciation is calculated using the straight line the Statement of Comprehensive Income. After initial recognition, goodwill is measured at (v) Insurance Revenue method to write down the cost of property and cost less any accumulated impairment losses. For the For the insurance subsidiary, net premiums and equipment to their residual values over their Business Combinations purpose of impairment testing, goodwill acquired in estimated useful lives. Land is not depreciated. The accessories (gross premiums) are taken to income and Goodwill a business combination is, from the acquisition date, over the terms of the policies to which they relate estimated useful lives are as follows: allocated to each of the Group’s cash-generating units using the prorate temporise method for non-marine that are expected to benefit from the combination, Business combinations are accounted for using business and 25% of gross premiums for marine Buildings 40 to 50 years irrespective of whether other assets or liabilities of the acquisition method. The cost of an acquisition business. Unearned premiums reserve represents the Installations and fixtures 5 to 11 years the acquiree are assigned to those units. is measured as the aggregate of the consideration portion of the gross premiums written relating to Motor vehicles 5 to 7 years transferred, measured at acquisition date fair value the unexpired period of coverage. If the unearned Office equipment and computer hardware 5 to 11 years Where goodwill forms part of a cash-generating unit and the amount of any non-controlling interest in premiums reserve is not considered adequate to Office machinery and furniture 5 to 11 years and part of the operation within that unit is disposed the acquiree. For each business combination, the cover future claims arising on these premiums a of, the goodwill associated with the operation Group measures the non-controlling interest in the premium deficiency reserve is created. Property and equipment is derecognised on disposal disposed of is included in the carrying amount of or when no future economic benefits are expected acquiree at the proportionate share of the acquiree’s the operation when determining the gain or loss on Cash and Cash Equivalents from its use. Any gain or loss arising on derecognition identifiable net assets. Acquisition costs incurred are disposal of the operation. Goodwill disposed of in of the asset (calculated as the difference between expensed and included in “Administrative Expenses”. this circumstance is measured based on the relative Cash and cash equivalents as referred to in the cash the net disposal proceeds and the carrying amount values of the operation disposed of and the portion flow statement comprise balances with original of the asset) is recognised in “Net Gain on Disposal When the Group acquires a business, it assesses the of the cash-generating unit retained. maturities of a period of three months or less of Fixed Assets” in the year the asset is derecognised. financial assets and liabilities assumed for appropriate including: cash and balances with central banks, classification and designation in accordance with Intangible Fixed Assets deposits with banks and financial institutions, and The asset’s residual lives and methods of depreciation the contractual terms, economic circumstances and deposits due to banks and financial institutions. are reviewed at each financial year-end and adjusted pertinent conditions as at the acquisition date. This An intangible asset is recognised only when its cost prospectively if applicable. includes the separation of embedded derivatives in can be measured reliably and it is probable that Property and Equipment host contracts by the acquiree. the expected future economic benefits that are Non-current Assets Held for Sale and attributable to it will flow to the Group. Property and equipment is stated at cost excluding Discontinued Operations If the business combination is achieved in stages, the the costs of day-to-day servicing, less accumulated acquisition date fair value of the acquirer’s previously Intangible assets acquired separately are measured depreciation and accumulated impairment in Non-current assets held for sale are measured at held equity interest in the acquiree is remeasured on initial recognition at cost. The cost of intangible value. Such cost includes the cost of replacing part the lower of their carrying amount and fair value to fair value at the acquisition date through the assets acquired in a business combination is their fair of the property and equipment. When significant less costs to sell. Non-current assets and disposal Consolidated Income Statement. value as at the date of acquisition. Following initial parts of property and equipment are required groups are classified as held for sale if their carrying recognition, intangible assets are carried at cost less to be replaced at intervals, the Group recognises amounts will be recovered principally through a sale Any contingent consideration to be transferred any accumulated amortisation and accumulated such parts as individual assets with specific useful transaction rather than through continuing use. This by the acquirer will be recognised at fair value impairment losses. lives and depreciates them accordingly. Likewise, condition is regarded as met only when the sale is at the acquisition date. Subsequent changes to when a major inspection is performed, its cost is highly probable and the asset or disposal group is the fair value of the contingent consideration The useful lives of intangible assets are assessed to recognised in the carrying amount of the equipment available for immediate sale in its present condition, which is deemed to be an asset or liability will be be either finite of indefinite. Intangible assets with as a replacement if the recognition criteria are Management has committed to the sale, and the sale recognised either in “Profit or Loss” or as a change finite lives are amortised over the useful economic

104 105 life. The amortisation period and the amortisation estimated. A previously recognised impairment loss The portion recognised in the total comprehensive credits and unused tax losses, to the extent that it is method for an intangible asset with a finite useful is reversed only if there has been a change in the income is the excess divided by the expected probable that taxable profit will be available against life are reviewed at least at each financial year-end. estimates used to determine the asset’s recoverable average remaining working lives of the participating which the deductible temporary differences, and the Changes in the expected useful life or the expected amount since the last impairment loss was recognised. employees. Actuarial gains and losses that do not carry forward of unused tax credits and unused tax pattern of consumption of future economic benefits The reversal is limited so that the carrying amount of breach the 10% limits need not to be recognised. losses can be utilised except: embodied in the asset are accounted for by changing the asset does not exceed its recoverable amount, nor the amortisation period or method, as appropriate, exceeds the carrying amount that would have been The amount recognised in the balance sheet is the • Where the deferred tax asset relating to the and treated as changes in accounting estimates. determined, net of depreciation, had no impairment present value of the defined obligation adjusted deductible temporary difference arises from the The amortisation expense on intangible assets loss been recognised for the asset in prior years. Such for unrecognised actuarial gains and losses and initial recognition of an asset or liability in a with finite lives is recognised in the Consolidated reversal is recognised in the Consolidated Income unrecognised past service cost and reduced by the transaction that is not a business combination and, Income Statement. Statement. fair value of plan assets at the date of the Statement at the time of the transaction, affects neither the of Financial Position. accounting profit nor taxable profit or loss; Amortisation is calculated using the straight-line Impairment losses relating to goodwill cannot be • In respect of deductible temporary differences method to write down the cost of intangible assets reversed in future periods. Taxes associated with investments in subsidiaries and to their residual values over their estimated useful associates, deferred tax assets are recognised only lives as follows: Provisions for Risks and Charges Taxes are provided for in accordance with regulations to the extent that it is probable that the temporary and laws that are effective in the countries where differences will reverse in the foreseeable future and Computer software 5 years Provisions are recognised when the Group has a the Group operates. taxable profit will be available against which the Key money 70 years present obligation (legal or constructive) as a result temporary differences can be utilised. Others 7 to 10 years of a past event, and it is probable that an outflow (i) Current Tax of resources embodying economic benefits will Current tax assets and liabilities for the current and The carrying amount of deferred tax assets is Impairment of Non-financial Assets be required to settle the obligation and a reliable prior years are measured at the amount expected to reviewed at each statement of financial position estimate can be made of the amount of the be recovered from or paid to the taxation authorities. date and reduced to the extent that it is no longer The Group assesses at each reporting date whether obligation. The expense relating to any provision is The tax rates and tax laws used to compute the probable that sufficient taxable profit will be there is an indication that an asset may be impaired. presented in the Consolidated Income Statement net amount are those that are enacted or substantively available to allow all or part of the deferred tax asset If any indication exists, or when annual impairment of any reimbursement. enacted by the statement of financial position date. to be utilised. Unrecognised deferred tax assets are testing for an asset is required, the Group estimates reassessed at each statement of financial position the asset’s recoverable amount. An asset’s Employees’ End of Service Benefits (ii) Deferred Tax date and are recognised to the extent that it has recoverable amount is the higher of an asset’s or Deferred tax is provided on temporary differences at become probable that future taxable profit will cash-generating unit’s fair value less costs to sell and The Group provides retirement benefits obligation to the Statement of Financial Position date between the allow the deferred tax asset to be recovered. its value in use. Where the carrying amount of an its employees under defined benefit plans. The cost of tax bases of assets and liabilities and their carrying Deferred tax assets and liabilities are measured at asset or cash-generating unit exceeds its recoverable providing these benefits is determined using actuarial amounts for financial reporting purposes. the tax rates that are expected to apply in the year amount, the asset is considered impaired and is valuation which involves making assumptions about when the asset is realised or the liability is settled, written down to its recoverable amount. In assessing discount rates, expected rates of return on assets, Deferred tax liabilities are recognised for all taxable based on tax rates (and tax laws) that have been value in use, the estimated future cash flows are future salary increases, mortality rates and future temporary differences, except: enacted or substantively enacted at the statement of discounted to their present value using a pre-tax pension increases. Those assumptions are unbiased financial position date. discount rate that reflects current market assessments and mutually compatible. • Where the deferred tax liability arises from the initial of the time value of money and the risks specific recognition of goodwill or of an asset or liability in Current tax and deferred tax relating to items to the asset. In determining fair value less costs to The rate used to discount estimated cash flows should a transaction that is not a business combination and, recognised directly in equity are also recognised sell, an appropriate valuation model is used. These be determined by reference to the market yields at at the time of the transaction, affects neither the in equity and not in the Consolidated Income calculations are corroborated by valuation multiples, the date of the Statement of Financial Position on accounting profit nor taxable profit or loss; Statement. quoted share prices for publicly traded subsidiaries high quality corporate bonds. • In respect of taxable temporary differences associated or other available fair value indicators. If the accumulated unrecognised actuarial gains and with investments in subsidiaries and associates, Deferred tax assets and deferred tax liabilities are losses exceed 10% of the greater of the defined where the timing of the reversal of the temporary offset if a legally enforceable right exists to set off For assets excluding goodwill, an assessment is made benefit obligation or the fair value of plan assets, differences can be controlled and it is probable that current tax assets against current tax liabilities and at each reporting date as to whether there is any a portion of that net gain or loss is required to be the temporary differences will not reverse in the the deferred taxes relate to the same taxable entity indication that previously recognised impairment recognised immediately as income or expense. foreseeable future. and the same taxation authority. losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax

106 107 Assets under Management Financial Guarantees will ultimately vest. The income statement expense Furthermore, Management is not aware of any and Assets Held in Custody or credit for a period is recorded under “Personnel material uncertainties that may cast significant and under Administration In the ordinary course of business, the Group gives Expenses” and represents the movement in doubt upon the Group’s ability to continue as a financial guarantees consisting of letters of credit, cumulative expense recognised as at the beginning going concern. Therefore, the financial statements and end of that period. continue to be prepared on the going concern basis. The Group provides custody and administration guarantees and acceptances. Financial guarantees services that result in the holding or investing of are initially recognised in the financial statements Where the terms of an equity-settled award are assets on behalf of its clients. Assets held in trust, (within “Other Liabilities”) at fair value, being the Fair Value of Financial Instruments modified, the minimum expense is recognised in under management or under custody or under premium received. Subsequent to initial recognition, “Personnel Expenses” in the Consolidated Income Where the fair values of financial assets and financial administration, are not treated as assets of the the Group’s liability under each guarantee is Statement as if the terms had not been modified. An liabilities recorded on the Statement of Financial Group and, accordingly, are recorded as off-balance measured at the higher of the amount initially additional expense is recognised for any modification Position cannot be derived from active markets, sheet items. recognised less, when appropriate, cumulative amortisation recognised in the Consolidated Income which increases the total fair value of the they are determined using a variety of valuation Dividends on Ordinary Shares Statement, and the best estimate of expenditure share-based payment arrangement, or is otherwise techniques that include the use of mathematical required to settle any financial obligation arising beneficial to the employee as measured at the date models. The inputs to these models are derived from observable market data where possible, but where Dividends on ordinary shares are recognised as as a result of the guarantee. Any increase in of modification. observable market data are not available, judgment a liability and deducted from equity when they the liability relating to financial guarantees is is required to establish fair values. The judgments are approved by the Bank’s shareholders. Interim recorded in the Consolidated Income Statement. The Where any equity-settled award is cancelled, it is include considerations of liquidity and model inputs dividends are deducted from equity when they are premium received is recognised in the Consolidated treated as if it had vested on the date of cancellation, such as volatility for longer dated derivatives and declared and no longer at the discretion of the Bank. Income Statement on a straight line basis over the and any expense not yet recognised for the award life of the guarantee. is recognised immediately. This includes any award discount rates, prepayment rates and default rate Dividends for the year that are approved after the where non-investing conditions within the control assumptions for asset-backed securities. reporting date are disclosed as an event after the Customers’ Acceptances of either the entity or the counterparty are not reporting date. met. However, if a new award is substituted for the Impairment Losses on Loans Customers’ acceptances represent term documentary cancelled award and designated as a replacement and Advances Treasury Shares credits which the Group has committed to settle on award on the date that it is granted, the cancelled behalf of its clients against commitments by those and new awards are treated as if they were a The Group reviews its individually significant loans Own equity instruments of the Bank which are clients (acceptances). The commitments resulting modification of the original award, as described in and advances at each statement of financial position acquired by it or by any of its subsidiaries (Treasury from these acceptances are stated as a liability in the the previous paragraph. date to assess whether an impairment loss should be shares) are deducted from equity and accounted Statement of Financial Position for the same amount. recorded in the Consolidated Income Statement. In for at weighted average cost. Consideration paid or The dilutive effect of outstanding options is reflected particular, judgment by Management is required in received on the purchase sale, issue or cancellation Share-based Payments Plan as additional share dilution in the computation of the estimation of the amount and timing of future of the Bank’s own equity instruments is recognised diluted earnings per common share. cash flows when determining the impairment loss. directly in equity. No gain or loss is recognised in the Employees (including Senior Executives) of the Bank In estimating these cash flows, the Group makes Consolidated Income Statement on the purchase, receive remuneration in the form of share-based 2.6. Significant Accounting judgments about the borrower’s financial situation sale, issue or cancellation of the Bank’s own equity payment transactions, whereby employees render Judgments and Estimates and the net realisable value of collateral. These instruments. services as consideration for equity instruments estimates are based on assumptions about a number (equity-settled transactions). of factors and actual results may differ, resulting in When the Group holds own equity instruments In the process of applying the Group’s accounting future changes to the allowance. on behalf of its clients, those holdings are not The cost of equity-settled transactions is measured policies, Management has made the following included in the Group’s Consolidated Statement of by reference to the fair value at the date on which judgments, apart from those involving estimations, Loans and advances that have been assessed Financial Position. they are granted and is recognised together with a which have the most significant effect in the amounts individually and found not to be impaired and all corresponding increase in equity, over the period in recognised in the financial statements: individually insignificant loans and advances are then Contracts on own shares that require physical which the performance and/or service conditions are assessed collectively, in groups of assets with similar settlement of a fixed number of own shares for a fulfilled, ending on the date on which the relevant Going Concern risk characteristics, to determine whether provision fixed consideration are classified as equity and added employees become fully entitled to the award (the The Group’s Management has made an assessment should be made due to incurred loss events for which to or deducted from equity. Contracts on own shares vesting date). The cumulative expense recognised of the Group’s ability to continue as a going concern there is objective evidence but whose effects are not that require net cash settlement or provide a choice for equity-settled transactions at each reporting date and is satisfied that the Group has the resources yet evident. The collective assessment takes account of settlement are classified as trading instruments until the vesting date reflects the extent to which to continue in business for the foreseeable future. of data from the loan portfolio (such as credit quality, and changes in the fair value are reported in the the vesting period has expired and the Bank’s best Consolidated Income Statement. estimate of the number of equity instruments that

108 109 levels of arrears, credit utilisation, loan to collateral Contractual Cash Flows of 3. Segment Reporting Treasury and Capital Markets ratios, etc.), concentrations of risks and economic Financial Assets data (including levels of unemployment, real estate Provides Treasury services including transactions in Management monitors the operating results of its price indices, country risk and the performance of The Group exercises judgment in determining money and capital markets for the Group’s customers, business units separately for the purpose of making different individual groups). whether the contractual terms of financial assets it manages investment and trading transactions (locally decisions about resource allocation and performance originates or acquires give rise on specific dates to and internationally), and manages liquidity and assessment. Segments are evaluated based on net Deferred Tax Assets cash flows that are solely payments of principal and market risks. This segment also offers Investment operating income. Income taxes and depreciation interest on the principal outstanding, and so, may Banking and brokerage services, and manages the Deferred tax assets are recognised in respect of tax are managed on a group basis and are not allocated qualify for amortised cost measurement. In making Group’s own portfolio of stocks, bonds, and other losses to the extent that it is probable that taxable to operating segments. the assessment, the Group considers all contractual financial instruments. profit will be available against which the losses terms, including any prepayment terms or provisions can be utilised. Judgment is required to determine Interest income is reported net, since Management to extend the maturity of the assets, terms that Group Functions and Head Office the amount of deferred tax assets that can be monitors net interest income not the gross income change the amount and timing of cash flows and recognised, based upon the likely timing and level and expense amounts. Net interest income is whether the contractual terms contain leverage. Consists of capital and strategic investments, of future taxable profits, together with future tax allocated to the business segment based on the exceptional profits and losses, as well as operating planning strategies. assumption that all positions are funded or invested Consolidation of Special Purpose results of subsidiaries which offer non-banking via a central funding unit. An internal Funds Transfer services. Business Model Entities (SPEs) Pricing (FTP) mechanism was implemented between operating segments. In making an assessment whether a business The Bank sponsors the formation of SPEs which Transfer prices between operating segments are may or may not be directly or indirectly owned on an arm’s length basis in a manner similar to model’s objective is to hold assets in order to collect The assets and liabilities that are reported in the subsidiaries. The Bank consolidates those SPEs it transactions with third parties. contractual cash flows, the Group considers at segments are net from inter-segments’ assets controls. In assessing and determining if the Bank which level of its business activities such assessment and liabilities since they constitute the basis of controls SPEs, judgment is exercised to determine should be made. Generally, a business model is a Management’s measures of the segments’ assets and whether the activities of the SPE are being conducted matter of fact which can be evidenced by the way liabilities and the basis of the allocation of resources on behalf of the Bank to obtain benefits from business is managed and the information provided between segments. to Management. However, in some circumstances, the SPE’s operation; whether the Bank has the it may not be clear whether a particular activity decision-making powers to control or to obtain a) Business Segments involves one business model with some infrequent control of the SPE or its assets; whether the Bank has rights to obtain the majority of the benefits of asset sales or whether the anticipated sales indicate The Group operates in four main business segments the SPE’s activities; and whether the Bank retains the that there are two different business models. which are Corporate and Commercial Banking, majority of the risks related to the SPE or its assets in Treasury and Capital Markets, Retail and Personal order to obtain benefits from its activities. In determining whether its business model for Banking, and Group Functions and Head Office. managing financial assets is to hold assets in order to collect contractual cash flows, the Group considers: Pensions Obligation Corporate and Commercial Banking

• Management’s stated policies and objectives for The cost of the defined benefit pension plan is Provides diverse products and services to the the portfolio and the operation of those policies in determined using an actuarial valuation. The corporate and commercial customers including practice; actuarial valuation involves making assumptions loans, deposits, trade finance, exchange of foreign • How Management evaluates the performance of the about discount rates, expected rates of return on currencies, as well as all regular Corporate and portfolio; assets, future salary increases, mortality rates and Commercial Banking activities. • Whether Management’s strategy focuses on earning future pension increases. Due to the long-term contractual interest revenues; nature of these plans, such estimates are subject to Retail and Personal Banking • The degree of frequency of any expected asset sales; significant uncertainty. • The reason for any asset sales; and Provides individual customers’ deposits and consumer • Whether assets that are sold are held for an extended loans, overdrafts, credit cards, and funds transfer period of time relative to their contractual maturity. facilities, as well as all regular Retail and Private Banking activities.

110 111 The following table presents net operating income, b) Geographical Segments total assets and total liabilities and shareholders’ income, assets and liabilities, and shareholders’ equity of the Group’s business segments. The Group operates in three geographical segments: equity allocated based on the location of the Lebanon; Middle East, North Africa and Turkey subsidiaries reporting the results or advancing the 2012 (MENAT); and Europe. As such, it is subject to different funds. Transactions between segments are carried at Corporate and Retail and Treasury Group risks and returns. The following tables show the market prices and within pure trading conditions. Commercial Personal and Capital Functions and Banking Banking Markets Head Office Total distribution of the Group’s external net operating LBP Million LBP Million LBP Million LBP Million LBP Million Net interest income 272,432 170,736 368,505 52,017 863,690 2012 Non-interest income Lebanon MENAT Europe Total Net fee and commission income 112,113 139,524 22,331 5,397 279,365 LBP Million LBP Million LBP Million LBP Million Foreign exchange operations 4,231 20,886 114,150 132 139,399 Net interest income 526,293 289,667 47,730 863,690 Financial operations 20 8,618 315,441 30,035 354,114 Non-interest income Other operating income 43 8,570 364 13,274 22,251 Net fee and commission income 155,343 78,214 45,808 279,365 Total non-interest income 116,407 177,598 452,286 48,838 795,129 Foreign exchange operations 18,051 103,511 17,837 139,399 Total external operating income 388,839 348,334 820,791 100,855 1,658,819 Financial operations 333,298 10,380 10,436 354,114 Net credit losses (136,351) (46,184) (50) - (182,585) Other operating income 19,770 1,349 1,132 22,251 Net external operating income 252,488 302,150 820,741 100,855 1,476,234 Total non-interest income 526,462 193,454 75,213 795,129 Share of profit or loss of associates - - - 551 551 Total external operating income 1,052,755 483,121 122,943 1,658,819 Investments in associates - - - 34,230 34,230 Net credit losses (123,405) (49,874) (9,306) (182,585) Total assets 12,248,359 5,413,046 24,813,627 4,712,437 47,187,469 Net external operating income 929,350 433,247 113,637 1,476,234 Total liabilities and shareholders’ equity 8,577,415 32,378,828 1,766,123 4,465,103 47,187,469 Capital expenditures 83,194 98,042 1,437 182,673 Capital expenditures - 2,298 264 180,111 182,673 Total assets 33,868,338 9,890,071 3,429,060 47,187,469 Total liabilities and shareholders’ equity 34,129,524 9,827,239 3,230,706 47,187,469

2011 2011 Corporate and Retail and Treasury Group Lebanon MENAT Europe Total Commercial Personal and Capital Functions and LBP Million LBP Million LBP Million LBP Million Banking Banking Markets Head Office Total Net interest income 501,643 238,316 48,263 788,222 LBP Million LBP Million LBP Million LBP Million LBP Million Non-interest income Net interest income 253,241 150,022 330,217 54,742 788,222 Net fee and commission income 148,135 78,747 42,010 268,892 Non-interest income Foreign exchange operations 17,665 37,051 22,086 76,802 Net fee and commission income 116,689 112,107 30,734 9,362 268,892 Financial operations 294,928 3,860 1,339 300,127 Foreign exchange operations 3,623 24,467 48,796 (84) 76,802 Other operating income 28,806 5,134 14,698 48,638 Financial operations - 7,039 264,512 28,576 300,127 Total non-interest income 489,534 124,792 80,133 694,459 Other operating income 978 3,984 190 43,486 48,638 Total external operating income 991,177 363,108 128,396 1,482,681 Total non-interest income 121,290 147,597 344,232 81,340 694,459 Net credit losses (15,907) (117,406) (4,346) (137,659) Total external operating income 374,531 297,619 674,449 136,082 1,482,681 Net external operating income 975,270 245,702 124,050 1,345,022 Net credit losses (114,823) (22,836) - - (137,659) Capital expenditures 50,102 10,168 5,030 65,300 Net external operating income 259,708 274,783 674,449 136,082 1,345,022 Total assets 31,566,706 8,621,701 3,132,279 43,320,686 Share of profit or loss of associates - - - 5,133 5,133 Total liabilities and shareholders’ equity 32,674,178 7,496,310 3,150,198 43,320,686 Investments in associates - - - 43,099 43,099 Total assets 9,814,067 4,660,599 25,253,300 3,592,720 43,320,686 Total liabilities and shareholders’ equity 8,951,327 29,174,083 914,630 4,280,646 43,320,686 Capital expenditures - 1,652 242 63,406 65,300

112 113 4. Interest and Similar Income 6. Fee and Commission Income

2012 2011 LBP Million LBP Million 2012 2011 LBP Million LBP Million Balances with central banks 278,433 154,226 Commercial Banking income 66,704 59,343 Due from banks and financial institutions 49,828 49,269 Credit-related fees and commissions 47,452 42,524 Loans and advances to customers at amortised cost 890,902 828,286 Brokerage and custody income 53,212 51,659 Loans and advances to related parties at amortised cost 19,902 17,132 Trust and fiduciary activities 5,130 5,470 Financial assets classified at amortised cost 967,550 1,007,687 Trade finance income 49,586 59,373 Other interest income 1,894 372 Electronic Banking 75,045 68,161 2,208,509 2,056,972 Insurance brokerage income 2,797 2,453 Corporate finance fees 25,854 25,815 The components of ”Interest and Similar Income” Other fees and commissions 4,782 4,154 from ”Financial Assets Classified at Amortised Cost” 330,562 318,952 are detailed as follows:

2012 2011 LBP Million LBP Million 7. Fee and Commission Expense Lebanese sovereign 678,934 803,126

Other sovereign 249,951 154,351 2012 2011 LBP Million LBP Million Private sector and other securities 38,665 50,210 Commercial Banking expenses 5,221 4,846 967,550 1,007,687 Insurance brokerage fees 386 258 Brokerage and custody fees 7,755 8,861 5. Interest and Similar Expense Electronic Banking 35,387 34,313 Other fees and commissions 2,448 1,782 51,197 50,060 2012 2011 LBP Million LBP Million Due to central banks 41,216 7,740 Due to banks and financial institutions 31,350 22,341 Customers’ deposits at amortised cost 1,243,161 1,226,869 Deposits from related parties at amortised cost 26,117 10,592 Other interest expense 2,975 1,208 1,344,819 1,268,750

“Due to Central Banks” include interest expense on repurchase agreements amounting to LBP 1,787 million for the year ended December 31, 2012 (2011: nil).

114 115 • Swap of certificates of deposits by the Lebanese 8. Net Gain Financial Assets at Fair Value 9. Net Gain on Sale of Financial Central Bank; through Profit or Loss Assets at Amortised Cost • Currency risk management as a result of change in the currency base of deposits; or The Group derecognises some debt instruments • Liquidity for capital expenditures. 2012 2011 classified at amortised cost due to the following Trading Interest Trading Interest reasons: The schedule below details the gains and losses Income (Loss) Income Total Income (Loss) Income Total • Deterioration of the credit rating below the ceiling arising from the derecognition of these financial LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million allowed in the Group’s investment policy; assets: • Liquidity gap and yield management; a) Net gain on financial instruments Lebanese sovereign and Central Bank of Lebanon 2012 2011 Certificates of deposits (89) 216 127 3 - 3 Gains Losses Net Gains Losses Net LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Treasury bills 10,169 16,629 26,798 2,300 25,090 27,390 Lebanese sovereign and Central Eurobonds 5,247 12,202 17,449 4,967 6,250 11,217 Bank of Lebanon 15,327 29,047 44,374 7,270 31,340 38,610 Central Bank’s certificates of deposits 160,268 (172) 160,096 98,694 (20) 98,674 Other sovereign Bank placements 47,548 - 47,548 - - - Treasury bills 479 103 582 85 - 85 Treasury bills 12,033 (1,959) 10,074 15,171 (471) 14,700 Other governmental securities (25) 93 68 33 266 299 Eurobonds 29,559 (171) 29,388 83,237 (112) 83,125 Eurobonds 93 26 119 137 26 163 249,408 (2,302) 247,106 197,102 (603) 196,499 547 222 769 255 292 547 Other sovereign Private sector and other securities Treasury bills 3,479 (10) 3,469 1,197 (7) 1,190 Banks and financial institutions Other governmental securities 2,969 - 2,969 - (666) (666) debt instruments 693 7,079 7,772 1,863 7,979 9,842 Eurobonds 1,139 - 1,139 405 - 405 Corporate debt instruments 1,114 2,073 3,187 206 777 983 7,587 (10) 7,577 1,602 (673) 929 Structured products 8 - 8 (12) - (12) Private sector and other securities Mutual funds 2,657 - 2,657 1,138 - 1,138 Banks and financial institutions debt Equity instruments 437 - 437 (5,671) - (5,671) instruments - (6) (6) 12,873 (2,534) 10,339 4,909 9,152 14,061 (2,476) 8,756 6,280 Corporate and other debt instruments 5,796 (1,096) 4,700 9,383 - 9,383 b) Other trading income Structured products 6,556 (121) 6,435 3,864 - 3,864 Derivatives (1,320) - (1,320) 1,670 - 1,670 12,352 (1,223) 11,129 26,120 (2,534) 23,586 Foreign exchange 139,399 - 139,399 76,802 - 76,802 269,347 (3,535) 265,812 224,824 (3,810) 221,014 Dividends 173 - 173 2,262 - 2,262 138,252 - 138,252 80,734 - 80,734 During December 2012, the Bank discounted 159,035 38,421 197,456 85,783 40,388 126,171 long-term placements at the Central Bank of Lebanon originally maturing on April 1, 2016, which resulted in a gain of USD 32 million (equivalent to “Trading Gain on Financial Assets at Fair Value For the year ended December 31, 2012, derivatives LBP 47,548 million). through Profit or Loss” includes the results of trading include a loss of LBP 4,126 million (2011: in the above classes of securities, as well as the result LBP 1,608 million) representing the change in fair of the change in their fair values. value of the credit default swaps related to the Lebanese sovereign risk and embedded in some of “Foreign Exchange Income” includes gains and losses the Bank’s deposits, as discussed in Note 36 to these from spot and forward currency contracts and the Consolidated Financial Statements. revaluation of the daily open trading position.

116 117 During June 2011, the Executive Committee of the 10. Net Gain on Sale of Bank approved the sale of the Bank’s investment in 12. Net Credit Losses Subsidiaries and Associates Arabian Opportunities Fund (“AOF”) and the sale was completed before year-end. The loss from the 2012 2011 During December 2011, Capital Outsourcing Limited sale amounted to LBP 2,547 million for the year LBP Million LBP Million (Dubai) exchanged a liability due to a related party ended December 31, 2011. Charges for the year amounting to the equivalent of LBP 5,276 million Loans and advances to customers at amortised cost (Note 24) 201,900 174,435 in US Dollars for 50% ownership in the company During June 2011, the Group sold to a related party Loans directly written off 203 - through the issuance of new shares. This was 79 shares of the share capital of Conseil et Gestion treated as a deemed disposal by the Group whereby Immobilière sal (“CGI”) representing 79% of its Impairment of financial instruments 110 - its ownership dropped from 75% to 37.5% as of share capital for a total consideration equivalent to 202,213 174,435 December 31, 2011. The investment was recognised LBP 7,312 million in US Dollars. The gain from the Recoveries for the year – Loans and advances to customers

at its fair value under “Investments in Associates”. sale amounted to LBP 1 million for the year ended Impairment allowance recovered (Note 24) (11,636) (22,022) The loss from the sale amounted to LBP 161 million December 31, 2011. As such, the Group’s ownership Unrealised interest recovered (Note 24) (2,082) (2,335) for the year ended December 31, 2011. as of December 31, 2011 dropped to 19% and the Recoveries of debts previously written off (5,877) (12,419) investment was recorded under “Financial Assets at During December 2011, the Group sold its 49% Fair Value through Other Comprehensive Income”. Recoveries for the year – Banks and financial institutions stake in Globalcom Holding sal, an associate, for a Impairment allowance recovered (33) - total consideration equivalent to LBP 13,567 million Other gains in the amount of LBP 495 million resulted (19,628) (36,776) in US Dollars, in addition to 33% of future dividends from the liquidation of Orion Systems sal and the sale 182,585 137,659 up to end of year 2016. The gain from the sale of Safwa Fund, which was previously consolidated by amounted to LBP 4,236 million for the year ended Audi Capital (KSA), a subsidiary. December 31, 2011. 13. Personnel Expenses 11. Other Operating Income 2012 2011 LBP Million LBP Million 2012 2011 Salaries and related benefits 328,739 303,232 LBP Million LBP Million Social security contributions 33,023 32,340 Revenues from non-core activities - 30,532 End of service benefits (Note 39) 12,826 10,217 Income from disposal of assets acquired against debts 8,297 5,433 Transportation 12,179 10,252 Net provision recoveries (Note 39) 7 2,909 Schooling 6,241 6,129 Other income 13,947 9,764 Medical expenses 4,489 3,600 22,251 48,638 Food and beverage 4,227 4,054 Training and seminars 4,173 5,075 ”Revenues from Non-core Activities” substantially During 2011, the Group entered into profit-sharing Share-based payments (Note 46) - 40 represent the revenues generated by Capital agreements under which it became entitled to Other staff expenses 5,849 5,917 Outsourcing Limited (Dubai) in 2011 in the amount 30% of CGI’s profits for a period of 5 years ending 411,746 380,856 of LBP 29,205 million from providing Information during the second quarter of 2016, and 33% Technology services. of Globalcom Holding sal’s profits up to December 31, 2016. The Group’s share of these profits for the year 2012 amounted to LBP 5,907 million (2011: LBP 411 million).

118 119 120 121 14. Other Operating Expenses 15. Income Tax

The components of income tax expense for the year 2012 2011 ended December 31 are detailed as follows: LBP Million LBP Million Operating leases 29,371 26,409

Professional fees 27,116 26,138 2012 2011 LBP Million LBP Million Executive Management bonuses 26,381 24,120 Current tax Advertising fees 22,742 21,834 Current income tax 151,252 133,170 Taxes and similar disbursements 19,258 13,532 Adjustment in respect of current income tax of prior years 756 6,805 Outsourcing services 16,935 9,873 Other taxes treated as income tax 11,811 3,037 Premium for guarantee of deposits 16,315 16,144 163,819 143,012 Information Technology 14,619 10,423 Deferred tax Donations and social aids 13,552 2,073 Relating to origination and reversal of temporary differences (9,282) (3,498) Provisions for risks and charges (Note 39) 13,088 4,388 154,537 139,514 Travel and related expenses 12,240 10,886 Telephone and mail 10,380 12,978 Electricity, water and fuel 8,310 8,434 The tax rates applicable to the parent and to both income and expense and are based on the Maintenance 7,692 6,467 subsidiaries vary from 0% to 40% in accordance current understanding of the existing tax laws and Insurance premiums 7,617 8,078 with the income tax laws of the countries where regulations and tax practices. Facilities services 6,363 6,224 the Group operates. For the purpose of determining the taxable results of the subsidiaries for the year, The relationship between taxable profit and Subscription to communication services 6,116 5,485 the accounting results have been adjusted for tax accounting profit is as follows: Office supplies 5,806 5,342 purposes. Such adjustments include items relating Receptions and gifts 4,457 3,729 Credit cards expenses 3,654 2,543 2012 2011 Board of Directors fees 3,643 3,388 Balance Tax Balance Tax Regulatory charges 3,448 2,644 LBP Million LBP Million LBP Million LBP Million Documentation and miscellaneous subscriptions 2,379 2,155 Accounting profit before tax 699,012 104,852 681,166 102,175 Others 10,477 9,392 Add: 291,959 242,679 Non-deductible expenses 112,707 16,906 79,660 11,949 Non-deductible provisions 194,127 29,119 71,675 10,751 Other non-deductibles 10,067 1,510 6,809 1,022 316,901 47,535 158,144 23,722 Less: Revenues previously subject to tax 29,542 4,431 34,423 5,163 Provision recoveries previously subject to tax 4,736 710 15,466 2,320 Provisions write-off previously subject to tax 111 17 6,530 980 Exempted revenues 189,884 28,483 30,472 4,571 Unrealised gains on financial instruments 21,100 3,165 1,616 242 Other deductibles 79,147 11,872 25,118 3,768 324,520 48,678 113,625 17,044 Impact subject to tax 691,393 103,709 725,685 108,853 Impact of differently taxed profits 47,543 24,317 Tax due 151,252 133,170 Effective income tax rate 21.63% 19.55%

122 123 The movement of current tax liabilities during the Consolidated Statement of Cash Flows as part of the year is as follows: 16. Profit from Discontinued investing activities. Operations On July 26, 2012, the Directors of Banaudi Holding 2012 2011 Limited, sole shareholder of Bank Audi sam, decided During May 2012, the Bank entered into a Sale and LBP Million LBP Million to cease the activities of the subsidiary bank and to Purchase Agreement through which it sold 81% Balance at January 1 86,756 65,185 liquidate it and withdraw its banking license. (926,437 shares) of its investment in LIA Insurance Charges for the year 163,819 143,012 sal (“LIA”), the insurance arm of the Group. Bank Audi sam exercised banking activities in Monaco Transfers (1,144) 40 Consideration received amounted to USD 89 million under banking license provided by “Autorité de 162,675 143,052 (equivalent to LBP 133 billion) in cash. Contrôle Prudentiel”. The cessation of activities involves Less taxes paid: restitution of the assets of the clients, transfer of Current year tax liability* 68,315 67,473 The business of LIA Insurance sal was included in credit in process, and cancellation of all arrangements the “Group Functions and Head Office” business Prior years tax liabilities 57,834 53,048 concluded with the external services providers. segment and “Lebanon” geographic segment. The Foreign exchange difference 5,224 960 cash flows generated by the sale of the discontinued The results of LIA Insurance sal and Bank Audi sam 131,373 121,481 operation during 2012 have been considered in the are as follows: Balance at December 31 118,058 86,756

* Represents taxes paid on interest received from Treasury bills and central banks’ certificates of deposits. 2012 2011 Deferred taxes recorded in the consolidated statement Bank Audi LIA Bank Audi LIA sam Insurance sal Total sam Insurance sal Total of financial position result from the following items: LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Interest and similar income 3,467 8,870 12,337 4,717 18,705 23,422 Interest and similar expense (1,874) (15) (1,889) (1,980) (41) (2,021) 2012 Net interest income 1,593 8,855 10,448 2,737 18,664 21,401 Deferred Tax Deferred Tax Fee and commission income 813 8,620 9,433 919 20,088 21,007 Assets Liabilities Fee and commission expense (429) (4,889) (5,318) (440) (9,600) (10,040) LBP Million LBP Million Net fee and commission income 384 3,731 4,115 479 10,488 10,967 Provisions 3,731 (1,292) Other operating income 79 334 413 424 909 1,333 Impairment allowance for loans and advances 13,794 - Total operating income 2,056 12,920 14,976 3,640 30,061 33,701 Fair value of financial instruments 546 10,508 Total operating expenses (16,146) (6,342) (22,488) (11,709) (11,368) (23,077) Carried forward taxable losses 1,282 - Operating (loss) profit (14,090) 6,578 (7,512) (8,069) 18,693 10,624 Non-operating expenses (6,046) - (6,046) - - - Difference in depreciation rates - 3,962 Tax attributable to operating profit - (793) (793) - (1,725) (1,725) Other temporary differences 276 162 Loss for the period from 19,629 13,340 discontinued operations (20,136) 5,785 (14,351) (8,069) 16,968 8,899 (Loss) gain recognised from fair value remeasurement (9,922) 20,439 10,517 - - - Tax attributable to fair value remeasurement - (3,065) (3,065) - - - 2011 (Loss) gain on disposal - 48,621 48,621 - - - Deferred Tax Deferred Tax Tax attributable to gain on disposal - (7,908) (7,908) - - - Assets Liabilities (30,058) 63,872 33,814 (8,069) 16,968 8,899 LBP Million LBP Million Cash inflow from sale: Provisions 6,117 (495) Total consideration received 133,212 Fair value of financial instruments (125) 169 Cash included as cash and cash equivalents on January 1 in the Cash Flow statements (14,506) Carried forward taxable losses 1,282 - 118,706 Difference in depreciation rates - 1,921 Earnings per share: LBP LBP Other temporary differences 358 158 Basic, from discontinued operations 96 22 7,632 1,753 Diluted, from discontinued operations 96 22

124 125 After remeasurement to fair value, the remaining Diluted earnings per share is calculated by the same Obligatory Reserves interest-bearing placements representing 15% of total investment in LIA Insurance sal amounted to manner after adding to the weighted average number deposits in foreign currencies, regardless of nature. LBP 32,199 million and was classified under “Financial of common shares outstanding the weighted average • In accordance with the Central Bank of Lebanon’s • Subsidiary banks operating in foreign countries Assets at Fair Value through Other Comprehensive number of dilutive shares that would have been rules and regulations, banks operating in Lebanon are also subject to obligatory reserve requirements Income”. issued pursuant to the Bank’s share-based payments are required to deposit with the Central Bank of determined based on the banking rules and plan. The number of shares issued has been calculated Lebanon an obligatory reserve calculated on the regulations of the countries in which they operate. 17. Earnings per Share at the date of the statement of financial position basis of 25% of sight commitments and 15% of term for the purpose of calculating diluted earnings per commitments denominated in Lebanese Pounds. Compulsory reserve deposits are not available for use share based on the realisation of accomplishment This is not applicable for investment banks which in the Bank’s day-to-day operations. The following Basic earnings per share is calculated by dividing the conditions as if the accomplishment date is the are exempted from obligatory reserve requirements table summarises the Group’s placements in central profit for the year attributable to ordinary equity current statement of financial position date. on commitments denominated in Lebanese Pounds. banks available against the compulsory reserves as of holders of the Bank by the weighted average number Additionally, all banks operating in Lebanon are December 31: of ordinary shares outstanding during the year. The following table shows the income and share data required to deposit with the Central Bank of Lebanon used to calculate basic and diluted earnings per share:

2012 2011 2012 2011 LBP Million LBP Million LBP Million LBP Million Profit attributable to equity holders of the Bank 564,737 544,239 Placements in Lebanese Pounds 453,024 614,151 Less: dividends attributable to preferred shares (34,955) (25,910) Placements in foreign currencies 3,885,816 3,723,652 Profit available to holders of ordinary shares 529,782 518,329 Weighted average number of shares outstanding 346,903,074 343,334,701 4,338,840 4,337,803 Weighted average number of common shares outstanding after dilutive effect of share-based payments 347,048,590 344,036,106 Basic earnings per share 1,527 1,510 Diluted earnings per share 1,526 1,507 19. Due from Banks and Financial Institutions There were no transactions involving common shares consolidated financial statements which would require or potential common shares between the reporting the restatement of earnings per share. 2012 2011 date and the date of the completion of these LBP Million LBP Million Current accounts 1,582,867 1,230,400 Time deposits 2,493,183 3,080,621 18. Cash and Balances with Checks for collection 171,449 158,363 Central Banks Other amounts due 34,080 89,172 Accrued interest 397 5,074 Less: impairment allowance (998) (1,028) 2012 2011 LBP Million LBP Million 4,280,978 4,562,602 Cash on hand 249,347 278,110 Central Bank of Lebanon Current accounts 541,387 680,068 The movement of the impairment allowance was Time deposits 7,287,985 6,420,737 as follows: Accrued interest 53,382 59,587 7,882,754 7,160,392 2012 2011 Other central banks LBP Million LBP Million Current accounts 845,468 899,368 Balance at January 1 1,028 1,031 Time deposits 484,777 365,356 Recoveries (33) - Accrued interest 34 128 1,330,279 1,264,852 Foreign exchange difference 3 (3) 9,462,380 8,703,354 998 1,028

126 127 20. Loans to Banks and Financial Institutions Notional Amount by Term to Maturity Positive Negative Notional Within 3 to12 1 to 5 Over and Reverse Repurchase Agreements December 31, 2012 Fair Value Fair Value Amount 3 Months Months Years 5 Years LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Derivatives held for trading 2012 2011 LBP Million LBP Million Forward foreign exchange contracts 7,218 4,992 72,825 46,796 26,029 - - Forward precious metals contracts 134 44 10,545 9,045 1,500 - - Loans and advances 272,282 218,556 Currency swaps 15,293 15,842 2,449,196 2,201,792 247,404 - - Reverse repurchase agreements 787,087 - Precious metals swaps 477 30 42,204 35,374 6,830 - - Accrued interest 898 528 Currency options 25,449 25,557 2,122,281 719,125 1,403,156 - - 1,060,267 219,084 Indices swaps and options 135 - 76,544 - 76,544 - - Credit default swaps 2,339 829 1,442,219 779,425 647,169 15,625 - Total 51,045 47,294 6,215,814 3,791,557 2,408,632 15,625 - 21. Financial Assets Given Derivatives held to hedge net investments in foreign operations as Collateral Forward foreign exchange contracts - 552 40,036 40,036 - - - Currency swaps - 8,196 167,968 51,682 116,286 - -

2012 2011 - 8,748 208,004 91,718 116,286 - - LBP Million LBP Million Derivatives used as cash flows hedge Due from banks - 16,975 Interest rate swaps 1 - 30,128 - 4,844 25,284 - Due from other counterparties - 449 51,046 56,042 6,453,946 3,883,275 2,529,762 40,909 - - 17,424

Notional Amount by Term to Maturity Positive Negative Notional Within 3 to12 1 to 5 Over 22. Derivative Financial December 31, 2011 Fair Value Fair Value Amount 3 Months Months Years 5 Years LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Instruments Derivatives held for trading Forward foreign exchange contracts 6,598 3,669 464,765 412,338 52,427 - - The tables below show the positive and negative fair Forward precious metals contracts 568 49 19,940 9,970 9,970 - - values of derivative financial instruments, together Precious metals swaps 1,695 1 26,374 25,371 1,003 - - with the notional amounts analysed by the term to Currency swaps 11,623 15,289 1,687,318 1,652,309 35,009 - - maturity. The notional amount is the amount of a Currency options 39,239 39,238 1,958,561 891,480 1,067,081 - - derivative’s underlying asset, reference rate or index Indices swaps and options - - 21,182 21,182 - - - and is the basis upon which changes in the value Credit default swaps 5,636 - 1,616,854 1,484,200 77,503 55,151 - of derivatives are measured. The notional amounts Equity options 290 - 8,906 - - 3,576 5,330 indicate the volume of transactions outstanding at Total 65,649 58,246 5,803,900 4,496,850 1,242,993 58,727 5,330 year-end and are indicative of neither the market Derivatives held to hedge net risk nor the credit risk. investments in foreign operations

Currency swaps 16,560 - 164,558 - 164,558 - - Credit risk in respect of derivative financial 82,209 58,246 5,968,458 4,496,850 1,407,551 58,727 5,330 instruments arises from the potential for a counterparty to default on its contractual obligations and is limited to the positive market value of instruments that are favourable to the Group.

The Group has positions in the following types of derivatives:

128 129 Derivative Financial Instruments Options 23. Financial Assets at Fair Held for Trading Purposes Options are contractual agreements that convey Value through Profit or Loss Most of the Group’s derivative trading activities the right, but not the obligation, for the purchaser relate to deals with customers which are normally either to buy or to sell a specific amount of a financial 2012 2011 offset by transactions with other counterparties. instrument at a fixed price, either at a fixed future LBP Million LBP Million Also included under this heading are any derivatives date or at any time within a specified period. Lebanese sovereign and Central Bank of Lebanon entered into for risk management purposes which Central Bank's certificates of deposits 11,268 - do not meet the IAS 39 hedge accounting criteria. Swaps Treasury bills 124,843 461,941 Eurobonds 232,410 158,999 Derivative Financial Instruments Swaps are contractual agreements between two Held for Hedging Purposes parties to exchange movements in interest or 368,521 620,940 foreign currency rates, as well as the contracted Other sovereign As part of its asset and liability management, the upon amounts for currency swaps. Eurobonds 1,615 322 Bank uses derivatives for hedging purposes in order Private sector and other securities to reduce its exposure to credit and market risks. This In a currency swap, the Bank pays a specified amount Banks and financial institutions debt instruments 2,404 133,522 in one currency and receives a specified amount is achieved by hedging specific financial instruments, Loans and advances to customers 75,555 - portfolios of fixed rate financial instruments and in another currency. Currency swaps are mostly Corporate debt instruments 10,340 15,520 forecast transaction, as well as strategic hedging gross-settled. Structured products - 1,882 against overall financial position exposures. A Credit Default Swap (CDS) is a credit derivative Mutual funds 49,010 48,653 During 2012, the Bank renewed its currency swap between two counterparties, whereby they isolate Equity instruments 3,212 3,087 contracts designated to hedge the net investment the credit risk of at least one third party and trade 140,521 202,664 in its subsidiaries in Cyprus and France. The notional it. Under the agreement, one party makes periodic 510,657 823,926 amount of these contracts amounted to LBP 167,968 payments to the other and receives the promise million as of December 31, 2012 (2011: LBP 164,558). of a payoff if the third party defaults. The former In order to maintain the effectiveness of the hedge, party receives credit protection and is said to be The classification of the above instruments according the Group entered into forward contracts with a the “buyer”, while the other party provides credit to the type of interest is as follows: notional amount of LBP 40,036 million to reduce the protection and is said to be the “seller”. The third party is known as the “reference entity”. hedged amount. The negative fair value of these 2012 2011 contracts amounted to LBP 8,748 million (2011: LBP Million LBP Million positive fair value of LBP 16,560) and was transferred The notional amount of credit default swaps Fixed interest represents the carrying value of certain time deposits to “Foreign Currency Translation Reserve” in equity Lebanese sovereign and Central Bank of Lebanon 368,521 620,940 to offset gains on translation of the net investment held by the Group as of December 31, 2012 and Other sovereign 1,615 322 in the subsidiaries. No ineffectiveness from hedges of 2011 (Note 36). Private sector and other securities 88,300 149,042 net investments in foreign operations was recognised in profit or loss during the year. 458,436 770,304 Non-interest bearing Forwards and Futures Private sector and other securities 52,221 53,622 510,657 823,926 Forwards and futures contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. During 2012, the Group acquired, through its two This loan matures in September 2014, with option Forwards are customised contracts transacted in wholly-owned subsidiaries, Banque Audi (Suisse) to extend by one year. It is remunerated at a fixed the over-the-counter market. Futures contracts are and Beryte International NV, a European real estate interest rate of 4.75% per annum on the face amount. transacted in standardised amounts on regulated mortgage loan extended to Wel 1: Euro Elysee II exchanges and are subject to daily cash margin real estate fund. The loan is fully secured by first requirements. mortgage deeds against properties in Germany.

130 131 24. Loans and Advances to 2011 Retail and Customers at Amortised Cost Personal Public Corporate SME Banking Sector Total LBP Million LBP Million LBP Million LBP Million LBP Million 2012 Balance at January 1 89,858 67,536 79,364 1,062 237,820 Retail and Add: Personal Public Charges for the year (Note 12) 118,050 5,071 46,830 4,484 174,435 Corporate SME Banking Sector Total Transfers (178) 315 127 - 264 LBP Million LBP Million LBP Million LBP Million LBP Million Less: Overdraft accounts 2,408,650 764,158 634,556 65,560 3,872,924 Recoveries (Note 12) (10,063) (6,920) (4,106) (933) (22,022) Loans 7,403,071 1,681,182 2,695,458 56,264 11,835,975 Write-offs (190) (8,286) (3,141) - (11,617) Discounted bills and commercial paper 111,132 58,440 24,609 15,250 209,431 Foreign exchange difference (6,082) (928) (3,294) (38) (10,342) 9,922,853 2,503,780 3,354,623 137,074 15,918,330 Balance at December 31 191,395 56,788 115,780 4,575 368,538 Impairment allowance (308,129) (28,540) (101,342) (3,732) (441,743) Individual impairment 97,538 40,730 78,747 - 217,015 Unrealised interest (40,403) (4,424) (15,357) - (60,184) Collective impairment 93,857 16,058 37,033 4,575 151,523 9,574,321 2,470,816 3,237,924 133,342 15,416,403 191,395 56,788 115,780 4,575 368,538

2011 The movement of unrealised interest during the year is as follows: Retail and Personal Public Corporate SME Banking Sector Total LBP Million LBP Million LBP Million LBP Million LBP Million 2012 Overdraft accounts 2,123,667 763,413 514,140 640 3,401,860 Retail and Personal Loans 5,792,815 1,167,612 2,377,051 162,130 9,499,608 Corporate SME Banking Total Discounted bills and commercial paper 136,708 74,716 26,522 20,741 258,687 LBP Million LBP Million LBP Million LBP Million 8,053,190 2,005,741 2,917,713 183,511 13,160,155 Balance at January 1 37,512 30,888 31,040 99,440 Impairment allowance (191,395) (56,788) (115,780) (4,575) (368,538) Add: Unrealised interest (37,512) (30,888) (31,040) - (99,440) Unrealised interest applied on non-performing loans 20,948 3,643 8,648 33,239 7,824,283 1,918,065 2,770,893 178,936 12,692,177 Less: Unrealised interest written off (16,993) (28,954) (23,394) (69,341) The breakdown and movement of the impairment Unrealised interest recovered (Note 12) (587) (746) (749) (2,082) allowance during the year are as follows: Foreign exchange difference (477) (407) (188) (1,072) Balance at December 31 40,403 4,424 15,357 60,184 2012 Retail and Personal Public 2011 Corporate SME Banking Sector Total LBP Million LBP Million LBP Million LBP Million LBP Million Retail and Personal Balance at January 1 191,395 56,788 115,780 4,575 368,538 Corporate SME Banking Total Add: LBP Million LBP Million LBP Million LBP Million Charges for the year (Note 12) 150,832 7,018 41,306 2,744 201,900 Balance at January 1 21,592 28,470 26,476 76,538 Transfers 4,726 (4,726) 363 (582) (219) Add: Less: Unrealised interest applied on non-performing loans 17,104 5,280 5,905 28,289 Recoveries (Note 12) (4,000) (2,879) (3,914) (843) (11,636) Less: Write-offs (20,684) (27,728) (45,976) - (94,388) Unrealised interest written off (103) (2,112) (473) (2,688) Foreign exchange difference (14,140) 67 (6,217) (2,162) (22,452) Unrealised interest recovered (Note 12) (767) (710) (858) (2,335) Balance at December 31 308,129 28,540 101,342 3,732 441,743 Foreign exchange difference (314) (40) (10) (364) Individual impairment 196,703 14,284 61,917 2,187 275,091 Balance at December 31 37,512 30,888 31,040 99,440 Collective impairment 111,426 14,256 39,425 1,545 166,652 308,129 28,540 101,342 3,732 441,743

132 133 In accordance with the Banking Control Commission LBP 14,305 million). Besides, amounts recovered from Circular No. 240, bad loans and related provisions and off-balance sheet accounts during 2012 amounted to 25. Loans and Advances to Related unrealised interest which fulfil certain requirements LBP 5,877 million (2011: LBP 12,419 million). Parties at Amortised Cost have been transferred to off-balance sheet accounts. The gross balance of these loans amounted to The distribution by economic sector of loans and 2012 LBP 163,729 million as of December 31, 2012 (2011: advances to customers at amortised cost is as follows: Retail and Personal Corporate SME Banking Total 2012 2011 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Overdraft accounts - 187,284 38,659 225,943 Manufacturing industries 3,091,234 2,167,091 Loans 8,172 - 70,396 78,568 Individuals – excluding housing 2,528,147 2,276,419 8,172 187,284 109,055 304,511 Wholesale and retail trade 2,278,118 1,843,934 Financial services and brokerage 1,671,096 1,502,606 Real estate services 1,222,188 885,883 2011 Construction 1,142,268 1,038,408 Retail and Personal Transportation and warehousing 1,134,051 970,876 Corporate SME Banking Total Individuals – housing 1,030,297 853,001 LBP Million LBP Million LBP Million LBP Million Overdraft accounts - 169,166 37,836 207,002 Hotels and restaurants 451,869 364,125 Loans 8,295 1,076 47,293 56,664 Electricity, gas, water and telecommunication 304,378 362,352 8,295 170,242 85,129 263,666 Professional services 292,191 238,013 Agriculture 129,501 53,764 Extractive industry 19,784 31,902 The distribution by economic sector of loans and advances to related parties at amortised cost is Public administration 3,194 3,535 as follows: Regional and international organisations 802 2,048 Others 117,285 98,220 15,416,403 12,692,177 2012 2011 LBP Million LBP Million Construction 177,021 167,979 Individuals – excluding housing 66,339 57,593 Real estate services 36,865 29,020 Individuals – housing 21,957 7,945 Hotels and restaurants 2,104 1,103 Financial services and brokerage 33 26 Others 192 - 304,511 263,666

134 135 The Group classified the following instruments at 26. Financial Assets at 27. Financial Assets at fair value through other comprehensive income as it Amortised Cost Fair Value through Other intends to hold them for strategic reasons. The tables below list those equity instruments and Comprehensive Income dividends received: 2012 2011 LBP Million LBP Million 2012 Lebanese sovereign and Central Bank of Lebanon Numbers Fair Value Dividends of Shares LBP Million LBP Million Central Bank’s certificates of deposits 5,008,977 5,423,957 AZA Holding SAL 49,900 125,371 6,110 Treasury bills 3,379,072 2,823,032 LIA Insurance sal (Note 16) 217,063 32,199 9 Eurobonds 2,222,422 2,750,853 BankMed SAL 7.75% series “1” preferred shares 100,000 15,075 1,168 Visa NC – Class “C” 63,438 14,216 66 10,610,471 10,997,842 Phoenicia – Aer Rianta Co. SAL 16,354 10,729 15,076 Other sovereign Banque de l’Habitat SAL 502,599 10,125 56 Treasury bills 2,425,358 1,716,371 Solidere International Limited 58,083 6,479 131 Liban Lait SAL 8,500 5,232 - Eurobonds 121,725 165,673 Saraya Aqaba Real Estate Development 1,965,396 3,015 2,156 Other governmental securities 244,427 327,543 Master Card Inc Class B 3,814 2,778 4 2,791,510 2,209,587 Kafa Holding SAL 3,268 2,049 - Kafalat 3,800 1,628 - Private sector and other securities International Payment Network SAL 6,496 1,392 122 Banks and financial institutions debt instruments 853,948 660,692 Arab Trade Finance Program 122 1,366 - Corporate debt instruments 299,713 446,451 Abdel Wahab 618 Holding SAL 232 1,272 - Fransabank SAL Loans related to investments in equity instruments 539 482 28,923 1,221 52 Societe ABC SAL (bearer) 41,093 1,022 174 1,154,200 1,107,625 D.F. Arem, Media Ltd 255 841 1,843 14,556,181 14,315,054 Kayan 150,000 736 - Less: impairment allowance (7,065) (7,751) C-Mobile Group Holding Ltd 5,487,273 - - Other equity instruments 9,047 3,278 14,549,116 14,307,303 245,793 30,245

2011 The classification of the above instruments according Numbers Fair Value Dividends to the type of interest is as follows: of Shares LBP Million LBP Million AZA Holding SAL 49,900 118,186 6,037 BBAC 8.25% N-CP preferred shares series “A” 1,200,000 18,090 1,493 2012 2011 BankMed SAL 7.75% series “1” preferred shares 100,000 15,075 1,168 LBP Million LBP Million C-Mobile Group Holding Ltd 5,487,273 12,795 - Fixed interest Phoenicia – Aer Rianta Co SAL 16,354 10,729 14,820 Visa NC – Class “C” 63,364 9,698 30 Lebanese sovereign and Central Bank of Lebanon 10,610,471 10,997,842 Liban Lait SAL 8,500 5,232 - Other sovereign 2,757,698 2,209,587 Solidere International Limited 58,083 7,005 - Private sector and other securities 1,130,621 1,063,302 Banque de l’Habitat SAL 517,599 4,359 382 Saraya Aqaba Real Estate Development 1,965,396 4,179 - 14,498,790 14,270,731 Kafa Holding SAL 3,268 2,049 - Variable interest Blom Bank SAL “GDR” 167,900 1,886 107 Private sector and other securities 16,370 36,429 Fransabank SAL 28,923 1,221 47 Arab Trade Finance Program 122 1,280 2 Other sovereign 33,813 - Abdel Wahab 618 Holding SAL 232 1,272 - Loans related to investments in equity instruments 143 143 Kayan 150,000 1,049 - 50,326 36,572 Societe ABC SAL (bearer) 41,093 1,022 309 D.F. Arem Media Ltd 255 1 2,260 14,549,116 14,307,303 Other equity instruments 8,856 1,065 223,984 27,720

During 2012, the Group realised a gain of LBP 1,416 upon disposal of financial assets at fair value through million (2011: LBP 679 million) in equity reserves other comprehensive income.

136 137 28. Investments in Associates 29. Property and Equipment

2012 2011 Office Equipment Office Country of Cost Cost and Machinery Incorporation Ownership % LBP Million Ownership % LBP Million Land and Installations Motor Computer and Other Fixed Buildings and Fixture Vehicles Hardware Furniture Assets Total Investments LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Assurex sal Lebanon 23.82 3,540 23.92 3,555 Cost or revaluation: Syrian Arab Insurance sal Syria 36.00 8,175 49.50 14,929 At January 1, 2012 436,163 159,600 4,104 104,493 92,389 16,031 812,780 Pinpay sal Lebanon 24.93 480 39.00 648 Entities deconsolidated during the year (7,283) (1,056) (91) (1,043) (316) (69) (9,858) Additions 40,496 48,897 552 30,086 15,177 1,358 136,566 Capital Outsourcing Ltd (Dubai) UAE 37.50 3,958 37.50 3,958 Disposals (19,886) (5,520) (513) (2,195) (3,498) - (31,612) 16,153 23,090 Transfers to non-current assets held for sale (32,303) (77) (189) (445) (90) (23) (33,127) Related loans Other transfers - - - 29 (29) (88) (88) Capital Outsourcing Ltd (Dubai) UAE 18,077 20,009 Foreign exchange difference (9,440) (6,178) (346) (2,763) (4,032) (443) (23,202) 34,230 43,099 At December 31, 2012 407,747 195,666 3,517 128,162 99,601 16,766 851,459 Depreciation: At January 1, 2012 69,712 97,629 2,222 69,425 52,225 10,017 301,230 Entities deconsolidated during the year (576) (647) (46) (894) (269) (51) (2,483) During 2012, Pinpay increased its share capital not subscribe in the capital increase and, as a result, Charge for continuing operations 8,421 16,247 425 12,508 7,528 959 46,088 in cash by an amount equal to LBP 1,500 million its ownership percentage was diluted. Charge for discontinued operations - 624 - 382 423 - 1,429 representing 10,000 new shares, in addition to Disposals (3,541) (4,811) (283) (2,050) (3,142) - (13,827) LBP 200,010 issue premium per share, conferring The Bank’s investments accounted for under the Transfers to non-current assets held for sale (2,076) (14) (23) (105) (79) - (2,297) equal rights to the shareholders as the existing equity method are not listed on public exchanges. Other transfers 9 - - - (9) - - shares. The share capital of PinPay after the capital The following table illustrates the summarised Foreign exchange difference (1,219) (2,163) (208) (2,043) (1,836) 78 (7,391) increase amounts to LBP 3,000 million. The Bank did financial information of these investments: At December 31, 2012 70,730 106,865 2,087 77,223 54,841 11,003 322,749 Net book value: At December 31, 2012 337,017 88,801 1,430 50,939 44,760 5,763 528,710 2012 2011 LBP Million LBP Million Share of associates’ statement of financial position Office Current assets 23,516 41,362 Equipment Office and Machinery Non-current assets 11,647 6,280 Land and Installations Motor Computer and Other Fixed Buildings and Fixture Vehicles Hardware Furniture Assets Total Current liabilities (4,936) (6,686) LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Non-current liabilities (18,159) (21,473) Cost or revaluation: Net assets 12,068 19,483 At January 1, 2011 439,648 145,985 4,351 92,094 87,766 15,001 784,845 Entities deconsolidated during the year - (4,148) (60) (4,851) (502) - (9,561) Share of associates' revenues and profits Additions 3,086 23,161 608 20,963 8,763 1,342 57,923 Revenues 6,348 23,886 Disposals (1,932) (634) (668) (2,509) (265) (10) (6,018) Share of profits for the year 551 5,133 Transfers - 75 - 488 (563) - - Foreign exchange difference (4,639) (4,839) (127) (1,692) (2,810) (302) (14,409) At December 31, 2011 436,163 159,600 4,104 104,493 92,389 16,031 812,780 Depreciation: At January 1, 2011 61,853 88,114 2,286 65,904 47,547 9,212 274,916 Entities deconsolidated during the year - (1,212) (60) (2,696) (291) (20) (4,279) Charge for continuing operations 8,546 12,711 550 9,244 6,806 939 38,796 Charge for discontinued operations 212 122 28 147 139 1 649 Disposals (564) (522) (502) (2,479) (249) (4) (4,320) Transfers - 84 - 290 (374) - - Foreign exchange difference (335) (1,668) (80) (985) (1,353) (111) (4,532) At December 31, 2011 69,712 97,629 2,222 69,425 52,225 10,017 301,230 Net book value: At December 31, 2011 366,451 61,971 1,882 35,068 40,164 6,014 511,550

138 139 recognised in the Consolidated Income Statement 30. Intangible Fixed Assets 31. Non-current Assets Held for the year. for Sale Computer Existing Customer Key Money Software Technology Relationships Other Total Besides, as at December 31, 2012, the Bank continued LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million The Group occasionally takes possession of properties to recognise in its financial statements the assets Cost: in settlement of loans and advances. The Group is in and liabilities from three subsidiaries which At January 1, 2012 5,021 47,938 - - - 52,959 the process of selling these properties which are, as represent non-core businesses. Management expects Entities deconsolidated during the year - (1,104) - - - (1,104) such, included in “Non-current Assets Held for Sale”. to complete the sale of these disposal groups Additions 38 45,781 - - 289 46,108 Gains or losses on disposal and revaluation losses are during 2013. Disposals - (276) - - - (276) Transfers to non-current assets held for sale (1) (160) - - - (161) Properties Investments Foreign exchange difference (656) (1,028) - - 2 (1,682) Acquired in Acquired in Other At December 31, 2012 4,402 91,151 - - 291 95,844 Settlement of Debts Settlement of Debts Disposal Groups Total Amortisation: LBP Million LBP Million LBP Million LBP Million At January 1, 2012 891 38,560 - - - 39,451 Cost: Entities deconsolidated during the year - (943) - - - (943) At January 1, 2012 27,001 - - 27,001 Charge for the year 28 7,608 - - 27 7,663 Additions 211 - - 211 Disposals - (276) - - - (276) Transfers 254 - 34,941 35,195 Transfers to non-current assets held for sale (1) (147) - - - (148) Disposals (11,025) - - (11,025) Foreign exchange difference 1,317 (820) - - - 497 Foreign exchange difference (698) - - (698) At December 31, 2012 2,235 43,982 - - 27 46,244 At December 31, 2012 15,743 - 34,941 50,684 Net book value: Impairment: At December 31, 2012 2,167 47,169 - - 264 49,600 At January 1, 2012 622 - - 622 Reversal due to disposals (4) - - (4) Foreign exchange difference 12 - - 12

Computer Existing Customer At December 31, 2012 630 - - 630 Key Money Software Technology Relationships Other Total Net book value: LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million At December 31, 2012 15,113 - 34,941 50,054 Cost: At January 1, 2011 3,879 54,177 2,542 5,738 1,183 67,519

Entities deconsolidated during the year - (10,881) (2,542) (5,738) (1,183) (20,344) Properties Investments Additions 1,868 5,509 7,377 Acquired in Acquired in Other Disposals (102) (130) - - - (232) Settlement of Debts Settlement of Debts Disposal Groups Total LBP Million LBP Million LBP Million LBP Million Foreign exchange difference (624) (737) - - - (1,361) Cost: At December 31, 2011 5,021 47,938 - - - 52,959 At January 1, 2011 30,478 15 - 30,493 Amortisation: Additions 4,468 - - 4,468 At January 1, 2011 352 40,157 469 1,060 13 42,051 Entities deconsolidated during the year - (7,136) (704) (1,590) (154) (9,584) Transfers (806) (15) 706 (115) Charge for the year 39 6,100 235 530 141 7,045 Disposals (2,886) - (706) (3,592) Charge for discontinued operations 688 202 - - - 890 Adjustment (3,723) - - (3,723) Disposals (102) (130) - - - (232) Foreign exchange difference (530) - - (530) Foreign exchange difference (86) (633) - - - (719) At December 31, 2011 27,001 - - 27,001 At December 31, 2011 891 38,560 - - - 39,451 Impairment: Net book value: At January 1, 2011 1,239 - - 1,239 At December 31, 2011 4,130 9,378 - - - 13,508 Reversal due to disposals (602) - - (602) Foreign exchange difference (15) - - (15) At December 31, 2011 622 - - 622 Net book value: At December 31, 2011 26,379 - - 26,379

140 141 The major classes of assets and liabilities of the entities classified as held for sale as at December 31, 33. Goodwill 2012 are as follows: Lebanon Switzerland Egypt Sudan United States Monaco Others Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Eagle One Third Cost: Agence Saradar Investment At January 1, 2012 54,716 45,064 144,216 5,587 - 9,846 2,002 261,431 d’Assurances sal Clover Building sal Company sal Total LBP Million LBP Million LBP Million LBP Million Entities deconsolidated during the year ------(1,996) (1,996) Assets Impairment – Continuing Intangible fixed assets 13 - - 13 operations - - (21,167) - - - (21,167) Property and equipment 969 29,000 861 30,830 Impairment – Discontinued operations Other assets 3,985 111 2 4,098 - - - - - (9,922) - (9,922) Foreign exchange difference - 1,667 (4,150) (3,087) - 76 (6) (5,500) 4,967 29,111 863 34,941 At December 31, 2012 54,716 46,731 118,899 2,500 - - - 222,846 Liabilities Other liabilities 3,634 11,143 22 14,799 3,634 11,143 22 14,799 Lebanon Switzerland Egypt Sudan United States Monaco Others Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million There is no cumulative income or expenses in Cost: “Other Comprehensive Income” relating to assets At January 1, 2011 54,716 45,108 149,824 5,652 8,128 10,093 3,683 277,204 held for sale. Entities deconsolidated during the year - - - - (8,128) - - (8,128) Foreign exchange difference - (44) (5,608) (65) - (247) (1,681) (7,645) 32. Other Assets At December 31, 2011 54,716 45,064 144,216 5,587 - 9,846 2,002 261,431

2012 2011 LBP Million LBP Million For the purpose of impairment testing, goodwill is flow forecasts necessarily and appropriately reflect Advances on acquisition of tangible fixed assets 67,819 69,932 allocated to the Cash-generating Units (CGUs) which Management’s view of future business prospects. Advances on acquisition of intangible fixed assets 6,460 13,794 represent the lowest level within the Group at which Prepaid charges 36,194 50,480 the goodwill is monitored for internal management The online brokerage CGU in Egypt (Arabeya Online) Reinsurers’ shares in technical provisions - 20,566 purposes. The cost of equity assigned to an individual is a separate legal entity performing brokerage Electronic cards and regularisation accounts 21,790 19,181 CGU and used to discount its future cash flows can activities to its customers and is reported under Trade receivables related to non-banking operations 2,345 17,038 have a significant effect on its valuation. The cost “Retail and Personal Banking” business segment Advances to staff 8,124 14,849 of equity percentage is generally derived from an and “MENA” geographic segment. Due to the appropriate capital asset pricing model, which itself adverse events currently witnessed in Egypt, the Hospitalisation and medical care under collection 14,980 11,920 depends on inputs reflecting a number of financial volume of trading activities has drastically dropped Advances on investments 7,123 7,837 and economic variables including the risk rate in in that market and, accordingly, the earnings of Deferred tax assets (Note 15) 19,629 7,632 the country concerned and a premium to reflect the this CGU were significantly affected. As a result, Interest and commissions to be received 3,225 5,445 inherent risk of the business being evaluated. an impairment loss on goodwill amounting to Funds’ management fees 3,152 3,737 USD 14 million (equivalent to LBP 21,167 million) Consolidation differences - 2,860 Management judgment is required in estimating has been recognised during the year ended Fiscal stamps, bullions and commemorative coins 1,672 1,606 the future cash flows of the CGUs. These values are December 31, 2012 (2011: nil). The recoverable Management and advisory fees receivable 495 535 sensitive to cash flows projected for the periods amount of this cash-generating unit is its value in use. Miscellaneous debtors and other debtor accounts 45,155 40,759 for which detailed forecasts are available, and to 238,163 288,171 assumptions regarding the term sustainable pattern Pursuant to Management's decision to discontinue of cash flows thereafter. While the acceptable its banking operations carried through Bank Audi range within which underlying assumptions can be sam (Monaco), the goodwill attributable to that applied is governed by the requirement for resulting Private Banking CGU was deemed to be impaired by forecasts to be compared with actual performance effect of discontinuing the operations. The Group's and verifiable economic data in future years, the cash activities in Monaco were included in the “Retail and

142 143 Personal Banking” business segment and “Europe” The following CGUs include in their carrying value geographic segment. The net results of Bank Audi goodwill that is a significant proportion of total 35. Due to Banks and sam were included under “Profit from Discontinued goodwill reported by the Group. These CGUs do not Financial Institutions Operations” in the Income Statement for the years carry on their statement of financial position any ended December 31, 2012 and 2011. intangible assets with indefinite lives, other than 2012 2011 goodwill. The following schedule shows the discount LBP Million LBP Million and terminal growth rates used for CGUs subject to Current accounts 180,579 308,920 impairment testing. Term loans 512,337 324,000 Time deposits 475,488 372,311 Accrued interest 2,770 2,327 2012 2011 1,171,174 1,007,558 Discount Terminal Discount Terminal Rate % Growth Rate % Rate % Growth Rate % Repurchase agreements 681,487 - Cash-generating units 1,852,661 1,007,558 Commercial and Private Banking – Lebanon 17.00 2.00 15.50 2.00 Private Banking – Switzerland 10.00 2.00 10.00 2.00 The commitments arising from bank facilities received During the last quarter of 2012, the Group entered Commercial Banking – Egypt 17.00 3.00 16.50 3.00 are disclosed in Note 52 to these Consolidated into repurchase agreements against pledging Commercial Banking – Sudan 22.00 2.00 18.00 2.00 Financial Statements. Treasury bills as collateral. The terms of these Private Banking – Monaco - - 13.00 2.00 agreements are as follows: Online Brokerage – Egypt 17.00 4.00 16.50 4.00

Jordan Egypt Total LBP Million LBP Million LBP Million At December 31, 2011, aggregate goodwill of Group estimates that reasonably possible changes LBP million 2,002 was allocated to CGUs that were in these assumptions are not expected to cause the Central banks 126,697 114,613 241,310 not considered individually significant. recoverable amount of either unit to decline below Other banks - 440,177 440,177 the carrying amount. 126,697 554,790 681,487 The key assumptions described above may change Carrying value of collateral 127,171 567,968 695,139 as economic and market conditions change. The Interest expense 1,787 3,364 5,151 Annual interest rate 4.25% 9.75% - 10.15% Between January 2 and 34. Due to Central Banks Maturity date December 6, 2013 February 25, 2013

2012 2011 LBP Million LBP Million Subsidised loan 132,612 132,612 Accrued interest 496 782 133,108 133,394

During 2009, the Bank signed a credit agreement with loans. Interest expense on the loan amounted to the Central Bank of Lebanon based on the provisions LBP 4,797 million and LBP 6,341 million for the years of article 102 of the Code of Money and Credit. ended December 31, 2012 and 2011, respectively. The purpose of this loan is to finance subsidised

144 145 36. Customers’ Deposits at 37. Deposits from Related Amortised Cost Parties at Amortised Cost

2012 2012 Corporate Retail and Corporate Retail and Public and SME Personal Banking Total and SME Personal Banking Sector Other Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Sight deposits 21,122 177,504 198,626 Sight deposits 1,830,807 4,632,182 42,575 547 6,506,111 Time deposits 304,578 177,703 482,281 Time deposits 5,286,250 24,369,381 246,110 2,434 29,904,175 Saving accounts - 1,268 1,268 Saving accounts 11,366 1,720,479 - - 1,731,845 Other deposits and margin accounts 6,781 145 6,926 Certificates of deposits 9,389 850,902 - - 860,291 332,481 356,620 689,101 Margins on LC’s and LG’s 286,492 58,926 - 6 345,424 Deposits pledged as collateral 66,557 Other margins 66,474 149,735 - 2 216,211 Other deposits 72,224 82,598 - 11 154,833 7,563,002 31,864,203 288,685 3,000 39,718,890 2011 Deposits pledged as collateral 3,586,547 Corporate Retail and and SME Personal Banking Total LBP Million LBP Million LBP Million 2011 Sight deposits 32,229 956 33,185 Corporate Retail and Public Time deposits 235,128 15,243 250,371 and SME Personal Banking Sector Other Total Saving accounts - 468 468 LBP Million LBP Million LBP Million LBP Million LBP Million Other deposits and margin accounts 483 790 1,273 Sight deposits 1,564,690 4,065,442 39,299 1,165 5,670,596 267,840 17,457 285,297 Time deposits 6,648,552 22,435,674 211,727 1 29,295,954 Deposits pledged as collateral 56,732 Saving accounts 104,361 472,013 - - 576,374 Certificates of deposits 648,130 18,297 - - 666,427 Margins on LC’s and LG’s 345,378 63,670 - 15 409,063 38. Other Liabilities Other margins 148,089 107,587 - 2 255,678

Other deposits 72,693 149,747 669 9 223,118 2012 2011 9,531,893 27,312,430 251,695 1,192 37,097,210 LBP Million LBP Million Deposits pledged as collateral 3,247,424 Current tax liabilities (Note 15) 118,058 86,756 Accrued expenses 59,545 52,484 Miscellaneous suppliers and other payables 58,803 23,736 Time deposits include special deposits amounting denominated in US Dollars and having the same Credit balances of factoring clients 56,740 72,218 to LBP 1,442,219 million as at December 31, 2012 nominal amount. As these deposits are linked to Operational taxes 32,620 32,766 (2011: LBP 1,616,854 million) that pay a preferential the credit risk of the Lebanese Republic, the Bank Employee accrued benefits 29,195 24,594 (simple) interest rate. The principal is settled at separated the embedded derivative and accounted Unearned commissions and premiums 12,267 14,847 maturity according to the full discretion of the Bank for it at fair value through profit or loss. Deferred tax liabilities (Note 15) 1,753 either in cash or in Lebanese government Eurobonds 13,340 Electronic cards and regularisation accounts 6,493 5,554 Social security dues 6,258 5,749 Consolidation difference 2,054 - Due to National Institute for Guarantee of Deposits 1,330 271 Provisions for technical reserves related to insurance operations - 312,968 Reinsurers’ and brokers’ accounts - 8,270 Liabilities on revaluation of share option agreements (Note 44) - 185,858 Other credit balances 12,162 4,263 408,865 832,087

146 147 39. Provisions for Risks and b) End of Service Benefits Charges The movement of provision for staff retirement benefit obligation is as follows: 2012 2011 LBP Million LBP Million Defined Other Retirement Provisions for risks and charges (a) 38,571 24,523 Benefit Plan Obligations Total End of service benefits (b) 56,525 48,402 LBP Million LBP Million LBP Million 95,096 72,925 Balance at January 1, 2012 40,861 7,541 48,402 Charge for the year (Note 13) 9,778 3,048 12,826 Transfer from deconsolidated entities 114 - 114 a) Provisions for Risks and Charges Paid during the year (1,366) (1,542) (2,908) Transfer to non-current assets held for sale (502) - (502)

2012 2011 Deconsolidated entities (977) - (977) LBP Million LBP Million Foreign exchange difference (430) - (430) Provision for contingencies 19,510 18,638 Balance at December 31, 2012 47,478 9,047 56,525 Provision for insurance risks - 1,718 Balance at January 1, 2011 36,746 4,194 40,940 Provision for legal claims 1,723 1,539 Charge for the year (Note 13) 6,668 3,549 10,217 Provision for bonus 11,818 - Charge for the year – Discontinued operations 86 - 86 Other provisions 5,520 2,628 Paid during the year (1,632) (202) (1,834) 38,571 24,523 Provision no more required (979) - (979) Foreign exchange difference (28) - (28) Balance at December 31, 2011 40,861 7,541 48,402 The movement of provision for risks and charges is as follows: The amount provided during the year is as follows:

2012 2011 LBP Million LBP Million 2012 2011 Balance at January 1 24,523 27,044 LBP Million LBP Million Add: Current service cost 6,736 6,077 Charge for operating expenses (Note 14) 13,088 4,388 Interest on obligation 4,475 4,002 Charge for personnel expenses 11,767 - Expected return on plan assets (1,636) (1,602) Transfer from other liabilities - 1,928 Other termination benefits 3,048 3,549 24,855 6,316 Gain on curtailments and settlements - (1,809) Less: Net actuarial losses recognised during the year 203 - Paid during the year 3,997 4,075 Total charge for the year 12,826 10,217 Net provisions recoveries – Continued operations (Note 11) 7 2,909 Net provisions recoveries – Discontinued operations - 750 Entities deconsolidated during the year 2,019 - Transfer to other liabilities 3,981 - Foreign exchange difference 803 1,103 10,807 8,837 Balance at December 31 38,571 24,523

148 149 The key assumptions used in the calculation of • Number of shares: 1,250,000. During 2012, 1,936,221 common shares were retirement benefit obligation are as follows: • Share’s issue price: USD 100. transferred to Global Depository Receipts (2011: • Share’s nominal value: LBP 1,225 (later became 6,393,576 shares). 2012 2011 LBP 1,254 upon increasing the nominal value). Economic assumptions • Issue premium: calculated in USD as the difference In accordance with the resolution of the Extraordinary Discount rate (p.a.) 2.15% - 8.50% 2.90% - 8.00% between USD 100 and the counter value of the par General Assembly of shareholders held on June Salary increase (p.a.) 2.50% - 8% 2.50% - 6.00% value per share based on the exchange rate at the 22, 2012, the Bank increased the share capital by underwriting dates. LBP 389 million by issuing 309,260 common shares Interest rate credited to account balance 2.50% - 6 % 3.00% - 6.00% • Benefits: annual dividends of USD 6 per share, at the nominal value of LBP 1,254 per share, entirely Demographic assumptions non-cumulative. designated for options holders who exercised Retirement 64 - 65 64 - 65 • Repurchase right: the Bank has the right to purchase their rights (2011: increased the share capital by Pre-termination mortality None None the shares in 5 years after issuance, as well as to call LBP 1,207 million by issuing 962,830 common shares Pre-termination turnover rates (age related with average of) 2.00% - 13.00% 2.00% - 15.00% them off by that date. at the nominal value of LBP 1,254 per share). Pursuant to the resolution of the Extraordinary General Assembly held on September 5, 2005, the Paid Dividends Bank issued 1,250,000 preferred shares series “D” according to the following terms: In accordance with the resolution of the General 40. Share Capital Assembly of shareholders held on April 10, 2012, • Number of shares: 12,500,000 (after the stock split). dividends were distributed as follows: The share capital of Bank Audi sal - Audi Saradar • Share’s issue price: USD 100. Group as at December 31 is as follows: • Share’s nominal value: LBP 10,000 (subsequently increased to LBP 12,250 due to the increase of the 2012 2011 share’s nominal value). Stock Exchange Number Number • Issue premium : calculated in USD as the difference listing of Shares LBP Million of Shares LBP Million between USD 100 and the counter value of the par Ordinary shares Beirut 247,731,553 310,656 249,358,514 312,695 value per share (LBP 10,000). Global depository receipts London SEAQ • Benefits: annual dividends of USD 7.75 per share, and Beirut 102,017,651 127,930 100,081,430 125,502 non-cumulative. 349,749,204 438,586 349,439,944 438,197 • Repurchase right: the Bank has the right to purchase Preferred shares series “D” Beirut 12,500,000 15,675 12,500,000 15,675 the shares in 5 years after issuance, as well as to call Preferred shares series “E” Beirut 1,250,000 1,568 1,250,000 1,568 them off by that date. Preferred shares series “F” Beirut 1,500,000 1,881 - - 15,250,000 19,124 13,750,000 17,243 364,999,204 457,710 363,189,944 455,440

Pursuant to the resolution of the Extraordinary • Benefits: annual dividends of USD 6 per share, General Assembly of shareholders held on April 10, non-cumulative (exceptional for the 2012 fiscal year 2012, the Bank issued preferred shares series “F” was set to USD 4 per share). under the following terms: • Repurchase right: the Bank has the right to purchase the shares in 5 years after issuance, as well as to call • Number of shares: 1,500,000. them off by that date. • Share’s issue price: USD 100. • Share’s nominal value: LBP 1,254. Pursuant to the resolution of the Extraordinary • Issue premium: calculated in USD as the difference General Assembly of shareholders held on March 2, between USD 100 and the counter value of the par 2010, the Bank issued 1,250,000 preferred shares series value per share based on the exchange rate at the “E” according to the following terms: underwriting dates.

150 151 2012 42. Cash Contribution Distribution Number of per Share Total to Capital Shares LBP LBP Million Preferred shares series “D” 12,500,000 1,168 14,604 In previous years, agreements were entered capital, these contributions may be used to cover the Preferred shares series “E” 1,250,000 9,045 11,306 between the Bank and its shareholders whereby the losses if needed; Common shares and Global Depository Receipts 349,439,944 603 210,712 shareholders granted cash contributions to the Bank • The shareholders have the right to use these 236,622 amounting to LBP 72,586 million (USD 48,150,000) contributions to settle their share in any increase as at December 31, 2012 and 2011 subject to the of capital; following conditions: • No interest is due on the above contributions; In accordance with the resolution of the General • The above cash contributions are considered as part Assembly of shareholders held on April 4, 2011, • These contributions will remain placed as a of Tier I capital for the purpose of determining the dividends were distributed as follows: fixed deposit as long as the Bank performs Bank’s capital adequacy ratio; and banking activities; • The right to these cash contributions is for the 2011 • If the Bank incurs losses and has to reconstitute its present and future shareholders of the Bank. Distribution Number of per Share Total Shares LBP LBP Million Preferred shares series “D” 12,500,000 1,168 14,604 Preferred shares series “E” 1,250,000 6,030 7,538 Common shares and Global Depository Receipts 346,055,290 603 208,671 230,813

41. Issue Premiums

2012 2011 LBP Million LBP Million Issue premium – Common shares 659,206 657,846 Issue premium – Preferred shares 583,876 359,633 1,243,082 1,017,479

The movements on the issue and merger premiums to LBP 224,243 million resulted from the issuance of are detailed as follows as at December 31, 2012 1,500,000 preferred shares series “F” (Note 40). and 2011: • In 2011, the increase in common shares issue premium • The increase in common shares issue premium due was due to the issuance of 962,830 common shares to the issuance of 309,260 common shares pursuant pursuant to the exercise of stock options. The to the exercise of stock options (Note 40). The subscribers paid the difference between USD 2.719 subscribers paid the difference between USD 2.719 and the nominal amount per share based on the and the nominal amount per share based on the exchange rates at the exercise dates for 708,610 exchange rates at the exercise dates. Besides, an shares and the difference between USD 4.033 and the amount of LBP 587 million was transferred from the nominal amount per share based on the exchange employees’ share-based payments reserve to the rates at the exercise dates for 254,220 shares. An issue premium of subscribed shares (Note 46). amount of LBP 1,720 million was transferred from the employees’ share-based payments reserve to the • The increase in the issue premium of preferred shares issue premium of subscribed shares (Note 46). for the year ended December 31, 2012 amounting

152 153 43. Non-distributable Legal Reserve Reserves for General Banking Risks

Reserves The Lebanese Commercial Law and the Bank’s According to the Bank of Lebanon’s regulations, articles of association stipulate that 10% of the net banks are required to appropriate from their annual

Reserves Gain on Reserve for annual profits be transferred to legal reserve. In net profit a minimum of 0.2 percent and a maximum Appropriated Sale of General Employees' Reserve for addition, subsidiaries and branches are also subject of 0.3 percent of total risk-weighted assets and off- Legal for Capital Treasury Banking Share-based Foreclosed Other Reserve Increase Shares Risks Payments Assets Reserves Total to legal reserve requirements based on the rules and balance sheet accounts based on rates specified LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million regulations of the countries in which they operate. by the Central Bank of Lebanon to cover general Balance at January 1, 2012 286,273 33,453 47,076 323,971 587 5,000 - 696,360 This reserve is not available for dividend distribution. banking risks. The consolidated ratio should not Appropriation of 2011 profits 57,901 11,174 - 63,705 - 351 153 133,284 be less than 1.25 percent of these risks by the year Distribution of dividends on The Bank and different subsidiaries transferred to 2017 and 2 percent by the year 2027. This reserve is ordinary shares - - 443 - - - - 443 legal reserve an amount of LBP 57,901 million (2011: part of the Group’s equity and is not available for Employees’ share-based payments - - - - (587) - - (587) LBP 59,872 million) as required by the laws applicable distribution. Entities deconsolidated during in the countries in which they operate. the year (8,219) ------(8,219) Reserve for Foreclosed Assets Treasury shares transactions - - (24,583) - - - - (24,583) Non-controlling interest share Reserves Appropriated for of reserves (137) (1) - - - - - (138) Capital Increase The reserve for foreclosed assets represents Transfers between reserves 1,649 - - 6,223 - (1,626) 5,840 12,086 appropriation against assets acquired in settlement of debt in accordance with the circulars of the Lebanese Other movements (212) ------(212) The Bank and the subsidiaries transferred Banking Control Commission. Appropriations At December 31, 2012 337,255 44,626 22,936 393,899 - 3,725 5,993 808,434 LBP 11,174 million from 2012 profits against assets acquired in settlement of debt shall (2011: LBP 14,361 million) to reserves appropriated be transferred to unrestricted reserves upon the for capital increase. This amount represents the disposal of the related assets. Reserves Gain on Reserve for net gain on the disposal of fixed assets acquired Appropriated Sale of General Employees' Reserve for in settlement of debt, in addition to reserves on Legal for Capital Treasury Banking Share-based Foreclosed Other Other Reserves Reserve Increase Shares Risks Payments Assets Reserves Total recovered provisions for doubtful loans and debts LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million previously written off, whenever recoveries exceed Balance at January 1, 2011 229,167 12,602 48,269 252,423 2,307 4,782 - 549,550 In accordance with decision 362 of the Council of booked allowances. Appropriation of 2010 profits 59,872 14,361 - 72,840 - 396 - 147,469 Money and Credit of Syria, unrealised accumulated Employees’ share-based foreign exchange profits from the revaluation of the payments - - - - (1,720) - - (1,720) Gain on Sale of Treasury Shares structural position in foreign currency maintained by Entities deconsolidated during the subsidiary bank in Syria are non-distributable. the year (348) ------(348) These gains arise from the Global Depository Receipts Treasury shares transactions - - (1,193) - - - - (1,193) (GDRs) owned by the Group. Based on the applicable Non-controlling interest share regulations, the Bank does not have the right to of reserves (2,418) - - (4,977) - - - (7,395) distribute these gains. Transfers between reserves - 6,490 - 3,316 - (178) - 9,628 Other movements - - - 369 - - - 369 The net loss arising from the Treasury GDRs amounted At December 31, 2011 286,273 33,453 47,076 323,971 587 5,000 - 696,360 to LBP 24,583 million for the year ended December 31, 2012 (2011: LBP 1,193 million).

154 155 Board of Directors can set certain growth targets to 44. Distributable Reserves 45. Proposed Dividends be achieved in its consolidated earnings per share for the options to be vested. The exercise price for In its meeting held on March 21, 2012, the Board Reserve for each option was set at USD 27.19 (USD 2.719 after General Share Option Other of Directors of Bank Audi sal - Audi Saradar Group Reserves Agreements Reserves Total the stock split). The options are exercisable over a resolved to propose to the annual Ordinary General LBP Million LBP Million LBP Million LBP Million period of 2 years from the vesting date. Balance at January 1, 2012 567,742 (185,858) (1,669) 380,215 Assembly the distribution of dividends of LBP 603 per common share and GDR which amounts to Appropriation of 2011 profits 1,505 - - 1,505 The Board of Directors also resolved that the vesting LBP 210,194 million in total, after deductions made on Entities deconsolidated during the year (19,637) - - (19,637) of one-half of the granted options is not contingent Treasury shares held on the date of record. Proposed Non-controlling interest share of reserves (4,308) - - (4,308) on any conditions or target achievement. As such, dividends related to preferred shares amounted to Reserves for share option agreements - 6,844 - 6,844 these options become exercisable after specified LBP 34,955 million. These dividends are subject to Transfers between reserves 7,767 179,014 - 186,781 periods of time, regardless of achieving any earnings the General Assembly’s approval. Other movements 6 - - 6 thresholds. The other half will vest and become Balance at December 31, 2012 553,075 - (1,669) 551,406 exercisable only if the Bank achieves certain growth 46. Share-based Payments targets in its adjusted consolidated earnings per share. For this purpose, the determination of the Reserve for According to the Extraordinary General Assembly consolidated earnings per share will be based on General Share Option Other dated February 2, 2006, the Board of Directors was the consolidated net income of the Group, less the Reserves Agreements Reserves Total LBP Million LBP Million LBP Million LBP Million authorised to initiate a stock option plan and to issue, amount paid in dividends in respect of preferred Balance at January 1, 2011 566,218 (58,866) (1,755) 505,597 in accordance with Law 308/2001, up to 5,000,000 shares and adding back the expenses relating to the Appropriation of 2010 profits 18,822 - - 18,822 common shares of the Bank’s capital. share-based payment plan. Entities deconsolidated during the year (4,825) - 86 (4,739) The growth in earnings per share is measured at each Non-controlling interest share of reserves (2,295) - - (2,295) As part of the initial phase of the stock option plan, year in which these options vest against the earnings Reserves for share option agreements - (126,992) - (126,992) the Board of Directors resolved, on April 24, 2006, to achieved at the end of the fiscal year preceding Transfers between reserves (10,187) - - (10,187) grant 3,200,000 stock options. Furthermore, on April the grant date and was set at 10%, 20%, 30% and Other movements 9 - - 9 26, 2006, the Board of Directors specified the names of the beneficiaries and the number of rights that 40% to be achieved at year-end 2006, 2007, 2008, Balance at December 31, 2011 567,742 (185,858) (1,669) 380,215 will be granted to each, along with the related terms and 2009, respectively. At any vesting date, in case and conditions. On May 6, 2006, the Central Bank 50% of the targeted growth was achieved, 50% Reserve for Share Option and authorisations or procure the purchase of all or of Lebanon approved the share-based payment plan of the performance options will vest. In case 50% whereby the Bank can grant stock options to all or to 100% of the targeted growth was achieved, a Agreements part of the Bank’s shares to fund the cash reserves of the SIVs in case they were insufficient to pay their certain individuals specified in Article 3 of Law No. proportionate percentage of performance options obligations when they fall due. 308 dated April 3, 2001. will vest. However, in case less than 50% of the During January 2010, the Bank entered into share targeted growth was achieved, then no stock options option agreements with two structured investment During 2012, the Bank settled an amount of As a result, the individuals referred to above were vest. The non-achievement of the target leads to vehicles (SIVs) who undertook the issuance of 5% LBP 179,014 million to finance the cash reserves of granted the right to subscribe in 3,200,000 common rolling forward the vesting date to the next year. In callable notes exchangeable into shares of the the SIVs pursuant to their early redemption of the shares of the Bank’s capital. These stock options case the targeted growth rates were not achieved by Bank and maturing on July 19, 2013 (the “Series “Series 1” notes. Besides, the SIVs issued new “Series are vested over a period of four years and upon the end of the fourth year from the grant date, the 1” notes). The nominal value of the issued notes 2” notes with a nominal amount of USD 205 million completion of each year from the grant date. The remaining unvested options will be cancelled. amounted to USD 355 million. The share option exchangeable into shares of the Bank, bearing 5% agreement provides the Bank with the right but not annual interest and maturing on May 11, 2016. The the obligation, in its sole discretion, to purchase or “Series 2” notes are subject to terms and conditions cause to be purchased, all or any part of the shares similar to those described above which used to be held by the SIVs. The share option agreements also applicable to the “Series 1” notes. cause the purchase, subject to all necessary approvals

156 157 Based on the above, the vested and exercised stock Targets were set as follows: consideration the terms and conditions according options are as follows: • 90,000 stock options: to which these options were granted. The following The growth in earnings per share is measured at each table illustrates the model inputs used: Vested Exercised year in which these options vest against the earnings Number of Number of achieved at the end of the fiscal year preceding the Dividend yield 3.96% Date Stock Options Date Stock Options Expected volatility 20% grant date (2006) and was set at 10%, 20%, 30% and Historical volatility 20% April 26, 2007 745,394 September 3, 2007 (136,069) 40% to be achieved at year-end 2007, 2008, 2009, Weighted risk-free rate 5.7% Expected life of the option 3 or 4 years April 26, 2008 724,765 July 8, 2008 (1,230,442) and 2010, respectively. April 26, 2009 708,667 July 27, 2009 (220,848) Fair value per share USD 53 April 26, 2010 (after the stock split) 6,929,340 October 1, 2010 (after the stock split) (11,717,760 ) • 80,112 stock options: July 27, 2011 (708,610) The growth in earnings per share is measured at each The expected life of the option is based on historical June 22, 2012 (309,260) year in which these options vest against the earnings data and is not necessarily indicative of exercise achieved at the end of the fiscal year 2005 and was patterns that may actually occur. The expected The fair value of the options was determined at the years (50% during 2008; 25% during 2009 and 25% set at 20%, 30% and 40% to be achieved at year-end volatility reflects the assumption that the historical grant date by using the Black-Scholes Model after during 2010). 2007, 2008, and 2009, respectively. volatility is indicative of future trends, which may taking into consideration the terms and conditions also not necessarily be the actual outcome. No other according to which these options were granted. The The exercise price for each option was set at At any vesting date, in case 50% to 100% of the target features of options grants were incorporated into following table illustrates the model inputs used: USD 40.33 (USD 4.033 after stock split). The options was achieved, then a proportionate percentage of the measurement of fair values. are exercisable over a period of 1 or 2 years from performance options will vest. However, in case less Dividend yield 5% the vesting date. The Board of Directors also Expected volatility 12.1% than 50% of the targeted growth was achieved, then The cost of share-based payments amounted to Historical volatility 12.1% resolved that the vesting of one-half of the 90,000 no performance options vest. The non-achievement LBP 40 million for the year ended December 31, 2011. Weighted risk-free rate 5.7% granted options is not contingent on any condition Expected life of the option 4 years of the target leads to rolling forward the vesting This cost was accounted for under “Personnel or target achievement. As such, these options Fair value per share USD 39 date to the next year. In case the targeted growth Expenses” in the Consolidated Income Statement become exercisable after specified periods of time, rates were not achieved by the end of the last year, and under “Reserve for Share-based Payments” in The expected life of the option is based on historical regardless of achieving any earnings thresholds. The the remaining unvested performance options will Shareholders’ Equity (Note 13). data and is not necessarily indicative of the exercise other half will vest and become exercisable only be cancelled. patterns that may actually occur. The expected if the Group achieves certain growth targets in its The following table illustrates the movement in volatility reflects the assumption that the historical adjusted consolidated earnings per share against the The fair value of the options was determined by share-based payments reserve for the year ended volatility is indicative of future trends, which may adjusted earnings per share for the Group’s fiscal using the Black-Scholes Model after taking into December 31: also not necessarily be the actual outcome. No other year immediately preceding the date of grant (2006). features of options grants were incorporated into Regarding the 80,112 granted options, the Board the measurement of fair values. of Directors resolved that the vesting of 62.5% of these options is not contingent on any conditions or In its meeting dated May 10, 2007, the Board of target achievement; whereas the remaining 37.5% Directors was notified that 218,424 options related is related to the Group’s achievement of certain to 100 beneficiaries were nullified. Furthermore, the growth targets in its adjusted consolidated earnings Board of Directors resolved to grant 170,112 new per share on each year during the vesting period, stock options to 31 beneficiaries, in connection with against the adjusted earnings per share for the the 5,000,000 stock-option plan. These stock options Group’s fiscal year ending on December 31, 2005. vest as follows: • 90,000 stock options over a period of four years; Based on the above, the vested and exercised stock • 80,112 stock options over a period of three options are as follows:

Vested Exercised Number of Number of Date Stock Options Date Stock Options

April 26, 2008 57,960 July 8, 2008 (56,638) April 26, 2009 36,258 July 27, 2009 (8,704) April 26, 2010 (after the stock split) 346,860 October 1, 2010 (after the stock split) (599,700) July 25, 2011 (254,220)

158 159 2012 2011 48. Other Components LBP Million LBP Million Balance at January 1 587 2,308 of Equity Cost of share-based payments (Note 13) - 40 Less: 2012 Stock options nullified (unrealised) 107 96 Reserve for Cumulative Foreign Currency Stock options exercised 480 1,665 Real Estate Changes in Translation Revaluation Fair Value Reserve Total Balance at December 31 - 587 LBP Million LBP Million LBP Million LBP Million Balance at January 1, 2012 20,375 87,228 (86,547) 21,056 Other comprehensive income - (4,054) (129,732) (133,786) The following table illustrates the movement in stock Entities deconsolidated during the year - 275 145 420 options granted for the year ended December 31: Non-controlling interest share of reserves - 130 43,680 43,810 Transfers between reserves - 3,226 (1,305) 1,921 2012 2011 Balance at December 31, 2012 20,375 86,805 (173,759) (66,579) Number Weighted Number Weighted of Stock Average Price of Stock Average Price Options USD Options USD Number of shares at January 1 363,660 2.72 1,387,170 2.97 2011 Stock options nullified (unrealised) (54,400) 2.72 (60,680) 2.86 Reserve for Cumulative Foreign Currency Stock options exercised (Note 41) (309,260) 2.72 (962,830) 3.07 Real Estate Changes in Translation Number of shares at December 31 - - 363,660 2.72 Revaluation Fair Value Reserve Total LBP Million LBP Million LBP Million LBP Million Balance at January 1, 2011 18,600 217,524 (40,310) 195,814 Effect of IFRS 9 early adoption - (101,875) - (101,875) 47. Treasury Shares Other comprehensive income - (29,713) (46,237) (75,950) Entities deconsolidated during the year - 1,140 - 1,140 2012 Non-controlling interest share of reserves (544) (131) - (675) Number of Cost Transfers between reserves 2,319 283 - 2,602 GDRs LBP Million Balance at December 31, 2011 20,375 87,228 (86,547) 21,056 Balance at January 1 8,497,399 103,912 Purchase of Treasury shares 8,364,532 75,213 Sale of Treasury shares (14,964,396) (158,880) Balance at December 31 1,897,535 20,245 Reserve for Real Estate Revaluation Cumulative Changes in Fair Value

During the year 1995, the Bank revalued certain The cumulative changes as at December 31, 2012 2011 real estate properties based on the provisions of represent the fair value differences from the Law No. 282 dated December 30, 1993 and Decree revaluation of financial assets measured at fair value Number of Cost GDRs LBP Million No. 5451 dated July 26, 1994. The revaluation through other comprehensive income. Balance at January 1 2,891,629 37,163 differences amounted to LBP 16,600 million. Another Purchase of Treasury shares 6,674,434 80,054 LBP 2,000 million relate to the revaluation of some of The movement of the cumulative changes in fair Sale of Treasury shares (1,068,664) (13,305) the Bank’s assets in 1994 and LBP 2,319 is due to the value is as follows: reclassification of real estate revaluation differences Balance at December 31 8,497,399 103,912 made during 2011 by the National Bank of Sudan.

160 161 for similar financial instruments. The estimated fair Change in 51. Fair Value of Financial Fair Value Deferred Tax Net value of fixed interest-bearing deposits is based LBP Million LBP Million LBP Million Instruments on discounted cash flows using prevailing market Balance at January 1, 2012 87,522 (294) 87,228 interest rates for debts with similar credit risk Other comprehensive income 5,613 (9,667) (4,054) The following describes the methodologies and and maturity. The fair value of quoted debt Entities deconsolidated during the year 275 - 275 assumptions used to determine the fair values of the instruments is determined based on quoted market Non-controlling interest share of reserves 130 - 130 financial instruments which are not recorded at fair prices. For those debt instruments where quoted Transfers between reserves 3,226 - 3,226 value in the financial statements. market prices are not available, a discounted cash Balance at December 31, 2012 96,766 (9,961) 86,805 flow model is used with the discount rate being the Assets for Which Fair Value current market yield to maturity. Balance at January 1, 2011 235,466 (17,942) 217,524 Approximates Carrying Value Effect of IFRS 9 early adoption (119,755) 17,880 (101,875) Fair Value of Loans and Advances Other comprehensive income (29,481) (232) (29,713) For financial assets and financial liabilities that are In order to compute the fair value of loans and Entities deconsolidated during the year 1,140 - 1,140 liquid or have a short-term maturity (less than three advances to customers, the Group considers that these Non-controlling interest share of reserves (131) - (131) months), the Group assumed that the carrying values loans will mature in principal and interest at the first Transfers between reserves 283 - 283 approximate the fair values. This assumption is day in which interest is repriced. These future cash Balance at December 31, 2011 87,522 (294) 87,228 also applied to demand deposits which have no specific maturity and financial instruments with flows have been discounted using the appropriate variable rates. benchmark rate at the statement of financial position date for the remaining term to maturity plus the 49. Non-controlling Interest Fixed Rate Financial Instruments appropriate risk premium of the customer.

The fair value of financial instruments that are 2012 2011 The fair value of fixed rate financial assets and LBP Million carried at amortised cost as of December 31, 2012 LBP Million liabilities carried at amortised cost is estimated by is as follows: Capital 118,613 125,141 comparing market interest rates when they were Capital reserves 21,380 16,935 first recognised with current market rates offered Retained earnings 6,781 12,461 Profit for the year 13,552 6,312 2012 Other components of equity (63,488) (19,677) Fair Value Book Value Unrealised Gain 96,838 141,172 LBP Million LBP Million (Loss) LBP Million Financial assets Cash and balances with central banks 9,462,172 9,462,380 (208) 50. Cash and Cash Due from banks and financial institutions 4,281,096 4,280,978 118 Loans to banks and financial institutions and reverse Equivalents repurchase agreements 1,060,265 1,060,267 (2) Loans and advances to customers at amortised cost 15,497,755 15,416,403 81,352

2012 2011 Loans and advances to related parties at amortised cost 305,040 304,511 529 LBP Million LBP Million Financial assets at amortised cost 14,694,614 14,549,116 145,498 Cash and balances with central banks 2,160,406 1,576,501 45,300,942 45,073,655 227,287 Due from banks and financial institutions 4,025,200 4,317,250 Financial liabilities Loans to banks and financial institutions and reverse repurchase agreements 819,808 46,145 Due to central banks 133,108 133,108 - Due to banks and financial institutions 1,171,265 1,171,174 (91) Due to banks and financial institutions (731,465) (640,156) Due to banks under agreements 681,487 681,487 - Due to banks under repurchase agreements (681,487) - Customers’ deposits at amortised cost 39,725,231 39,718,890 (6,341) 5,592,462 5,299,740 Deposits from related parties at amortised cost 690,350 689,101 (1,249) 42,401,441 42,393,760 (7,681)

162 163 The breakdown by major class of financial assets is The breakdown by major class of financial assets is as follows: as follows:

2012 2011 Fair Value Book Value Unrealised Gain Fair Value Book Value Unrealised Gain LBP Million LBP Million (Loss) LBP Million LBP Million LBP Million (Loss) LBP Million Net loans and advances to customers at amortised cost Net loans and advances to customers at amortised cost Corporate 9,610,690 9,574,321 36,369 Corporate 7,852,715 7,824,283 28,432 SME 2,487,608 2,470,816 16,792 SME 1,938,255 1,918,065 20,190 Retail and Personal Banking 3,266,118 3,237,924 28,194 Retail and Personal Banking 2,791,676 2,770,893 20,783 Public sector 133,339 133,342 (3) Public sector 178,936 178,936 - 15,497,755 15,416,403 81,352 12,761,582 12,692,177 69,405 Net loans and advances to related parties at amortised cost Net loans and advances to related parties at amortised cost Corporate 8,172 8,172 - Corporate 8,313 8,295 18 SME 187,284 187,284 - SME 170,242 170,242 - Retail and Personal Banking 109,584 109,055 529 Retail and Personal Banking 85,499 85,129 370 305,040 304,511 529 264,054 263,666 388 Financial assets classified at amortised cost Financial assets classified at amortised cost Lebanese sovereign and Central Bank 10,731,384 10,610,471 120,913 Lebanese sovereign and Central Bank 11,285,928 10,997,842 288,086 Other sovereign 2,811,325 2,791,510 19,815 Other sovereign 2,163,162 2,209,587 (46,425) Private sector and other securities 1,151,762 1,146,992 4,770 Private sector and other securities 1,098,658 1,099,731 (1,073) Loans related to other comprehensive income investments 143 143 - Loans related to other comprehensive income investments 143 143 - 14,694,614 14,549,116 145,498 14,547,891 14,307,303 240,588

The fair value of financial instruments that are The Group uses the following hierarchy for Level 2: other techniques for which all inputs which carried at amortised cost as of December 31, 2011 is determining and disclosing the fair value of financial have a significant effect on the recorded fair value are as follows: instruments by valuation technique: observable market data, either directly or indirectly.

2011 Level 1: quoted (unadjusted) prices in active markets The following table shows an analysis of financial Fair Value Book Value Unrealised Gain for identical assets or liabilities; instruments recorded at fair value by fair value LBP Million LBP Million (Loss) LBP Million hierarchy at December 31: Financial assets Cash and balances with central banks 8,703,068 8,703,354 (286) Due from banks and financial institutions 4,549,159 4,562,602 (13,443) Loans to banks and financial institutions and reverse repurchase agreements 218,306 219,084 (778) Financial assets given as collateral 17,424 17,424 - Loans and advances to customers at amortised cost 12,761,582 12,692,177 69,405 Loans and advances to related parties at amortised cost 264,054 263,666 388 Financial assets at amortised cost 14,547,891 14,307,303 240,588 41,061,484 40,765,610 295,874 Financial liabilities Due to central banks 133,446 133,394 (52) Due to banks and financial institutions 1,007,724 1,007,558 (166) Due to banks under repurchase agreements - - - Customers’ deposits at amortised cost 37,097,811 37,097,210 (601) Deposits from related parties at amortised cost 285,528 285,297 (231) 38,524,509 38,523,459 (1,050)

164 165 2012 extend credit. Even though these obligations may 52. Contingent Liabilities, not be recognised on the statement of financial Level 1 Level 2 Total LBP Million LBP Million LBP Million Commitments and Leasing position, they do contain credit risk and are therefore Financial assets part of the overall risk of the Group. The table Derivative financial assets 43,815 7,231 51,046 Arrangements below discloses the nominal principal amounts of Financial assets at fair value through profit or loss credit-related commitments and contingent Lebanese sovereign Credit-related Commitments and liabilities. Nominal principal amounts represent the Central Bank’s certificates of deposits 592 10,676 11,268 Contingent Liabilities amount at risk should the contracts be fully drawn Treasury bills - 124,843 124,843 upon and clients default. As a significant portion Eurobonds 232,410 - 232,410 To meet the financial needs of customers, the of guarantees and commitments is expected to Other sovereign Eurobonds 1,615 - 1,615 Group enters into various commitments, guarantees expire without being withdrawn, the total of the Private sector and other securities and other contingent liabilities, which are mainly nominal principal amount is not indicative of future Banks and financial institutions debt instruments 617 1,787 2,404 credit-related instruments including both financial liquidity requirements. Corporate debt instruments 10,338 2 10,340 and non-financial guarantees and commitments to Loans and advances to customers at amortised cost - 75,555 75,555 Investment and mutual funds 30,810 18,200 49,010 Equity instruments 3,212 - 3,212 2012 279,594 231,063 510,657 Banks Customers Total Financial assets designated at fair value through other comprehensive income LBP Million LBP Million LBP Million Private sector and other securities Guarantees and contingent liabilities Equity instruments 4,308 241,485 245,793 Financial guarantees 314,140 1,099,601 1,413,741 4,308 241,485 245,793 Other guarantees 76,764 821,691 898,455 Financial liabilitites Derivative financial liabilities 51,462 4,580 56,042 390,904 1,921,292 2,312,196 Commitments Documentary credits - 353,763 353,763 2011 Undrawn credit lines - 3,508,070 3,508,070 Level 1 Level 2 Total - 3,861,833 3,861,833 LBP Million LBP Million LBP Million Financial assets Derivative financial assets 59,069 23,140 82,209 Financial assets at fair value through profit or loss 2011 Lebanese sovereign Banks Customers Total Treasury bills 112 461,829 461,941 LBP Million LBP Million LBP Million Eurobonds 158,999 - 158,999 Guarantees and contingent liabilities Other sovereign Financial guarantees 274,500 1,359,604 1,634,104 Eurobonds 322 - 322 Other guarantees 144,280 894,998 1,039,278 Private sector and other securities 418,780 2,254,602 2,673,382 Banks and financial institutions debt instruments 88,758 44,764 133,522 Commitments Corporate debt instruments 15,520 - 15,520 Structured products 1,029 853 1,882 Documentary credits - 387,781 387,781 Investment and mutual funds 30,878 17,775 48,653 Undrawn credit lines - 3,527,229 3,527,229 Equity instruments 3,087 - 3,087 - 3,915,010 3,915,010 298,705 525,221 823,926 Financial assets designated at fair value through other comprehensive income Guarantees Private sector and other securities Equity instruments 5,927 218,057 223,984 • Other guarantees are contracts that have similar 5,927 218,057 223,984 Guarantees are given as security to support the Financial liabilitites performance of a customer to third parties. The main factures to the financial guarantee contracts but Derivative financial liabilities 51,248 6,999 58,247 types of guarantees provided are: fail to meet the strict definition of a financial • Financial guarantees given to banks and financial guarantee contract under IFRS. These mainly include performance and tender guarantees. The Group did not transfer any amount between institutions on behalf of customers to secure loans, Level 1 and Level 2 during the year ended overdrafts, and other banking facilities; and December 31, 2012.

166 167 Documentary Credits Legal Claims

Documentary credits commit the Group to Litigation is a common occurrence in the banking make payments to third parties, on production industry due to the nature of the business. The of documents, which are usually reimbursed Group has an established protocol for dealing with immediately by customers. such legal claims. Once professional advice has been obtained and the amount of damages reasonably Undrawn Credit Lines estimated, the Group makes adjustments to account for any adverse effects which the claims may have Undrawn credit lines and other commitments to lend on its financial standing. At year-end, the Group are agreements to lend a customer in the future, had several unresolved legal claims. Based on advice subject to certain conditions. Such commitments are from legal counsel, Management believes that legal either made for a fixed period, or have no specific claims will not result in any material financial loss to maturity, but are cancellable by the lender subject to the Group. notice requirements.

Operating Lease and Capital Expenditure Commitments

2012 2011 LBP Million LBP Million Capital expenditure commitments 13,421 13,247 Operating lease commitments – Group as lessee 50,838 63,774 Within one year 12,663 12,446 One to five years 32,617 41,900 More than five years 5,558 9,428 64,259 77,021

Commitments Resulting Other Commitments from Credit Facilities and Contingencies

The Bank has the following commitments resulting Financial assets at amortised cost include from the credit facilities received from non-resident Lebanese government Treasury bills amounting to financial institutions: LBP 133,714 million (2011: same) pledged to the • The net past due loans (after the deduction of Central Bank of Lebanon against credit facilities. provisions) should not exceed 5 percent of the net They also include Jordanian and Egyptian Treasury credit facilities granted; bills amounting to LBP 695,139 million pledged • The provision for past due loans which includes against repurchase agreements (Note 35). specific and collective provisions and unrealised interest should not fall below 70 percent of the past The Extraordinary General Assembly, in its meeting due loans; held on June 22, 2012, decided to acquire 29,500 • The net doubtful loans should not exceed 20 percent shares in Dawra Real Estate Company sal representing of the Tier 1 capital; 98.33% of its total shares for the amount of • Sustaining a liquidity ratio exceeding 115 percent; USD 3 million. The sale contract was signed • Sustaining a capital adequacy exceeding the on November 5, 2012 with LIA Insurance sal. minimum ratio as per the regulations applied by the The Bank obtained the approval for the purchase Central Bank of Lebanon and the requirements of transaction from the Central Bank of Lebanon on the Basel agreements to the extent it is applied by January 29, 2013. the Central Bank of Lebanon.

168 169 The Board of Directors of the Bank decided, in its During 2011, Syria, one of the significant credit 2012 2011 meeting held on August 22, 2012, to acquire 30% of markets of the Group, witnessed a period of political LBP Million LBP Million Elite Insurance and Reinsurance Brokers for an amount and civil unrest, together with adverse events which Loans and advances 304,511 263,666 not exceeding USD 4.5 million. The Bank obtained can affect the economic environment of future Of which: granted to key Management personnel 33,207 17,431 the approval of the purchase transaction from the periods. As part of its collective provisioning process, Indirect facilities 3,957 2,807 Central Bank of Lebanon on November 20, 2012. The Management performed a stress test on the loan Deposits 467,122 63,319 investment transaction is pending on the approval of portfolio exposed to the Syrian market risks and, as Cash collateral received against loans 221,979 221,978 the Saudi regulatory authorities. a result, the necessary provisions were booked. The Group’s Management continues to monitor its loan The Bank’s books in Lebanon remain subject to the portfolio and evaluate the impact of these events Related-party balances included in the Group’s review of the tax authorities for the period from during 2012. Income Statement are as follows for the year ended January 1, 2008 to December 31, 2012 and the review December 31: of the National Social Security Fund (NSSF) for the 53. Assets under period from September 30, 2011 to December 31, 2012 2011 2012. In addition, the subsidiaries’ books and records Management LBP Million LBP Million are subject to review by the tax and social security Interest income on loans 19,902 17,132 authorities in the countries in which they operate. Assets under management include client assets Interest expense on deposits 26,117 10,592 Management believes that adequate provisions managed or deposited with the Group. For the were recorded against possible review results to the most part, the clients decide how these assets are to extent that they can be reliably estimated. be invested. Subsidiaries

2012 2011 Transactions between the Bank and its subsidiaries LBP Million LBP Million meet the definition of related-party transactions. Assets under management 11,274,636 10,522,174 However, where these are eliminated on consolidation, they are not disclosed in the Group’s financial statements. The following table shows 54. Related-party the Bank, directly or indirectly. At the level of the information related to the significant subsidiaries Group, key Management personnel includes the of the Bank. Transactions Chairman of the Board and members of the Group Executive Committee. Parties are considered to be related if one party Percentage of Ownership Country of Principal Functional 2012 2011 Incorporation Activity Currency has the ability to control the other party or exercise Loans to related parties (a) were made in the Bank Audi Saradar France sa 100.00% 100.00% France Banking (Commercial) EUR significant influence over the other party in making ordinary course of business, (b) were made on Audi Saradar Investment Bank sal (ASIB) 100.00% 100.00% Lebanon Banking (Investment) LBP financial or operation decisions, or one other party substantially the same terms, including interest rates Audi Saradar Private Bank sal (ASPB) 100.00% 100.00% Lebanon Banking (Private) LBP controls both. The definition includes subsidiaries, and collateral, as those prevailing at the same time Banque Audi (Suisse) sa 100.00% 100.00% Switzerland Banking (Private) CHF associates, key Management personnel and their for comparable transactions with others, and (c) did Bank Audi Syria sa* 47.00% 47.00% Syria Banking (Commercial) SYP close family members, as well as entities controlled not involve more than a normal risk of collectability National Bank of Sudan 76.56% 76.56% Sudan Banking (Commercial) SDD or jointly controlled by them. or present other unfavourable features. Bank Audi sae (Egypt) 100.00% 100.00% Egypt Banking (Commercial) EGP Audi Capital (KSA) 99.99% 99.99% Saudi Arabia Financial services SAR Key Management personnel are defined as those Related-party balances included in the Group’s Bank Audi LLC Qatar 100.00% 100.00% Qatar Banking services USD persons having authority and responsibility for Statement of Financial Position are as follows as of Société Libanaise de Factoring sal 90.85% 91.00% Lebanon Factoring LBP planning, directing and controlling the activities of December 31: Odeabank sa 100.00% - Turkey Banking (Commercial) TRY LIA Insurance sal - 91.42% Lebanon Insurance LBP Infi Gamma Holding sal 99.97% 99.97% Lebanon Investment USD

* Bank Audi sal - Audi Saradar Group established Bank Audi Syria sa, signed a technical assistance agreement, and retained de facto control over it.

170 171 Associates granted to associates amounted to LBP 920 million Officer and Strategy Director (CFO) and two Non- monitored, and reported to heads of business lines, (2011: LBP 231 million). executive Directors. The BGRC meets at least every Senior Management, ALCO, the Board Group Risk The Group provides banking services to its associates quarter in the presence of the CRO. Committee and the Board. In addition, GRD works and to entities under common directorships. As such, Key Management Personnel closely with Senior Management to assist in ensuring loans, overdrafts, interest and non-interest bearing Executive Committee proper controls are set up in order to mitigate deposits and current accounts are provided to these Total remuneration awarded to key Management various operational risks. GRD has the responsibility entities, as well as other services. These transactions personnel represents the awards made to individuals The mandate of the Group Executive Committee to set policies and procedures at the Group level for are conducted on the same terms as third-party that have been approved by the Board Remuneration is to support the Board in the implementation its final adoption at each entity within the Group. In transactions. Summarised financial information Committee as part of the latest pay round decisions. of its strategy, to support the Group CEO in the addition, GRD is in charge of monitoring risks across for the Group’s associates is set out in Note 28 to Figures are provided for the period that individuals day-to-day management of the Group, and to the Group and aggregating such risks. From time to these financial statements. Interest income on loans met the definition of key Management personnel. develop and implement business policies for the time, GRD provides technical support for the various Group and issue guidance for the Group within entities within the Group in their effort to develop the strategy approved by the Board. The Executive the local risk function within the parameters set at 2012 2011 Committee is involved in drafting and submitting the Group level. LBP Million LBP Million to the Board the risk policy and risk tolerances and Short-term benefits 43,703 42,702 appetite. Executive Committee members include the Local Risk Management Functions Post-employment benefits 677 488 Group CEO, Group Chief Risk Officer (CRO), Group CFO & Strategy Director and a number of Board Local risk management functions vary in size members and Senior Managers. depending on local needs and any additional need in Short-term benefits comprise of salaries, bonuses, mitigating and control, while being subject to risk human resources is met by GRD. The roles of local risk profit-sharing, attendance fees and other benefits. limits and procedural controls. Risk management managers are to comply with GRD policies, to assess is important for the continuous profitability and Asset Liability Committee risks using a blend of methodologies developed at the During 2011, key Management personnel exercised solvency of the Group, and every employee is tasked The Asset Liability Committee (ALCO) is a Group level and others sometimes more attuned to 225,350 options. with the prudent management of risks within the Management committee responsible in part for their local circumstances, to provide an independent parameters of his or her responsibilities. managing market risk exposures, liquidity, funding opinion on risks, to report on them to their Senior 55. Risk Management Governance needs and contingencies. It is the responsibility of Management and to their Board of Directors, and to this committee to set up strategies for managing adapt to local needs and regulations. As a growing financial institution with operations on Board of Directors market risk exposures and ensuring that Treasury three continents, the Group is faced with a constantly implements those strategies so that exposures are Risk Monitoring and Control managed within approved limits and in a manner changing array of business risks, some of which are: The Board of Directors (the Board) is ultimately consistent with the risk policy and limits approved The primary drivers behind monitoring and responsible for identifying and setting the level of by the Board. controlling risks are the Risk Appetite and Limits • Credit risk: the risk of default or deterioration in the tolerable risks to which the Group is exposed, and established by the Board. These limits reflect the ability of a borrower to repay a loan. as such, defines the risk appetite for the Group. In business strategy and market environment of the • Market risk: the risk of loss in balance sheet and addition, the Board approves policies and procedures Internal Audit Group, as well as the level of risks that the Group is off-balance sheet positions arising from movements related to all types of risks. Periodic reporting is made All risk management processes are independently willing to tolerate. in market prices. Movements in market prices include to the Board on existing and emerging risks in the audited by the Internal Audit department at least changes in interest rates (including credit spreads), Group. A number of Management committees and annually. This includes the examination of both the Risk Appetite and Limits are formalised in a document exchange rates and equity prices. departments are also responsible for various levels of adequacy and effectiveness of risk control procedures. which is reviewed by the Executive Committee and • Liquidity risk: the risk that the Bank cannot meet its risk management, as set out below. financialobligations when they come due in a timely Internal Audit discusses the results of its assessments the Board Group Risk Committee and approved by manner and at reasonable cost. Board Group Risk Committee with Management and reports its findings and the Board. The Risk Appetite and Limits comprise • Operational risk: the risk of loss resulting from recommendations to the Audit Committee of the limits to various types of risk which the Bank is Board. exposed to. inadequate or failed internal processes, people and The role of the Board’s Group Risk Committee (BGRC) systems, or from external events. is to oversee the risk management framework and Information independently compiled from all • Other risks faced by the Group include concentration assess its effectiveness, review and recommend to Group Risk Division business lines and risk-taking units is examined and risk, reputation risk, legal risk and business/ the Board the group risk policies and risk appetite, The Group Risk Division (GRD) is a function processed in order to identify and measure the risk strategic risk. monitor the group risk profile, review stress tests independent of business lines and headed by the profile. The results are reported and presented on a scenarios and results, and provide access for the Group’s CRO. The Division has the responsibility to regular basis to Management and to the Board. Risks are managed through a process of ongoing Group Chief Risk Officer (CRO) to the Board. The ensure that risks are properly identified, measured, identification, measurement and monitoring, members of the BGRC are the Group Chief Financial

172 173 Initiation department which is responsible for formulating a Management of Risk Concentration 56. Credit Risk workout strategy, in coordination with the Legal Initiation of the credit facilities is done by the business and Compliance department. Credit committees are Credit risk is the risk that the Group will incur a Credit concentrations arise when a number of originating function which is shared between responsible for approving these workout strategies. loss because its customers or counterparties fail to counterparties are engaged in similar business branches and the Corporate and Commercial discharge their contractual obligations. Credit risk activities in the same geographic region or have departments. Provisioning Policy appetites and strategies are set at the Group level similar economic features that would cause their by the Board and are communicated to Senior ability to meet contractual obligations to be Analysis In the normal course of business, some loans may Management, which, in turn, formulates credit similarly affected by changes in economic, political become unrecoverable. Such loans would then be policies and procedures in line with these strategies. and other conditions. Concentrations indicate the Credit analysis is performed within the business required to be partially or fully written off, after These policies are approved by the Executive relative sensitivity of the Group’s performance originating function and is reviewed independently taking into consideration the following guidelines: Committee and the Board and are reviewed on an to developments affecting a particular industry by the Credit Risk Management department, which, annual basis. or geographical location. Similarly for liquidity, in turn, prepares a written opinion about the credit a) The loan is written off with proper approval when: concentration is measured with respect to the source Credit Limits facilities and submits it to the respective credit • All efforts to recover the bad debt have failed; and type of funding. committees. • The borrower’s bankruptcy or inability to repay The Group controls credit risk by setting limits on the is established; In order to avoid excessive concentrations of risk, the amount of risk it is willing to accept for individual Approval • Legal remedies have proved to be futile and/or Group’s Risk Appetite and Limits document includes counterparties and for geographical and industry cost prohibitive. specific guidelines and limits to maintain a diversified concentration, and by monitoring exposures in Credit committees are exclusively responsible for the funding and portfolio, including Board-approved relation to such limits. These limits are set for the approval of facilities per obligor and geographical b) Requests for write-offs are to be submitted to measures in line with the pillar two requirements. following classes of assets: entity up to the limit assigned to them. The Group the Remedial Committee for approval. Approved has various levels of credit-approving authorities, write-offs are notified to the Executive Committee Credit-related Commitments Risks Financial Institutions depending on the nature and limit of the requested and then to the Board. facilities, namely: The Group makes available to its customers Percentage floors and absolute limits are set on As part of the conservative approach to sustain the guarantees which may require payments on their the Group’s deposits that should be placed with • The Board of Directors; quality of the Group’s loan portfolio, an evaluation behalf. Such payments are collected from customers highly-rated financial institutions. • The Executive Committee; of loan loss provisions is made on a quarterly based on the terms of the letter of credit. They • Other credit committees, depending on the limit basis. As such, all adversely classified accounts are Sovereign Exposure and Other Financial expose the Group to risks similar to loans and these and region. reviewed on a quarterly basis (earlier if need be) and Instruments are mitigated by the same control processes and the Recovery and Restructuring department makes policies. Once approved by the Credit Committee, facilities recommendations for specific provisions against the Limits are placed on sovereign exposures and are disbursed when all requirements set by the accounts. These recommendations are submitted Where financial instruments are recorded at fair other financial instruments according to ratings respective committee are met and documents to the Remedial Committee for approval before value, the amounts shown below represent the of the instruments and risk appetite of the Group intended as security are reviewed and verified by the they are implemented. In this regard, mainly for current credit risk exposure, but not the maximum as determined by the Board mainly for foreign Credit Administration function. tax reasons, specific approval from the regulatory risk exposure that could arise in the future as a result currency-denominated issues. authority might be necessary depending on the of changes in values. Monitoring regulatory environment of the concerned entity. Loans and Advances to Customers The Group maintains continuous monitoring in the Besides, impairment is assessed on a collective basis The Group sets limits per country, economic sector, quality of its portfolio. Timely reports are sent to for loans that are not individually impaired. tenor of the loan, rating, and group of obligors the Executive Committee and to the Board detailing among others in order to avoid significant risk credit risk profile including Group follow-up accounts, Derivative Financial Instruments concentrations. large exposures, risk ratings and concentration by industry, geography and group of obligors. Credit risk arising from derivative financial Credit Granting and instruments is, at any time, limited to those with Monitoring Processes Recovery and Restructuring positive fair values, as recorded in the statement of financial position. In the case of credit derivatives, The Group has set clearly established processes The Group assesses impaired loans by evaluating the the Group is also exposed to or protected from the related to loan origination, documentation and exposure to loss on a case by case basis. They are risk of default of the underlying entity referred by maintenance of extensions of credits. directly managed by the Recovery and Restructuring the derivative.

174 175 Analysis to Maximum Exposure to Credit Risk and Collateral and Other Credit Enhancements

The following table shows the maximum exposure to credit risk by class of financial asset. It further shows the total fair value of collateral, capped to the maximum exposure to which it relates and the net exposure to credit risk.

2012 Guarantees Received from Maximum Cash Collateral Banks and Financial Other Netting Net Credit Exposure and Margins Securities Institutions Real Estate Guarantees Agreements Exposure LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 9,213,033 ------9,213,033 Due from banks and financial institutions 4,280,978 - - 1,149 - - - 4,279,829 Loans to banks and financial institutions and reverse repurchase agreements 1,060,267 - 786,466 - - - - 273,801 Derivative financial instruments 48,707 ------48,707 Financial assets at fair value through profit or loss 458,435 ------458,435 Loans and advances to customers at amortised cost 15,416,403 2,593,801 1,750,630 356,700 2,919,554 662,665 13,727 7,119,326 Corporate 9,574,321 1,184,225 1,491,882 266,781 1,400,670 403,783 618 4,826,362 SME 2,470,816 511,548 20,226 82,125 398,446 122,354 13,109 1,323,008 Retail and Personal Banking 3,237,924 898,028 238,522 7,794 1,120,438 136,528 - 836,614 Public sector 133,342 ------133,342 Loans and advances to related parties at amortised cost 304,511 221,979 - 225 33,705 1,314 - 47,288 Debtors by acceptances 182,715 17,883 - 251 7,378 9,949 1 147,253 Financial assets at amortised cost 14,549,116 - - - - - 1,463,553 13,085,563 Contingent liabilities 1,767,504 191,060 9,507 35,712 86,694 3,306 3 1,441,222 Letters of credit 353,763 52,308 - 90 8,260 2,528 - 290,577 Letters of guarantee given to banks and financial institutions 314,140 43,586 - 13,849 - - - 256,705 Letters of guarantee given to customers 1,099,601 95,166 9,507 21,773 78,434 778 3 893,940 Total 47,281,669 3,024,723 2,546,603 394,037 3,047,331 677,234 1,477,284 36,114,457 Guarantees received from banks, financial institutions and customers Utilised collateral 3,024,723 2,546,603 394,037 3,047,331 677,234 - 9,689,928 Surplus of collateral before undrawn credit lines 628,382 619,724 53,902 630,893 1,905,166 - 3,838,067 3,653,105 3,166,327 447,939 3,678,224 2,582,400 - 13,527,995

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 3,508,070 million as at December 31, 2012.

176 177 2011 Guarantees Received from Maximum Cash Collateral Banks and Financial Other Netting Net Credit Exposure and Margins Securities Institutions Real Estate Guarantees Agreements Exposure LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 8,425,244 ------8,425,244 Due from banks and financial institutions 4,562,602 ------4,562,602 Loans to banks and financial institutions and reverse repurchase agreements 219,084 ------219,084 Financial assets given as collateral 17,424 ------17,424 Derivative financial instruments 76,573 ------76,573 Financial assets at fair value through profit or loss 772,186 ------772,186 Loans and advances to customers at amortised cost 12,692,177 2,208,033 1,529,788 388,858 2,362,275 727,451 4,611 5,471,161 Corporate loans 7,824,283 844,174 1,257,236 306,830 1,008,576 541,922 382 3,865,163 SME loans 1,918,065 559,184 76,638 66,770 499,998 107,639 2,064 605,772 Retail loans and Personal Banking 2,770,893 804,675 195,914 15,258 853,701 77,890 2,165 821,290 Public sector 178,936 ------178,936 Loans and advances to related parties at amortised cost 263,666 221,978 - 388 15,870 304 - 25,126 Debtors by acceptances 280,819 30,361 1,110 34,261 17,499 4,908 67 192,613 Financial assets at amortised cost 14,307,303 - - - - - 1,657,474 12,649,829 Contingent liabilities 2,021,885 343,077 7,748 27,842 18,723 131,048 33 1,493,414 Letters of credit 387,781 81,740 775 387 5,692 15,455 - 283,732 Letters of guarantee given to banks and financial institutions 274,500 52,492 - 3,101 - - - 218,907 Letters of guarantee given to customers 1,359,604 208,845 6,973 24,354 13,031 115,593 33 990,775 Total 43,638,963 2,803,449 1,538,646 451,349 2,414,367 863,711 1,662,185 33,905,256 Guarantees received from banks, financial institutions and customers Utilised collateral 2,803,449 1,538,646 451,349 2,414,367 863,711 - 8,071,522 Surplus of collateral before undrawn credit lines 500,708 690,153 61,597 854,614 2,177,599 - 4,284,671 3,304,157 2,228,799 512,946 3,268,981 3,041,310 - 12,356,193

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 3,527,229 million as at December 31, 2011.

178 179 Analysis to Maximum Exposure to where as a result there is a net exposure for credit Credit Rating System documentation related to a borrower’s activity, an Credit Risk and Collateral and risk. However, there is no intention to settle these inconsistency between facilities’ type and related balances on a net basis under normal circumstances, The Group assesses the quality of its credit portfolio conditions; (c) “Follow-up and regularisation“ Other Credit Enhancements and they do not qualify for offset. The amounts using the following credit rating methods: includes credit-worthy borrowers requiring above represent available netting agreements in the close monitoring without being impaired. These Collateral and Other Credit Enhancements event of default of the counterparty. (i) External ratings from approved credit rating loans might be showing weaknesses; insufficient agencies for financial institutions, financial assets or inadequate cash flows; highly leveraged; The amount and type of collateral required and large corporate borrowers; deterioration in economic sector or country where This includes netting agreements for loans and depend on an assessment of the credit risk of the the facility is used; loan rescheduling more than advances to customers and financial assets at counterparty. Guidelines are implemented regarding (ii) Expert-judgment models which take into once since initiation; or excess utilisation above the acceptability of types of collateral and valuation amortised cost. In addition, derivatives may also consideration financial factors as well as limit; (d) “Substandard loans“ include borrowers parameters. be settled net when there is a netting agreement non-financial factors such as observations on with incapacity to repay from identified cash in place, providing for this in the event of default, Management quality, operating environment flows. Also included under this category are loans Management monitors the market value of collateral, reducing the Group’s exposure to counterparties on and company standing. In addition to the existing where full repayments suppose the liquidation requests additional collateral in accordance with the derivative asset positions. The reduction in risk is the corporate model, two SME models have been of assets/collateral or those with recurrent late underlying agreement, and monitors the market amount of liability held. designed and rolled out in 2012. The Bank has also payments and financial difficulties; (e) “Doubtful value of collateral obtained during its review of the initiated the design of a Project Finance model to loans“ where full repayment is questioned even adequacy of the allowance for impairment losses. In addition to the above, the Group also obtains complement the existing models and accurately after asset liquidation of collateral. It also includes rate and rank-order Project Finance obligors; guarantees from parent companies for loans to loans stagnating for over 6 months and debtors who are unable to repay restructured loans; The main types of collateral obtained are as follows: their subsidiaries, personal guarantees for loans to (iii) S corecards for retail borrowers which help in finally, (f) “Bad loans“ with no or little expected companies owned by individuals, second degree assessing their creditworthiness, evaluating inflows from business or assets. This category also Securities: the balances shown above represent the mortgages, and assignments of insurance or bills potential risk, and reaching a final credit decision; includes borrowers who witness significant delays fair value of the securities. proceeds and revenues, which are not reflected in and are insolvent. the above table. (iv) S upervisory ratings, comprising six main categories: Letters of Credit/Guarantees: the Group holds, in (a) “Regular“ includes borrowers demonstrating Credit Quality some cases, guarantees, letters of credit and similar Renegotiated Loans good to excellent financial condition, risk factors, instruments from banks and financial institutions and capacity to repay. These loans demonstrate The table below shows the credit quality by class regular and timely payment of dues, adequacy of asset for all financial assets exposed to credit which enable it to claim settlement in the event of Restructuring activity aims to manage customer of cash flows, timely presentation of financial risk, based on the Group’s internal credit rating default on the part of the counterparty. The balances relationships, maximise collection opportunities and, statements, and sufficient collateral/guarantee system. The amounts presented are gross of shown represent the notional amount of these types if possible, avoid foreclosure or repossession. Such when required; (b) “Follow-up“ represents a lack of impairment allowances. of guarantees held by the Group. activities include extended payment arrangements, deferring foreclosure, modification, loan rewrites Real Estate (Commercial and Residential): the and/or deferral of payments pending a change in 2012 Group holds, in some cases, a first degree mortgage circumstances. Past Due and Impaired over residential property (for housing loans) and Neither Past Due Past Due but Doubtful nor Impaired not Impaired Substandard and Bad Total commercial property (for commercial loans). The Restructuring policies and practices are based on LBP Million LBP Million LBP Million LBP Million LBP Million value shown above reflects the fair value of the indicators or criteria which, in the judgment of local Cash and balances with central banks 9,213,033 - - - 9,213,033 Due from banks and financial institutions property limited to the related mortgaged amount. Management, indicate that repayment will probably 4,280,978 - - 998 4,281,976 Loans to banks and financial institutions and reverse continue. The application of these policies varies repurchase agreements 1,060,267 - - - 1,060,267 Netting Agreements: the Group makes use of netting according to the nature of the market and the type Derivative financial instruments 48,707 - - - 48,707 agreements where there is a legally enforceable right of the facility. Financial assets at fair value through profit or loss 458,435 - - - 458,435 to offset in the event of counterparty default, and Loans and advances to customers at amortised cost 15,072,862 390,484 17,750 437,234 15,918,330 Loans and advances to related parties at amortised cost 304,511 - - - 304,511 2012 2011 Financial assets at amortised cost 14,547,829 - - 8,352 14,556,181 LBP Million LBP Million 44,986,622 390,484 17,750 446,584 45,841,440 Loans and advances: Corporate 181,371 181,264 Corporate 9,358,813 242,450 12,867 316,895 9,931,025 SME 11,203 14,544 SME 2,639,902 28,772 1,761 20,629 2,691,064 Retail and Personal Banking 1,359 232 Retail and Personal Banking 3,246,170 119,262 3,122 95,124 3,463,678 193,933 196,040 Public sector 132,488 - - 4,586 137,074 15,377,373 390,484 17,750 437,234 16,222,841

180 181 The classification of loans and advances to customers 2011 and related parties at amortised cost as in accordance Past Due and Impaired with the ratings of the Central Bank of Lebanon Neither Past Due Past Due but Doubtful nor Impaired not Impaired Substandard and Bad Total Circular 58 is as follows: LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 8,425,244 - - - 8,425,244 2012 Due from banks and financial institutions 4,562,260 - - 1,370 4,563,630 Gross Unrealised Impairment Net Loans to banks and financial institutions and reverse Balance Interest Allowances Balance repurchase agreements 219,084 - - - 219,084 LBP Million LBP Million LBP Million LBP Million Financial assets given as collateral 17,424 - - - 17,424 Regular 14,501,112 - - 14,501,112 Derivative financial instruments 76,573 - 76,573 Follow-up 228,875 - - 228,875 Financial assets at fair value through profit or loss 771,333 - - - 771,333 Follow-up and regularisation 1,037,870 - - 1,037,870 Loans and advances to customers at amortised cost 12,248,030 389,310 133,414 389,401 13,160,155 Substandard 17,750 (1,835) - 15,915 Loans and advances to related parties at Doubtful 220,530 (28,388) (112,097) 80,045 amortised cost 263,666 - - - 263,666 Bad 216,704 (29,961) (162,994) 23,749 Financial assets at amortised cost 14,306,085 - - 8,969 14,315,054 16,222,841 (60,184) (275,091) 15,887,566 40,889,699 389,310 133,414 399,740 41,812,163 Collective impairment - - (166,652) (166,652) Loans and advances: 16,222,841 (60,184) (441,743) 15,720,914 Corporate 7,538,137 213,114 123,539 186,695 8,061,485 SME 2,052,885 43,687 2,348 77,063 2,175,983 Retail and Personal Banking 2,737,163 132,509 7,527 125,643 3,002,842 2011 Public sector 183,511 - - - 183,511 Gross Unrealised Impairment Net 12,511,696 389,310 133,414 389,401 13,423,821 Balance Interest Allowances Balance LBP Million LBP Million LBP Million LBP Million Regular 11,903,653 - - 11,903,653 Follow-up 154,795 - - 154,795 The aging analysis of past due but not impaired Follow-up and regularisation 842,558 - - 842,558 loans and advances to customers at amortised cost as Substandard 133,414 (15,988) - 117,426 at December 31 are as follows: Doubtful 157,860 (30,070) (60,082) 67,708 Bad 231,541 (53,382) (156,933) 21,226 2012 13,423,821 (99,440) (217,015) 13,107,366 Collective impairment - - (151,523) (151,523) Less than 31 to 60 61 to 90 More than 90 30 Days Days Days Days Total 13,423,821 (99,440) (368,538) 12,955,843 LBP Million LBP Million LBP Million LBP Million LBP Million Corporate 32,992 76,609 6,919 125,930 242,450 SME 3,701 8,190 1,527 15,354 28,772 Retail and Personal Banking 51,435 27,305 19,382 21,140 119,262 88,128 112,104 27,828 162,424 390,484

2011 Less than 31 to 60 61 to 90 More than 90 30 Days Days Days Days Total LBP Million LBP Million LBP Million LBP Million LBP Million Corporate 58,246 51,204 23,734 79,930 213,114 SME 7,148 6,571 7,501 22,466 43,686 Retail and Personal Banking 73,651 23,988 19,911 14,960 132,510 139,045 81,763 51,146 117,356 389,310

182 183 The classification of the Group's financial instruments and balances due from banks and financial institutions as per international ratings is as follows:

2012 Sovereign and Central Banks Non-sovereign AAA to AA- A+ to BBB- BB+ to B- Unrated Total AAA to AA- A+ to BBB- BB+ to B- Unrated Total Grand Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 449,366 339,480 8,395,262 28,925 9,213,033 - - - - - 9,213,033 Due from banks and financial institutions - - - - - 1,180,968 2,624,431 114,388 361,191 4,280,978 4,280,978 Loans to banks and financial institutions and reverse repurchase agreements ------892,480 91,185 76,602 1,060,267 1,060,267 Financial assets at fair value through profit or loss 1,614 - 368,521 - 370,135 82,605 3,905 1,788 2 88,300 458,435 Financial assets at amortised cost 146,431 79,124 13,142,614 33,813 13,401,982 123,163 839,192 148,797 35,982 1,147,134 14,549,116 597,411 418,604 21,906,397 62,738 22,985,150 1,386,736 4,360,008 356,158 473,777 6,576,679 29,561,829

2011

Sovereign and Central Banks Non-sovereign AAA to AA- A+ to BBB- BB+ to B- Unrated Total AAA to AA- A+ to BBB- BB+ to B- Unrated Total Grand Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 309,977 19,632 8,095,636 - 8,425,245 - - - - - 8,425,245 Due from banks and financial institutions - - - - - 2,728,964 1,231,993 189,597 412,048 4,562,602 4,562,602 Loans to banks and financial institutions and reverse repurchase agreements ------101,337 56,979 60,768 219,084 219,084 Financial assets given as collateral - - - - - 16,935 40 - 449 17,424 17,424 Financial assets at fair value through profit or loss 322 - 620,940 - 621,262 15,601 - 134,470 - 150,071 771,333 Financial assets at amortised cost 224,189 16,407 12,966,833 - 13,207,429 386,291 434,994 222,517 56,072 1,099,874 14,307,303 534,488 36,039 21,683,409 - 22,253,936 3,147,791 1,768,364 603,563 529,337 6,049,055 28,302,991

184 185 The Group controls credit risk by setting credit limits on the amount of risk it is willing to accept by geographic location. The distribution of financial assets by geographic region as of December 31 is as follows:

2012 Lebanon Turkey MENA Europe North America Asia Rest of Africa Rest of the World Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 8,038,803 344,680 829,122 249,775 - - - - 9,462,380 Due from banks and financial institutions 226,145 269,663 521,362 2,764,257 440,939 51,767 - 6,845 4,280,978 Loans to banks and financial institutions and reverse repurchase agreements 54,452 978,618 - 27,197 - - - - 1,060,267 Derivative financial instruments 13,284 727 1,463 35,176 - 60 32 304 51,046 Financial assets at fair value through profit or loss 373,742 - 40,778 92,697 3,440 - - - 510,657 Loans and advances to customers at amortised cost 6,985,775 1,466,330 5,695,716 566,863 61,016 20,542 417,804 202,357 15,416,403 Loans and advances to related parties at amortised cost 268,787 - 34,517 1,067 - 1 - 139 304,511 Debtors by acceptances 107,164 - 27,957 12,065 4,466 1,522 24,124 5,417 182,715 Financial assets at amortised cost 10,751,890 65,860 3,197,748 323,871 28,633 117,326 - 63,788 14,549,116 Financial assets at fair value through other comprehensive income 218,602 - 8,891 1,306 16,994 - - - 245,793 27,038,644 3,125,878 10,357,554 4,074,274 555,488 191,218 441,960 278,850 46,063,866

2011 Lebanon Turkey MENA Europe North America Asia Rest of Africa Rest of the World Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 7,319,870 - 1,051,684 331,800 - - - - 8,703,354 Due from banks and financial institutions 304,388 - 355,128 3,123,353 472,661 187,939 - 119,133 4,562,602 Loans to banks and financial institutions and reverse repurchase agreements 56,127 56,630 79,146 27,181 - - - - 219,084 Financial assets given as collateral 8,978 - 489 7,957 - - - - 17,424 Derivative financial instruments 8,890 - 2,485 66,579 21 1,483 1,751 1,000 82,209 Financial assets at fair value through profit or loss 758,754 - 49,584 15,588 - - - - 823,926 Loans and advances to customers at amortised cost 5,635,084 - 5,714,396 792,248 3,920 14,505 440,400 91,624 12,692,177 Loans and advances to related parties at amortised cost 228,752 - 34,893 - - - - 21 263,666 Debtors by acceptances 114,365 - 119,269 1,312 - 152 37,304 8,417 280,819 Financial assets at amortised cost 11,119,357 - 2,560,630 389,654 104,149 114,682 - 18,831 14,307,303 Financial assets at fair value through other comprehensive income 186,972 - 13,199 1,142 9,710 166 - 12,795 223,984 25,741,537 56,630 9,980,903 4,756,814 590,461 318,927 479,455 251,821 42,176,548

186 187 57. Market Risk A. Currency Risk 2012 LBP USD GBP EUR TRY Other Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Market risk is defined as the potential loss in both Foreign exchange (or currency) risk is the risk that Assets on-balance sheet and off-balance sheet positions the value of a portfolio will fall as a result of changes Cash and balances with central banks resulting from movements in market risk factors in foreign exchange rates. The major sources of this 2,042,183 5,329,506 4,942 1,027,787 228,683 829,279 9,462,380 such as foreign exchange rates, interest rates and type of market risk are imperfect correlations in Due from banks and financial institutions 45,840 2,666,196 164,240 712,760 204,410 487,532 4,280,978 the movements of currency prices and fluctuations Loans to banks and financial institutions and equity prices. reverse repurchase agreements 53,916 141,069 - 78,195 787,087 - 1,060,267 in interest rates. Therefore, exchange rates and Derivative financial instruments - 13,301 3,646 21,278 2,387 10,434 51,046 relevant interest rates are acknowledged as distinct The Market Risk unit’s responsibilities are to identify, Financial assets at fair value through measure, report, and monitor all potential and risk factors. profit or loss 135,519 269,473 - 83,619 - 22,046 510,657 actual market risks to which the Group is exposed. Loans and advances to customers at amortised cost 1,333,523 9,098,148 154,923 1,268,262 710,502 2,851,045 15,416,403 The purpose is to introduce transparency around the The Central Bank of Lebanon allows the Bank to maintain a currency exchange position, receivable Loans and advances to related parties at Treasury, investment portfolio, and asset and liability amortised cost 27,142 272,852 21 2,429 - 2,067 304,511 or payable, that does not exceed at any time 1% of risk profile through consistent and comprehensive Debtors by acceptances - 128,111 1,320 44,042 - 9,242 182,715 total net equity on condition that the global currency risk measurements, aggregation, management and Financial assets at amortised cost 6,252,800 5,417,652 - 185,955 65,860 2,626,849 14,549,116 exchange position does not exceed 40% of total net analysis. Policies are set and limits monitored in order Financial assets at fair value through other to ensure the avoidance of large, unexpected losses equity. This is subject to the Bank’s commitment to comprehensive income 52,525 176,260 - 9,483 - 7,525 245,793 and the consequent impact on the Group’s safety comply in a timely and consistent manner with the Investments in associates 3,553 22,503 - - - 8,174 34,230 and soundness. required solvency rate. Non-current assets held for sale 1,738 44,994 - 616 - 2,706 50,054 Property and equipment 292,330 949 - 7,130 34,774 193,527 528,710 Tools developed in-house by a centralised unit of In addition to regulatory limits, the Board has set Intangible fixed assets 28,477 - - 1,147 14,964 5,012 49,600 limits on positions by currency. These positions are specialists offer a holistic view of risk exposures and Other assets 66,104 59,116 92 13,545 22,588 76,718 238,163 monitored constantly to ensure they are maintained are customised to meet the requirements of all end Goodwill - 54,715 - (463) - 168,594 222,846 within established limits. users (Group Risk, Senior Management, business lines Total assets 10,335,650 23,694,845 329,184 3,455,785 2,071,255 7,300,750 47,187,469 and Legal Compliance). Stress scenarios now include Liabilities and shareholders’ equity The following tables present the breakdown of the various manifestations of the credit crisis, such as Due to central banks 133,108 - - - - - 133,108 assets and liabilities by currency: increased volatilities and correlations, and widening Due to banks and financial institutions 17,602 817,118 2,135 81,793 33 252,493 1,171,174 of credit spreads. Due to banks under repurchase agreements - - - - - 681,487 681,487 Derivative financial instruments - 11,995 3,805 31,034 - 9,208 56,042 Customers’ deposits at amortised cost 7,998,960 21,596,458 386,718 3,118,954 1,801,847 4,815,953 39,718,890 Deposits from related parties at amortised cost 81,895 517,710 1,698 12,203 - 75,595 689,101 Engagements by acceptances - 128,111 1,320 44,042 - 9,242 182,715 Other liabilities 131,601 111,422 439 15,383 20,260 129,760 408,865 Provisions for risks and charges 61,943 4,627 - 1,238 11,818 15,470 95,096 Non-current liabilities held for sale 119 14,680 - - - - 14,799 Shareholders’ equity 1,266,855 2,494,678 - 85,747 - 188,912 4,036,192 Total liabilities and shareholders’ equity 9,692,083 25,696,799 396,115 3,390,394 1,833,958 6,178,120 47,187,469

188 189 2011 2012 2011 LBP USD GBP EUR TRY Other Total Increase Effect on Profit Effect on Equity Effect on Profit Effect on Equity LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Currency in Currency Before Tax LBP Million Before Tax LBP Million Assets Rate % LBP Million LBP Million Cash and balances with central banks 1,499,579 5,316,465 3,503 793,600 - 1,090,207 8,703,354 USD 1% (1,579) 6,183 3,760 4,435 Due from banks and financial institutions 25,740 2,730,399 121,054 1,011,457 - 673,952 4,562,602 EUR 1% (61) 1,297 (1,575) 2,974 Loans to banks and financial institutions and GBP 1% (75) (594) (1,104) (418) reverse repurchase agreements 55,737 114,946 - 43,829 - 4,572 219,084 EGP 1% - 3,676 - 2,982 Financial assets given as collateral - 17,424 - - - 17,424 Derivative financial instruments 943 13,818 6,670 47,877 - 12,901 82,209 SYP 1% - 162 (814) 507 Financial assets at fair value through TRY 1% - 1,970 - - profit or loss 461,941 311,453 3,035 23,083 - 24,414 823,926 Loans and advances to customers at amortised cost 1,125,205 7,689,478 121,375 1,021,162 - 2,734,957 12,692,177 B. Interest Rate Risk assumed rates. The result includes the effect of Loans and advances to related parties at hedging instruments and assets and liabilities held at amortised cost 31,335 228,400 13 1,293 - 2,625 263,666 Debtors by acceptances - 198,578 1,329 66,436 - 14,476 280,819 Interest rate risk arises from the possibility that December 31, 2012 and 2011. The change in interest Financial assets at amortised cost 6,181,869 5,613,436 - 440,833 - 2,071,165 14,307,303 changes in interest rates will affect future profitability income is calculated over a 1-year period. The impact Financial assets at fair value through other or the fair value of financial instruments. The Group also incorporates the fact that some monetary items comprehensive income 11,519 204,439 - 221 - 7,805 223,984 is exposed to interest rate risk as a result of do not immediately respond to changes in interest Investments in associates 3,555 20,657 - - - 18,887 43,099 mismatches of interest rate repricing of assets and rates and are not passed through in full, reflecting Non-current assets held for sale 828 21,701 - 604 - 3,246 26,379 sticky interest rate behaviour. The pass-through rate Property and equipment 284,725 16,841 - 3,172 - 206,812 511,550 liabilities. Positions are monitored on a daily basis and lag in response time are estimated based on Intangible fixed assets 5,349 16 - 2,319 - 5,824 13,508 by Management and, whenever possible, hedging historical statistical analysis and are reflected in the Other assets 89,447 104,450 323 10,465 - 83,486 288,171 strategies are used to ensure positions are maintained outcome. Goodwill 992 54,715 - 7,076 - 198,648 261,431 within established limits. Total assets 9,778,764 22,657,216 257,302 3,473,427 - 7,153,977 43,320,686 Liabilities and shareholders’ equity Interest Rate Sensitivity There is no direct effect for the change in interest Due to central banks 133,394 - - - - - 133,394 rates on equity pursuant to the early adoption of Due to banks and financial institutions 30,264 698,892 13,410 102,911 - 162,081 1,007,558 The table below shows the sensitivity of interest IFRS9 in 2011 whereby no debt instruments can be Derivative financial instruments - 9,478 7,669 31,287 - 9,812 58,246 income and shareholders’ equity to reasonably classified at fair value through other comprehensive Customers’ deposits at amortised cost 7,749,829 20,541,903 386,941 3,102,042 - 5,316,495 37,097,210 possible parallel changes in interest rates, all other income. Deposits from related parties at amortised cost 30,975 161,835 1,395 5,236 - 85,856 285,297 variables being held constant. Engagements by acceptances - 198,578 1,329 66,436 - 14,476 280,819 The effect of any future associated hedges made Other liabilities 133,403 595,233 931 14,527 - 87,993 832,087 The impact of interest rate changes on net interest by the Group is not accounted for. The sensitivity Provisions for risks and charges 52,687 8,903 - 250 - 11,085 72,925 of equity was calculated for an increase in basis Shareholders’ equity 1,863,211 1,137,909 - 74,152 - 477,878 3,553,150 income is due to assumed changes in interest paid points whereby a similar decrease has an equal and Total liabilities and shareholders’ equity 9,993,763 23,352,731 411,675 3,396,841 - 6,165,676 43,320,686 and received on floating rate financial assets and liabilities, and to the reinvestment or refunding offsetting effect. of fixed rated financial assets and liabilities atthe The Group’s Exposure effect of a reasonably possible movement of the to Currency Risk currency rate against the Lebanese Pound, with all other variables held constant, first on the income Sensitivity of Net Interest Income The Group is subject to currency risk on financial statement (due to the potential change in fair value 2012 2011 assets and liabilities that are listed in currencies other of currency sensitive non-trading monetary assets and Change in LBP Million LBP Million LBP Million LBP Million Basis Points Increase Decrease Increase Decrease than the Lebanese Pounds. Most of these financial liabilities) and equity (due to the impact of currency LBP ± 100 2,381 17,249 (30,187) 108 assets and liabilities are listed in US Dollars or Euros. translation gains/losses of consolidated subsidiaries and the change in fair value of currency swaps used USD ± 50 11,151 (9,644) 17,169 2,350 The table below shows the currencies to which the to hedge net investment in foreign subsidiaries). A EUR ± 25 1,581 (1,512) 740 (340) Group had significant exposure at December 31 on negative amount reflects a potential net reduction its non-trading monetary assets and liabilities and in income or equity, while a positive amount reflects its forecast cash flows. The numbers represent the a net potential increase.

190 191 The Group’s interest sensitivity position based on dates may differ significantly from the contractual contractual repricing arrangements is shown in the dates, particularly with regard to the maturity of table below. The expected repricing and maturity customer demand deposits.

2012 3 Months Total Less Total More Non-interest Up to 1 Month 1 to 3 Months to 1 Year than 1 Year 1 to 5 Years Over 5 Years than 1 Year Bearing Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Assets Cash and balances with central banks 2,633,792 3,341,484 1,661,602 7,636,878 42,979 14,687 57,666 1,767,836 9,462,380 Due from banks and financial institutions 3,521,048 97,851 11,846 3,630,745 - 49 49 650,184 4,280,978 Loans to banks and financial institutions and reverse repurchase agreements 864,624 47,538 147,352 1,059,514 - - - 753 1,060,267 Derivative financial instruments 11,293 4,799 22,202 38,294 9,932 61 9,993 2,759 51,046 Financial assets at fair value through profit or loss 32,931 45,839 34,425 113,195 228,523 113,537 342,060 55,402 510,657 Loans and advances to customers at amortised cost 3,455,179 4,492,166 3,562,551 11,509,896 2,895,533 843,391 3,738,924 167,583 15,416,403 Loans and advances to related parties at amortised cost 232,003 49,556 1,507 283,066 7,736 2,356 10,092 11,353 304,511 Debtors by acceptances 54,430 46,154 50,364 150,948 - - - 31,767 182,715 Financial assets at amortised cost 180,861 441,489 3,246,365 3,868,715 8,472,648 1,989,826 10,462,474 217,927 14,549,116 Financial assets at fair value through other comprehensive income ------245,793 245,793 Investments in associates 18,538 - - 18,538 - - - 15,692 34,230 Non-current assets held for sale ------50,054 50,054 Property and equipment ------528,710 528,710 Intangible fixed assets ------49,600 49,600 Other assets - - - - 380 - 380 237,783 238,163 Goodwill ------222,846 222,846 Total assets 11,004,699 8,566,876 8,738,214 28,309,789 11,657,731 2,963,907 14,621,638 4,256,042 47,187,469 Liabilities and shareholders’ equity Due to central banks - - 132,612 132,612 - - - 496 133,108 Due to banks and financial institutions 482,776 185,201 409,876 1,077,853 - - - 93,321 1,171,174 Due to banks under repurchase agreements 392,529 288,806 - 681,335 - - - 152 681,487 Derivative financial instruments 10,438 7,871 26,121 44,430 9,357 - 9,357 2,255 56,042 Customers’ deposits at amortised cost 21,501,121 6,849,744 4,124,497 32,475,362 961,245 9,195 970,440 6,273,088 39,718,890 Deposits from related parties at amortised cost 182,250 138,166 11,876 332,292 112,354 33,076 145,430 211,379 689,101 Engagements by acceptances 54,430 46,154 50,364 150,948 - - - 31,767 182,715 Other liabilities 85,884 1,078 215 87,177 - 35 35 321,653 408,865 Provisions for risks and charges ------95,096 95,096 Non-current liabilities held for sale ------14,799 14,799 Shareholders’ equity ------4,036,192 4,036,192 Total liabilities and shareholders’ equity 22,709,428 7,517,020 4,755,561 34,982,009 1,082,956 42,306 1,125,262 11,080,198 47,187,469 Interest rate sensitivity gap (11,704,729) 1,049,856 3,982,653 10,574,775 2,921,601 (6,824,156) Cumulative gap (11,704,729) (10,654,873) (6,672,220) 3,902,555 6,824,156 -

192 193 2011 3 Months Total Less Total More Non-interest Up to 1 Month 1 to 3 Months to 1 Year than 1 Year 1 to 5 Years Over 5 Years than 1 Year Bearing Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Assets Cash and balances with central banks 2,301,569 3,214,723 1,110,882 6,627,174 340,685 16,357 357,042 1,719,138 8,703,354 Due from banks and financial institutions 3,350,845 209,324 52,936 3,613,105 4,370 68 4,438 945,059 4,562,602 Loans to banks and financial institutions and reverse repurchase agreements 85,247 26,159 78,191 189,597 - - - 29,487 219,084 Financials assets given as collateral 5,057 12,359 - 17,416 - - - 8 17,424 Derivative financial instruments 4,712 2,707 19,031 26,450 109 200 309 55,450 82,209 Financial assets at fair value through profit or loss 27 547 527,609 528,183 94,771 137,886 232,657 63,086 823,926 Loans and advances to customers at amortised cost 1,920,182 4,398,110 2,144,476 8,462,768 2,605,771 575,046 3,180,817 1,048,592 12,692,177 Loans and advances to related parties at amortised cost 211,550 33,727 1,881 247,158 5,289 1,027 6,316 10,192 263,666 Debtors by acceptances 165,171 5,257 38,899 209,327 - - - 71,492 280,819 Financial assets at amortised cost 329,812 202,643 2,858,166 3,390,621 8,511,100 2,399,327 10,910,427 6,255 14,307,303 Financial assets at fair value through other comprehensive income ------223,984 223,984 Investments in associates ------43,099 43,099 Non-current assets held for sale ------26,379 26,379 Property and equipment ------511,550 511,550 Intangible fixed assets ------13,508 13,508 Other assets ------288,171 288,171 Goodwill ------261,431 261,431 Total assets 8,374,172 8,105,556 6,832,071 23,311,799 11,562,095 3,129,911 14,692,006 5,316,881 43,320,686 Liabilities and shareholders’ equity Due to central banks - - 132,612 132,612 - - - 782 133,394 Due to banks and financial institutions 579,951 83,692 297,720 961,363 - - - 46,195 1,007,558 Derivative financial instruments 6,110 652 237 6,999 - - - 51,247 58,246 Customers’ deposits at amortised cost 21,913,037 6,145,381 2,601,204 30,659,622 828,210 13,223 841,433 5,596,155 37,097,210 Deposits from related parties at amortised cost 181,527 12,468 42,557 236,552 - - - 48,745 285,297 Engagements by acceptances 161,112 289 24,612 186,013 - - - 94,806 280,819 Other liabilities 84,434 10 70,496 154,940 38,722 156,368 195,090 482,057 832,087 Provisions for risks and charges ------72,925 72,925 Shareholders’ equity ------3,553,150 3,553,150 Total liabilities and shareholders’ equity 22,926,171 6,242,492 3,169,438 32,338,101 866,932 169,591 1,036,523 9,946,062 43,320,686 Interest rate sensitivity gap (14,551,999) 1,863,064 3,662,633 10,695,163 2,960,320 (4,629,181) Cumulative gap (14,551,999) (12,688,935) (9,026,302) 1,668,861 4,629,181 -

194 195 plans for managing liquidity risk. This incorporates an C. Prepayment Risk Loans to Deposits assessment of expected cash flows and the availability 2012 2011 Prepayment risk is the risk that the Group will of high grade collateral which could be used to secure % % incur a financial loss because its customers and additional funding if required. Year-end 39 35 counterparties repay or request repayment earlier Maximum 39 36 The Group maintains a portfolio of marketable and than expected, such as fixed rate mortgages when Minimum 36 34 diverse assets that can be liquidated in the event of interest rates fall. Average 37 35 an unforeseen interruption of cash flow. In addition, Market risks that lead to prepayments are not the Group maintains statutory deposits with central banks. As per Lebanese banking regulations, the material with respect to the markets where the statement of financial position actual commitments. Bank must retain obligatory reserves with the Analysis of Financial Assets and Group operates. Accordingly, the Group considers Repayments which are subject to notice are treated Central Bank of Lebanon calculated on the basis of Liabilities by Remaining prepayment risk on net profits as not material after as if notice were to be given immediately. Concerning 25% of the sight deposits and 15% of term deposits considering any penalties arising from prepayments. Contractual Maturities deposits, the Group expects that many customers will denominated in Lebanese Pounds, in addition to not request repayment on the earliest date the Group interest-bearing placements equivalent to 15% of D. Equity Price Risk The table below summarises the maturity profile of the could be required to pay. all deposits in foreign currencies, regardless of their Group’s financial assets and liabilities as of December nature. Equity price risk is the risk that the value of a portfolio 31 based on contractual undiscounted cash flows. The The table does not reflect the expected cash flows will fall as a result of a change in stock prices. contractual maturities have been determined based indicated by the Group’s deposit retention history. Risk factors underlying this type of market risk The liquidity position is assessed and managed under on the period remaining to reach maturity as per the are a whole range of various equity (and index) a variety of scenarios, giving due consideration to prices corresponding to different markets (and stress factors relating to the market in general, and 2012 currencies/maturities) in which the Group holds specifically to the Group. The Group maintains a solid equity-related positions. ratio of highly liquid net assets in foreign currencies Less than 1 to 3 3 to 12 1 to 5 Over 1 Month Months Months Years 5 Years Total to deposits and commitments in foreign currencies, LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million The Group sets tight limits on equity exposures and taking market conditions into consideration. Financial assets: the types of equity instruments that traders are Cash and balances with central banks 3,371,590 221,231 1,213,563 3,667,931 2,369,729 10,844,044 allowed to take positions in. Nevertheless, depending Regulatory Ratios and Limits Due from banks and financial institutions 4,223,885 88,754 11,734 - 49 4,324,422 on the complexity of financial instruments, equity Loans to banks and financial institutions and risk is measured in first cash terms, such as the In accordance with the Central Bank of Lebanon reverse repurchase agreements 816,257 3,560 187,438 - 80,391 1,087,646 market value of a stock/index position, and also in circulars, the ratio of net liquid assets to deposits Derivative financial instruments 16,140 4,564 20,395 9,947 - 51,046 price sensitivities, such as sensitivity of the value of in foreign currencies should not be less than 10%. Financial assets at fair value through profit or loss 115,957 325 25,173 283,684 196,671 621,810 a portfolio to changes in the underlying asset price. The net liquid assets consist of cash and all balances Loans and advances to customers at amortised cost 3,272,618 1,611,583 3,270,397 7,001,782 952,292 16,108,672 These measures are applied to an individual position with the Central Bank of Lebanon (excluding reserve Loans and advances to related parties at amortised cost 251,225 33,927 9,419 6,842 5,075 306,488 and/or to a portfolio of equities. requirements), certificates of deposits issued by Debtors by acceptances 64,971 57,498 55,450 4,796 - 182,715 the Central Bank of Lebanon irrespective of their Financial assets at amortised cost 1,034,583 348,221 4,362,753 9,585,939 2,144,651 17,476,147 maturities and deposits due from other banks that 58. Liquidity Risk Total financial assets 13,167,226 2,369,663 9,156,322 20,560,921 5,748,858 51,002,990 mature within one year, less deposits due to the Financial liabilities: Central Bank of Lebanon and deposits due to banks Liquidity risk is defined as the risk that the Group Due to central banks 585 - - 166,235 - 166,820 that mature within one year. Deposits are composed will encounter difficulty in meeting obligations Due to banks and financial institutions 595,006 179,540 245,456 130,103 176,386 1,326,491 of total customers’ deposits (excluding blocked associated with financial liabilities that are settled by Due to banks under repurchase agreements 466,561 214,926 - - - 681,487 delivering cash or another financial asset. Liquidity accounts) and due from financial institutions, Derivative financial instruments 15,370 5,506 25,809 9,357 - 56,042 risk arises because of the possibility that the Group irrespective of their maturities, and all certificates of Customers’ deposits at amortised cost 28,175,881 7,055,421 4,272,165 1,145,780 10,716 40,659,963 might be unable to meet its payment obligations deposits and acceptances and other debt instruments Deposits from related parties at amortised cost 217,691 140,538 12,980 141,584 222,932 735,725 when they fall due under both normal and stress issued by the Group and loans from the public sector Engagements by acceptances 57,481 64,988 55,450 4,796 - 182,715 circumstances. To limit this risk, Management has that mature within one year. Total financial liabilities 29,528,575 7,660,919 4,611,860 1,597,855 410,034 43,809,243 arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing The Group stresses the importance of customers’ assets with liquidity in mind and of monitoring future deposits as source of funds to finance its lending cash flows and liquidity on a daily basis. The Group has activities. This is monitored by using the advances to developed internal control processes and contingency deposits ratio, which compares loans and advances to customers as a percentage of clients’ deposits.

196 197 2011 2012 Less than 1 to 3 3 to 12 1 to 5 Over Less than 3 to 12 1 to 5 Over 1 Month Months Months Years 5 Years Total On Demand 3 Months Months Years 5 Years Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Financial assets: Financial guarantees 56,844 828,094 426,915 30,529 71,359 1,413,741 Cash and balances with central banks 2,525,967 144,900 530,498 5,359,703 1,418,639 9,979,707 Other guarantees 898,455 - - - - 898,455 Due from banks and financial institutions 4,399,661 91,466 67,357 4,370 68 4,562,922 Documentary credits 2,037 279,501 62,950 9,275 - 353,763 Loans to banks and financial institutions and Undrawn credit lines 3,309,318 50,813 122,635 25,258 46 3,508,070 reverse repurchase agreements 33,626 16,771 113,291 - 87,055 250,743 4,266,654 1,158,408 612,500 65,062 71,405 6,174,029 Financial assets given as collateral 15,672 1,820 189 - - 17,681 Derivative financial instruments 5,418 40,207 36,282 102 200 82,209 Financial assets measured at fair value 8,231 7,166 556,777 135,678 179,571 887,423 2011 Loans and advances to customers at amortised cost 3,410,722 1,409,460 1,954,430 5,333,251 1,337,437 13,445,300 Less than 3 to 12 1 to 5 Over Loans and advances to related parties at amortised cost 215,626 33,399 9,006 5,158 3,934 267,123 On Demand 3 Months Months Years 5 Years Total Debtors by acceptances 102,699 98,859 79,213 49 - 280,820 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Financial assets at amortised cost 405,672 292,563 3,686,717 9,741,400 2,660,187 16,786,539 Financial guarantees 95,531 1,210,232 166,510 32,101 129,730 1,634,104 Total financial assets 11,123,294 2,136,611 7,033,760 20,579,711 5,687,091 46,560,467 Other guarantees 1,039,278 - - - - 1,039,278 Financial liabilities: Documentary credits 7,204 292,975 72,087 15,515 - 387,781 Due to central banks 782 - - 135,758 - 136,540 Undrawn credit lines 3,014,156 160,677 23,563 310,905 17,928 3,527,229 Due to banks and financial institutions 627,711 67,978 49,224 178,201 178,085 1,101,199 4,156,169 1,663,884 262,160 358,521 147,658 6,588,392 Derivative financial instruments 7,055 35,159 16,032 - - 58,246 Customers’ deposits at amortised cost 27,604,649 6,173,561 2,671,589 897,264 14,074 37,361,137 Deposits from related parties at amortised cost 67,128 14,308 44,734 188,133 30,999 345,302 Maturity Analysis of Assets at the statement of financial position date to the Engagements by acceptances 102,698 98,858 79,214 49 - 280,819 and Liabilities contractual maturity date and do not take account Total financial liabilities 28,410,023 6,389,864 2,860,793 1,399,405 223,158 39,283,243 of the effective maturities as indicated by the Group’s deposit retention history and the availability The table below summarises the maturity profile of of liquid funds. The maturity profile is monitored the Group’s assets and liabilities. The contractual The table below shows the contractual expiry by date it can be drawn down. For issued financial by Management to ensure adequate liquidity is maturities of assets and liabilities have been maturity of the Group’s contingent liabilities and guarantee contracts, the maximum amount of the maintained. commitments. Each undrawn loan commitment is guarantee is allocated to the earliest period in which determined on the basis of the remaining period included in the time band containing the earliest the guarantee could be called.

198 199 The maturity profile of the assets and liabilities at December 31, 2012 is as follows:

2012 Less than 1 to 3 3 Months Total Less Total More Amount without 1 Month Months to 1 Year than 1 Year 1 to 5 Years Over 5 Years than 1 Year Maturity Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Assets Cash and balances with central banks 3,318,055 221,094 1,207,780 4,746,929 3,376,570 1,338,881 4,715,451 - 9,462,380 Due from banks and financial institutions 4,206,838 62,357 11,734 4,280,929 - 49 49 - 4,280,978 Loans to banks and financial institutions and reverse repurchase agreements 816,321 3,551 186,479 1,006,351 - 53,916 53,916 - 1,060,267 Derivative financial instruments 16,140 4,564 20,395 41,099 9,947 - 9,947 - 51,046 Financial assets at fair value through profit or loss 33,346 45,532 34,370 113,248 231,828 113,359 345,187 52,222 510,657 Loans and advances to customers at amortised cost 2,656,962 1,873,999 3,255,051 7,786,012 6,727,452 898,342 7,625,794 4,597 15,416,403 Loans and advances to related parties at amortised cost 249,846 33,927 10,801 294,574 7,756 2,181 9,937 - 304,511 Debtors by acceptances 64,971 57,498 55,450 177,919 4,796 - 4,796 - 182,715 Financial assets at amortised cost 175,468 183,279 3,330,402 3,689,149 8,650,287 2,209,680 10,859,967 - 14,549,116 Financial assets at fair value through other comprehensive income ------245,793 245,793 Investments in associates - - - - 18,545 - 18,545 15,685 34,230 Non-current assets held for sale ------50,054 50,054 Property and equipment ------528,710 528,710 Intangible fixed assets ------49,600 49,600 Other assets 125,924 19,031 23,556 168,511 10,252 443 10,695 58,957 238,163 Goodwill ------222,846 222,846 Total assets 11,663,871 2,504,832 8,136,018 22,304,721 19,037,433 4,616,851 23,654,284 1,228,464 47,187,469 Liabilities and shareholders’ equity Due to central banks - - - - 133,108 - 133,108 - 133,108 Due to banks and financial institutions 523,894 236,318 278,789 1,039,001 117,090 15,083 132,173 - 1,171,174 Due to banks under repurchase agreements 392,602 288,885 - 681,487 - - - - 681,487 Derivative financial instruments 15,370 5,506 25,809 46,685 9,357 - 9,357 - 56,042 Customers’ deposits at amortised cost 27,244,497 7,108,325 4,391,195 38,744,017 965,150 9,723 974,873 - 39,718,890 Deposits from related parties at amortised cost 211,830 139,472 16,586 367,888 288,136 33,077 321,213 - 689,101 Engagements by acceptances 57,481 64,988 55,450 177,919 4,796 - 4,796 - 182,715 Other liabilities 229,713 52,666 64,959 347,338 1,361 36 1,397 60,130 408,865 Provision for risks and charges - - 149 149 448 - 448 94,499 95,096 Non-current liabilities held for sale ------14,799 14,799 Shareholders’ equity ------4,036,192 4,036,192 Total liabilities and shareholders’ equity 28,675,387 7,896,160 4,832,937 41,404,484 1,519,446 57,919 1,577,365 4,205,620 47,187,469 Liquidity gap (17,011,516) (5,391,328) 3,303,081 17,517,987 4,558,932 (2,977,156) Cumulative gap (17,011,516) (22,402,844) (19,099,763) (1,581,776) 2,977,156 -

200 201 The maturity profile of the assets and liabilities at December 31, 2011 is as follows:

2011 Less than 1 to 3 3 Months Total Less Total More Amount without 1 Month Months to 1 Year than 1 Year 1 to 5 Years Over 5 Years than 1 Year Maturity Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Assets Cash and balances with central banks 2,466,641 144,514 527,151 3,138,306 4,792,950 772,098 5,565,048 - 8,703,354 Due from banks and financial institutions 4,400,687 91,208 66,269 4,558,164 4,370 68 4,438 - 4,562,602 Loans to banks and financial institutions and reverse repurchase agreements 33,588 16,750 113,012 163,350 - 55,734 55,734 - 219,084 Financial assets given as collateral 15,578 1,806 40 17,424 - - - - 17,424 Derivative financial instruments 5,418 40,207 36,283 81,908 101 200 301 - 82,209 Financial assets at fair value through profit or loss 6,428 4,077 527,635 538,140 95,307 137,886 233,193 52,593 823,926 Loans and advances to customers at amortised cost 3,356,714 1,378,898 1,872,507 6,608,119 4,954,365 1,125,926 6,080,291 3,767 12,692,177 Loans and advances to related parties at amortised cost 214,409 33,476 9,454 257,339 5,300 1,027 6,327 - 263,666 Debtors by acceptances 102,699 98,858 79,213 280,770 49 - 49 - 280,819 Financial assets at amortised cost 333,928 194,115 2,867,886 3,395,929 8,542,124 2,369,250 10,911,374 - 14,307,303 Financial assets at fair value through other comprehensive income ------223,984 223,984 Investments in associates ------43,099 43,099 Non-current assets held for sale ------26,379 26,379 Property and equipment ------511,550 511,550 Intangible fixed assets ------13,508 13,508 Other assets 29,690 13,514 66,106 109,310 9,792 1,374 11,166 167,695 288,171 Goodwill ------261,431 261,431 Total assets 10,965,780 2,017,423 6,165,556 19,148,759 18,404,358 4,463,563 22,867,921 1,304,006 43,320,686 Liabilities and shareholders’ equity Due to central banks - - - - 133,394 - 133,394 - 133,394 Due to banks and financial institutions 624,625 66,623 38,034 729,282 143,398 134,878 278,276 - 1,007,558 Derivative financial instruments 7,055 35,159 16,032 58,246 - - - - 58,246 Customers’ deposits at amortised cost 27,501,168 6,126,130 2,628,342 36,255,640 828,346 13,224 841,570 - 37,097,210 Deposits from related parties at amortised cost 55,402 13,667 46,559 115,628 169,669 - 169,669 - 285,297 Engagements by acceptances 102,699 98,859 79,212 280,770 49 - 49 - 280,819 Other liabilities 124,131 39,698 224,141 387,970 226,361 156,441 382,802 61,315 832,087 Provisions for risks and charges ------72,925 72,925 Shareholders’ equity ------3,553,150 3,553,150 Total liabilities and shareholders’ equity 28,415,080 6,380,136 3,032,320 37,827,536 1,501,217 304,543 1,805,760 3,687,390 43,320,686 Liquidity gap (17,449,300) (4,362,713) 3,133,236 16,903,141 4,159,020 (2,383,384) Cumulative gap (17,449,300) (21,812,013) (18,678,777) (1,775,636) 2,383,384 -

202 203 The capital base as per Basel II requirements as of

59. Operational Risk 60. Capital Management December 31 (including profit for the year less proposed dividends) is as follows: Operational risk is the risk of loss arising from system By maintaining an actively managed capital base, failure, human error, fraud or external events. When the Group’s objectives are to cover risks inherent in controls fail to perform, operational risks can cause the business, to retain sufficient financial strength 2012 2011 LBP Million LBP Million damage to reputation, have legal or regulatory and flexibility to support new business growth, Tier 1 capital 3,302,459 2,855,238 implications, or lead to financial loss. and to meet national and international regulatory Tier 2 capital 65,885 65,235 capital requirements at all times. The adequacy The operational risk management framework is of the Group’s capital is monitored using, among Total capital 3,368,344 2,920,473 implemented by an independent Operational Risk other measures, the rules and ratios established by Management team, in coordination with other the Central Bank of Lebanon. These ratios measure The capital adequacy ratio as of December 31 essential elements of the Group’s control framework, capital adequacy by comparing the Group’s eligible (including profit for the year less proposed dividends) such as Internal Audit or Corporate Information capital with its statement of financial position assets is as follows: Security and Business Continuity. and off-balance sheet commitments at a weighted amount to reflect their relative risk. To satisfy Basel Central to this framework are tried-and-tested III capital requirements, the Central Bank of Lebanon 2012 2011 principles such as redundancy of mission-critical requires maintaining a ratio of total regulatory Capital adequacy – Tier 1 11.56% 10.45% systems, segregation of duties, strict authorisation capital to risk-weighted assets at or above 12% to Capital adequacy – Total capital 11.79% 10.69% procedures, daily reconciliation, risk management be achieved in 2015. The limit of the common equity responsibility at the operational level, and Tier 1 ratio is expected to increase to 8%, the Tier 1 Tier 1 capital consists of share capital, share comprehensive income and corresponding amounts the requirement to be able to price and value ratio to 10% and the total capital ratio to 12% by premium, reserves, retained earnings including of non-controlling interest. Certain adjustments independently any proposed transaction. the end of 2015. The first step of this increase was current year profit less proposed dividends, foreign are made to IFRS based results, reserves, retained due by the end of 2012. currency translation losses, gross unrealised losses earnings, preferred shares, subordinated loans Incidents are reported, analysed and fed into a from financial instruments at fair value through and non-controlling interests, as prescribed by the risk map also originating from other sources such Each banking subsidiary is directly regulated by its other comprehensive income and corresponding Central Bank of Lebanon and the Banking Control as control self-assessments, key risk indicators or local banking supervisor which sets and monitors its amounts of non-controlling interest. Tier 2 capital Commission. audit reports. This risk map is then used as a tool to capital adequacy requirements. In addition, Bank consists of revaluation variance recognised in the follow up on outstanding issues and as the basis for Audi sal - Audi Saradar Group monitors capital complementary equity, subordinated loans, preferred In accordance with the Central Bank of Lebanon's reporting operational risk to Management and to adequacy at the Group level. shares, a percentage of foreign currency translation main Circular No. 44, the Group should maintain the the Board. gains, a percentage of gross unrealised gains from following minimum required capital adequacy ratio financial instruments at fair value through other for the years ended December 31, 2012 and thereafter: Insurance coverage is used as an external mitigant and is commensurate with activity, both in terms of volume and characteristics. Tier 1 Capital Ratio Total Capital Ratio Year ended December 31, 2012 8.0 % 10.0 % 2012 2011 Year ended December 31, 2013 8.5 % 10.5 % LBP Million LBP Million Year ended December 31, 2014 9.5 % 11.5 % Risk-weighted assets: Year ended December 31, 2015 10.0 % 12.0 % Credit risk 25,670,611 24,734,378 Market risk 653,868 622,866 Operational risk 2,251,204 1,974,927 The Group manages its capital structure and makes to shareholders, return capital to shareholders or Total risk-weighted assets 28,575,683 27,332,171 adjustments to it in the light of changes in economic issue capital securities. No changes were made in the conditions and the risk characteristics of its activities. objectives, policies and processes from the previous In order to maintain or adjust the capital structure, the years. However, they are under constant scrutiny of Group may adjust the amount of dividend payment the Board.

204 205 europe Through its presence in France, Switzerland and Monaco, Bank Audi provides commercial banking, private banking and wealth management services. The steady activity of the Bank’s European subsidiaries represents a testimony to a solid banking heritage that stands the test of time.

206 207 shareholding structure corporate structure The major subsidiaries of Bank Audi sal - Audi Saradar Group as at 31/03/2013 are:

The following table sets out the composition of the (5) holders of common shares as at March 31, 2013: 100.00% Banaudi Holding ltd 100.00% Audi Capital Gestion sam

(1) Country Percentage Ownership 100.00% Banaudi International 100.00% Banque Audi (Suisse) sa* Holding ltd* (Ultimate Economic of the Total Number of Common Shareholders/Groups of Shareholders Ownership) Shares Issued and Outstanding Bank Audi Saradar 99.99% France sa Audi Family(2) Lebanon 7.0%

(2) Al Homaizi Family Kuwait 6.1% Audi Saradar Private 99.99% 90.85% SOLIFAC sal Saradar Family(2) Lebanon 5.8% Bank sal Sheikh Dhiab Bin Zayed Al Nehayan United Arab Emirates 5.1% Investment Finance Opportunities Ltd. Lebanon 4.9% 100.00% Bank Audi LLC (Qatar)* Middle East Opportunities For Structured Finance Ltd. Lebanon 4.9% Al Sabbah Family(2) Kuwait 4.8% 100.00% Bank Audi sae (Egypt)* Investment and Business Holding sal(3) Lebanon 3.9%

(3) MAL Investment One Holding sal Lebanon 3.9% Bank Audi sal - 99.69% Odeabank A.Ş.* Al Hobayb Family(2) Kingdom of Saudi Arabia 2.7% Audi Saradar Group El Khoury Family Lebanon 2.5% Executives and employees(6) 5.1% 99.99% Audi Capital (KSA) cjsc* Others 14.1% Deutsche Bank Trust Company Americas(4) 29.2% 47.00% Bank Audi Syria sa* 99.99% Audi Capital (Syria) LLC Total shareholding 100.0%

76.56% National Bank of Sudan

Audi Saradar Investment 99.99% Infi Gamma Holding sal* Bank sal 99.98%

90.00% Arabeya Online Brokerage*

(1) Percentage ownership figures represent common shares owned by the named shareholders and are expressed as a percentage of the total number of * Represents the economic ownership of the Bank with direct and/or indirect ownership through subsidiaries. common shares issued and outstanding. ** Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group (please refer to Page 232). As at the date hereof, the Bank (and its affiliates) is the custodian of shares and/or GDRs representing 80.15 % of the Bank’s common shares.

(2)  The Audi Family, Al Homaizi Family, Saradar Family, Al Sabbah Family and Al Hobayb Family include the following members of the Board: (i) Raymond Banking Wadih Audi and Marc Jean Audi, (ii) Suad Hamad Al Saleh Al Homaizi, (iii) Mario Joseph Saradar, (iv) Mariam Nasser Sabbah Al Nasser Al Sabbah, Holding and (v) Abdallah Al Hobayb, respectively. Factoring Financial intermediation/Brokerage (3) The ultimate beneficial owners of Investment and Business Holding sal and of MAL Investment One Holding sal are members of the Mikati Family.

(4)  As at the date hereof, Deutsche Bank Trust Company Americas, in its capacity as depositary under the Bank’s GDR Program, owned 102,017,651 common shares represented by GDRs.

(5) As at March 31, 2013, the total number of common shares is 349,749,204.

(6) Excluding members of the Audi Family accounted for in a separate row appearing above.

208 209 group high level chart organisation chart

External auditors Group private banking Shareholders External solicitors Philippe R. Sednaoui Group Chief Head of Group Private Banking Bardo of Directors ChairmaN of the Board Executive Officer Corporate Secretariat Board of Directors Board Committees Raymond W. Audi Samir N. Hanna Group corporate banking

Khalil I. Debs Chairman Head of Group Corporate Banking Corporate Vice-chairman Group Executive of the board Executive Audit Governance & Risk Committee Committee Committee Remuneration Committee Marwan M. Ghandour Group retail banking Chief Executive Officer Committee Imad I. Itani GROUP AudiT Head of Group Retail Banking Private Banking anding St Management Committees Regional Expansion Committee Group Cards & nes Retail Banking i • Asset Liability Committee Risk Management e-Payment Solutions L nctions Corporate Governance • Credit Committee u & Remuneration Randa T. Bdeir Cards & e-Payment Solutions F • Information Technology Committee Internal Audit Head of Group Cards & committee e-Payment Solutions siness

u • Financial Institutions Committee Islamic Banking Legal & Compliance B • Anti-money Laundering Committee u

• Disclosure Committee S Group islamic Banking Corporate Banking Finance Group Risk Committee r • Real Estate Committee G oup Imad I. Itani Investment Banking • Corporate Social Responsibility Committee r Operations G ouppport Head of Group Islamic Banking

Group geographical presence Group Risk

Adel N. Satel LEBANON FRANCE EGYPT Kngdomi of Saudi Arabia Group Chief Risk Officer

Bank Audi sal - Bank Audi Saradar France sa Bank Audi sae Audi Capital (KSA) cjsc Audi Saradar Group Group leGal & compliance Audi Saradar MONACO Investment Bank sal Arabeya Online Brokerage UAE Chahdan E. Jebeyli Group Chief Legal & Compliance Officer Audi Capital Gestion sam* Bank Audi sal - Audi Saradar Private Bank sal SUDAN Abu Dhabi Representative Office SWITZERLAND Group JORDAN National Bank of Sudan QATAR information management Bank Audi sal - Banque Audi (Suisse) sa Danny N. Dagher Bank Audi LLC Jordan Branches Acting Group Chief Information Officer TURKEY SYRIA

Odeabank A.Ş. Bank Audi Syria sa S tRATEGY director GROUP FINANCE & group CHIEF financial officer Tamer M. Ghazaleh Audi Capital (Syria) LLC Freddie C. Baz Assistant Group CFO

* Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group (please refer to Page 232).

Banking Other financial services (Insurance, Brokerage, Investments etc.)

210 211 north africa Beyond the temporary atypical conditions that the North Africa region is witnessing, the medium term outlook looks brighter, namely at the level of political governance, economic efficiency and corollary demand for financial services, offering the financial sector in general and Bank Audi in particular a core under-banked market with potentially rapid growth opportunities.

212 213 management

Bank Audi sal - Audi Saradar Group Management of Bank Audi sal - Audi Saradar Group (Continued from Page 22)

Mr. Gaby G. Kassis General Manager Mr. Mahmoud M. Majzoub Head of Group Internal Audit Mr. Elia S. Samaha General Manager – Group Chief Credit Officer Mr. Elie A. Nahas Head of Group Real Estate & Engineering Mr. Mounir R. Tabet Head of Group Finance Infrastructure & Technical Support Mr. Joseph I. Kesrouani Assistant General Manager – Head of Business Development – South America & Africa Group Financial Institutions & Correspondent Banking

Office of the CEO Mr. Khalil G. Geagea Group Head of Financial Institutions & Correspondent Banking Tel: (961-1) 964817. Fax: (961-1) 989494. Mr. Michel E. Aramouni Assistant General Manager – Group Capital Markets E-mail: [email protected] Mrs. Jocelyne A. Jalkh Assistant General Manager – Head of the CEO’s Office Mr. Joseph A. Nader Deputy Group Head of Financial Institutions & Correspondent Banking Mr. Naoum J. Moukarzel Information Technology Tel: (961-1) 977644. Fax: (961-1) 989494. E-mail: [email protected] Advisors

Mr. Georges Y. Azar Advisor Investor Relations Mr. Yacoub G. Nadda Advisor Ms. Sana M. Sabra Investor Relations Tel: (961-1) 977496. Fax: (961-1) 999399. Central Departments E- mail: [email protected]

Mr. Chahdan E. Jebeyli General Manager – Group Chief Legal & Compliance Officer Mr. Adel N. Satel General Manager – Group Chief Risk Officer

Dr. Marwan S. Barakat Assistant General Manager – Group Chief Economist & Head of Research Mrs. Randa T. Bdeir Assistant General Manager – Head of Group Cards & e-Payment Solutions Mr. Danny N. Dagher Assistant General Manager – Acting Group Chief Information Officer Mr. Khalil I. Debs Assistant General Manager – Group Head – Corporate Banking Mr. Tamer M. Ghazaleh Assistant General Manager – Assistant Group Chief Financial Officer

Mr. Marwan O. Arakji Deputy Head of Group Retail Banking Mr. Georges J. Boustany Head of Group Remedial Management Mr. Abdul-Salam E. Chebaro Head of Group Trade Finance Mrs. Bassima G. Harb Head of Regional Corporate Banking & Structured Finance Mr. Elie J. Kamar Head of Group Corporate Review & MIS Mr. Farid F. Lahoud Group Corporate Secretary

214 215 Bank Audi sal - Audi Saradar Group Country Management Lebanon Audi Saradar Investment Bank sal Mr. Marc J. Audi General Manager – Country Manager Board of Directors

Member of Member Branches Network Management the Audit of the Risk Committee Committee Mrs. Wafaa’ S. Daouk Assistant General Manager – Network Manager – Verdun Corporate branch Dr. Imad I. ITANI Chairman & General Manager Mr. Salam G. Nadda Assistant General Manager – Network Manager – Mr. Michel E. ARAMOUNI Member Ashrafieh SOFIL Corporate branch Dr. Khalil M. BITAR Member Chair Mrs. Ghina M. Dandan Network Manager – Bab Idriss Corporate branch Mr. Khalil I. DEBS Member Mr. Rabih E. Berbery Network Manager Mr. Hani A. Bidawi Network Manager Mr. Georges S. DOUMITH Member Chair Mr. Pierre Y. Harfouche Network Manager Mr. Rami S. JISR Member Mr. Kamal S. Tabbara Network Manager Mr. Farid F. LAHOUD Member Mr. Abdo M. Abi-Nader Regional Manager Mrs. Lina T. Cherif Regional Manager Bank Audi sal - Audi Saradar Group Member Mr. Michel R. Geammal Regional Manager

Mrs. Marie-Josette A. AFTIMOS Secretary of the Board Operations

Mr. Hassan A. Saleh Assistant General Manager – Chief Operating Officer Management Central Departments Dr. Imad I. ITANI Chairman & General Manager

Mr. Bechara J. Khachan Assistant General Manager – Head of Human Resources Mr. Rami S. JISR General Manager Mr. Ibrahim M. Salibi Assistant General Manager – Head of Corporate & Commercial Banking

Mr. Ramzy S. Abouezzeddine Head of Marketing & Communications Mrs. Grace E. Eid Head of Retail Banking Mr. Mahmoud A. Kurdy Chief Financial Officer

Advisors

Mrs. Najla E. Haddad Advisor

216 217 Audi Saradar Private Bank sal Banque Audi (Suisse) sa Board of Directors Board of Directors

Member of Member H.E. Mr. Raymond AUDI Honorary Chairman the Audit of the Risk Committee Committee Member of Member of the the Audit Remuneration Mr. Fady G. AMATOURY Chairman Committee Commitee Mr. Toufic R. AOUAD Member Dr. Marwan GHANDOUR Chairman Dr. Khalil M. BITAR Member Chair Mr. Dominique ROCHAT Vice-chairman (Chair until December 2012) Mrs. Wafaa S. DAOUK Member Mr. Marc AUDI Member Dr. Joe A. DEBBANE Member Dr. Freddie BAZ Member Mr. Georges S. DOUMITH Member Chair Mr. Pierre DE BLONAY Member

Mr. Salam G. NADDA Member Mr. Michel CARTILLIER Member (Chair since January 2013) Mr. Istvan I. NAGY Member Mr. Samir HANNA Member Bank Audi sal - Audi Saradar Group Member Mr. Jean-Pierre JACQUEMOUD Member

Mr. Pierre RESPINGER Member Chair Management Mr. Fady G. AMATOURY Chairman & General Manager Management Mr. Toufic R. AOUAD General Manager Mr. Philippe SEDNAOUI General Manager – Chief Executive Officer Mrs. Martine S. HOCHAR Assistant General Manager Mrs. Christiane AUDI Deputy General Manager – Head of Private Banking Mrs. Samira E. HARB-ABOURJAILY Executive Manager Mr. Michel NASSIF Deputy General Manager – Chief Investment Officer Mrs. Nada M. RIZK Executive Manager Mr. Ibrahim ABDELNOUR Manager – Senior Private Banker Ms. Nada M. SAFA Executive Manager Mr. Ali AZIZ Manager – Senior Private Banker Mr. Fadi S. CHABO Regional Manager Mr. Elie BAZ Manager – Head of Forex & Treasury Mrs. Dima I. JAROUDI Regional Manager Mrs. Mireille GAVARD Manager – Corporate Secretary, Head of Legal & Compliance Mr. Maher A. RAHAM Regional Manager Mr. Fouad HAKIM Manager – Senior Private Banker Mrs. Lina H. UTHMAN Regional Manager Mr. Christopher JOHNSON Manager – Chief Financial Officer Mr. Ahmad A. YOUNES Regional Manager Mr. Wolfram PIETSCH Manager – Head of Operations & IT Mr. Hani A. ZURUB Regional Manager

Mrs. Rania S. ABOU EL-OULA NAHRY Head of Legal & Compliance

Mrs. Aline S. KARAM Manager – Head of Operations & Organisation Mrs. Eugenie E. RIZKALLAH Manager – Head of Internal Control Mrs. Marie G. TOUMA Manager – Head of Credit

218 219 Bank Audi Saradar France sa Bank Audi sal - Jordan Branches Board of Directors Management

Mr. Yousef A. ENSOUR General Manager Member of the Member Executive Credit of the Audit Mr. Samer I. AL ALOUL Deputy General Manager – Corporate & Commercial Banking Committee Committee

Dr. Freddie C. BAZ Chairman

Mrs. Sherine R. AUDI Member & General Manager

H.E. Mr. Raymond W. AUDI Member

Mr. Maurice H. SAYDE Member

Mr. Pierre A. SOULEIL Member

Bank Audi sal - Audi Saradar Group Member (represented by Mr. Samir N. HANNA)

Management

Mrs. Sherine R. AUDI General Manager

Mr. Noel J. HAKIM Deputy General Manager

Mr. Emile G. GHAZI Assistant General Manager – Head of Corporate Banking

220 221 Bank Audi Syria sa Bank Audi sae (Egypt) Board of Directors Board of Directors

Member of the Member of Member of Member Nomination & the Corporate Member of the Corporate of the Risk Remuneration Governance the Audit Member Governance, Member Committee Committee Committee Committee of the Nomination and Member of the Member of Executive Remuneration of the Risk High Credit the Audit Dr. Georges A. ACHI Chairman Chair Committee Committee Committee Committee Committee Dr. Ahmad M. ABBOUD Deputy Chairman Mr. Hatem A. Chairman & SADEK Managing Director Chair Chair H.E. Mr. Raymond W. AUDI Member Mrs. Fatma I. Deputy Chairman & Dr. Freddie C. BAZ Member LOTFY Managing Director

Mr. Bassel S. HAMWI Member Mr. Yehia K. Member & Deputy YOUSSEF Managing Director Mr. Samir N. HANNA Member H.E. Mr. Raymond Mr. Elia S. SAMAHA Member Member W. AUDI

Mr. Adnan N. TAKLA Member Chair Dr. Freddie C. BAZ Member Chair Mrs. Rana T. ZEIN Member Chair Chair Dr. Marwan M. Member GHANDOUR Chair Chair Advisors to the Board Mr. Samir N. Member Mr. Abdulateef A. AL-RAJIHI HANNA Mrs. Nada N. ASSAAD Mr. Abdullah I. Member Mrs. Yasmina R. AZHARI AL HOBAYB Mr. Mohamed Said Z. ZAIM Mr. Maurice H. Member SAYDE

Management Dr. Mohamed E. Member TAYMOUR Mr. Bassel S. HAMWI Chief Executive Officer

Mr. Antoine G. EL-ZYR Deputy General Manager Mr. Ahmed F. IBRAHIM Secretary of the Board Mr. Abdulrahman M. AL-ABRASH Assistant General Manager – Chief Financial Officer Mr. Jamil R. SHOCAIR Assistant General Manager – Head of Corporate Banking Division Management

Mr. Hatem A. SADEK Chairman & Managing Director

Mrs. Fatma I. LOTFY Deputy Chairman & Managing Director

Mr. Yehia K. YOUSSEF Deputy Managing Director

222 223 224 225 Business Lines

Mr. Assem K. AWWAD Senior General Manager – Head of Corporate Banking

Mr. Mohamed L. AHMED General Manager – Head of Branch Network Mr. Mostafa A. GAMAL General Manager – Head of Treasury & Capital Markets Mr. Mohamed R. LATIF General Manager – Head of Financial Institutions & Correspondent Banking

Mr. Ihab E. DORRA Deputy General Manager – Acting as Head of Retail Banking Mrs. Maha A. HASSAN Deputy General Manager – Head of Mortgage Mr. Khaled F. EL DAFRAWY Deputy General Manager – Head of Small & Medium Enterprises Mr. Walid M. HASSOUNA Deputy General Manager – Head of Islamic Banking

Mr. Maroun A. AOUAD Assistant General Manager – Head of Global Transaction Services

Support Functions

Mr. Mohamed M. BEDIER(1) Senior General Manager – Chief Financial Officer Mrs. Amany A. SHAMS EL-DIN(1) Senior General Manager – Chief Operating Officer

Mr. Hesham S. MABROUK General Manager – Chief Information Officer Mr. Walid K. EL-WATANY General Manager – Head of Human Resources

Mr. Ahmed F. IBRAHIM Deputy General Manager – Head of Strategic Support

Ms. Heba M. GABALLA Assistant General Manager – Head of Communications

Mr. Mohamed N. SHALABY Senior Manager – Head of Project Management Office

Mrs. Samar A. HOBEIKA Manager – Head of Quality Assurance & Market Research

Risk Function

Mr. Afdal E. NAGUIB(1) Senior General Manager – Chief Risk Officer

Mr. Bassel E. KELADA Deputy General Manager – Head of Retail Credit

Control Functions

Mr. Mohamed A. EL GUEZIRY General Manager – Head of Internal Audit

Mr. Hesham F. RAGAB Senior Legal Council

Mr. Ali M. AMER Assistant General Manager – Head of Compliance

Mr. Ahmed M. KAMEL Executive Manager – Head of Corporate Information Security & Business Continuity

(1) Member of the Executive Committee.

226 227 Arabeya Online Brokerage (Egypt) National Bank of Sudan Board of Directors Board of Directors

Mr. Hisham A. TAWFIK Chairman Member Member of the Mr. Michel E. ARAMOUNI (since February 2013) Member of the Audit Executive Committee Committee Mr. Danny N. DAGHER Member Until October 31, 2012 Mrs. Fatma I. LOTFY Member Dr. Imad I. ITANI Chairman Mr. Ashraf I. RACHED Chair (since February 2013) Member Mr. Osman A. MALIK Member Mr. Ayman M. SADEK Member Mr. Ahmad B. EL NEFEIDI Member Mr. Hatem A. SADEK Member Mr. Hatem A. SADEK Member Chair Mr. Ramzi N. SALIBA Member Management Bank Audi sal - Audi Saradar Group Member Mr. Hisham A. TAWFIK Chairman

Mr. Ayman M. SADEK Managing Director Since October 31, 2012

Dr. Imad I. ITANI Chairman Chair Mr. Elnour A. ELHILU Member

Mr. Osman A. MALIK Member

Mr. Adel N. SATEL Member

Mr. Yehia K. YOUSSEF Member Chair

Secretary of the Board Ms. Manal K. OSMAN

Management

Mr. Fadi M. CHEHADE General Manager (since November 2012) Mr. Abdul-Salam E. CHEBARO (until November 2012) General Manager Mr. Moawia A. MOHAMAD ALI Deputy General Manager

228 229 Bank Audi LLC (Qatar) Audi Capital (KSA) cjsc Authorised by the QFC Regulatory Authority - License No. 00027 Board of Directors Board of Directors

Member of Member of the Member of the the Audit Remuneration Executive Credit Committee Committee Committee

Mr. Abdullah I. AL HOBAYB Chairman H.E. Mr. Raymond W. AUDI Chairman Chair Dr. Freddie C. BAZ (until January 2013) Member Mr. Fady G. AMATOURY Member & Managing Director Chairman

Dr. Marwan M. GHANDOUR Member Chair Mr. Rashed Nasser S. AL-KAABI Member Mr. Samir N. HANNA Member Mr. Elia S. SAMAHA Member Mr. Philippe R. SEDNAOUI (since January 2013) Member Dr. Abdullah A. ALABDULKADER (until October 2012) Independent member Management Dr. Asem T. ARAB (since January 2013) Independent member Mr. Fady G. AMATOURY Managing Director Dr. Khalil A. KORDI Independent member Mr. Hani R. ZAOUK General Manager

Mr. Chadi A. JABER Head of Corporate & Commercial Banking Management Mrs. Stephanie S. MALAAB Head of Risk Management & Compliance Mr. Abdallah I. SAADE Chief Executive Officer Mrs. Maya N. MOUJAES Head of Operations

Mr. Ammar H. BAKHEET Executive Director – Asset Management Mr. Elie B. NEMR Acting COO, Head of Treasury & Capital Markets Mr. Joseph M. HALLIT Executive Director – Private Banking Mr. Georges Y. TALGE Head of Finance Mr. Elie A. NAHAS Executive Director – Real Estate

Mr. Tony G. ABOU FAYSSAL Finance Manager

Mr. Raafat F. EL-ZOUHEIRY Compliance Manager & Money Laundering Reporting Officer

230 231 Audi Capital Gestion sam (Monaco)* Odeabank A.Ş. Board of Directors Board of Directors

Mr. Philippe SEDNAOUI Chairman & Managing Director Member of Member of Member of the Corporate Member Member of the Mr. Fouad HAKIM Member & Managing Director the Credit the Audit Governance of the Risk Remuneration Committee Committee Committee Committee Committee Banque Audi (Suisse) sa (represented by Mr. Jean-Pierre JACQUEMOUD) Member Mr. Samir HANNA Chairman Chair

Dr. Marwan GHANDOUR Vice-chairman Alternate Chair Chair Chair H.E. Mr. Raymond AUDI Member

Dr. Freddie BAZ Member Chair Management Mr. Adbullah AL HOBAYB Member Dr. Imad ITANI Member Alternate Mr. Philippe SEDNAOUI Managing Director Mrs. Ayşe KORKMAZ Member Mr. Fouad HAKIM Managing Director Mr. Hüseyin OZKAYA Member

Mr. Hatem SADEK Member

Management

Mr. Hüseyin OZKAYA General Manager

Mr. Yalçın AVCI Assistant General Manager – Corporate Banking Mr. Antoine BOUFARAH Assistant General Manager – Operations & Support Services Mr. Gökhan ERKIRALP Assistant General Manager – Treasury & Capital Markets Mr. Naim HAKIM Assistant General Manager – Financials Mr. Fevzi Tayfun KUÇUK Assistant General Manager – Business Solution & Transactional & Direct Banking Mr. Cem MURATOGLU Assistant General Manager – Retail Banking Mr. Serkan OZCAN Assistant General Manager – Economic Research & Strategic Planning Mr. Erol SAKALLIOGLU Assistant General Manager – Commercial Banking Mr. Alpaslan YURDAGUL Assistant General Manager – Financial Institutions & Investment Banking

* Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group that was liquidated pursuant to the resolution of its shareholders’ extraordinary Assembly of 27/07/2012, within the Group’s decision to turn its operation in Monaco into an asset management company.

232 233 Corporate Banking Network El-Horge Khattab Bldg., Hamad Street. addresses Ashrafieh – Main Branch Tel: (961-1) 660636, 660646, 660656. SOFIL Center, Charles Malek Avenue. Fax: (961-1) 660686. Tel: (961-1) 200250-1-2-3-4-5, 200572-3, Branch Manager: Mrs. Karima A. Baltagi 216810, 331813, 333094. Fax: (961-1) 200724, 339092. Network Manager – Corporate Banking: Hamra Hazmieh Mr. Salam G. Nadda Mroueh Bldg., Hamra Street. Lebanon Dar Assayad Bldg., Sa�d Freiha Street, Tel: (961-1) 341490-1-2-3-4-5-6-7, Hazmieh Roundabout. Bab Idriss 346749, 348352, 353206-7. Fax: (961-1) 344680. Tel: (961-5) 450179, 451850, 452456, Bank Audi Plaza, Omar Daouk Street. Branch Manager: Mr. Sami R. Samara Bank Audi sal - 452494, 459213, 952904-5. Fax: (961-5) 457963. Tel: (961-1) 977588. Fax: (961-1) 999410, 971502. Audi Saradar Group Branch Manager: Mrs. Hilda G. Sadek Network Manager – Corporate Banking: Mousseitbeh Mrs. Ghina M. Dandan Jnah Makassed Commercial Center, Member of the Association of Banks in Lebanon Mar Elias Street. Verdun Capital: LBP 457,709,001,816 (as at December 2012) Tahseen Khayat Bldg., Khalil Moutran Street. Tel: (961-1) 707331-2, 818277-8-9, 818280. Consolidated shareholders’ equity: Tel: (961-1) 844870-1-2-3. Fax: (961-1) 844875. Verdun 2000 Center, Rashid Karameh Avenue. Fax: (961-1) 303084. LBP 4,036,192,088,992 (as at December 2012) Branch Manager: Mrs. Elissar A. Halawi Tel: (961-1) 790761-2 805805, Branch Manager: Ms. Nisrine A. Ismail C.R. 11347 Beirut 861892, 814202, (961-3) 395500. Fax: (961-1) 865635. List of Banks No. 56 Mazraa Network Manager – Corporate Banking: Port Wakf El-Roum Bldg., Saeb Salam Blvd. Mrs. Wafaa S. Daouk El-Hadissa Bldg., El-Arz Street, Sa�fi. Headquarters Tel: (961-1) 305612, 311886-7, 311892. Tel: (961-1) 580530-1-6, 445117. Fax: (961-1) 580885. Fax: (961-1) 316873. Branch Manager: Mrs. Rawan K. Baydoun Branch Manager: Mrs. Rania J. Tamraz Retail & Personal Banking Network Bank Audi Plaza, Bab Idriss Raousheh P.O. Box 11-2560 Beirut - Lebanon Nabatieh Beirut Tel: (961-1) 994000. Fax: (961-1) 990555. Majdalani Bldg., Raousheh Corniche. Office 2000 Bldg., Hassan Kamel El-Sabbah Street. E-mail: [email protected] Ashrafieh – Sassine Tel: (961-1) 786212-3, 805068, 864752. Tel: (961-7) 767812-3-4, 761241. Fax: (961-7) 767816. http://www.banqueaudi.com Fax: (961-1) 805071. Branch manager: Mrs. Zeina H. Kehil Bahri Center, Sassine Square. Branch Manager: Ms. Yousra I. Younes Country Management Lebanon Tel/Fax: (961-1) 200640-1-2-3-4. Saida – South Branch Manager: Ms. Rita C. Haddad Selim Salam Bank Audi Palladium, Bab Idriss Moustapha Saad Street. Sharkawi Bldg., Selim Salam Avenue. P.O. Box: 11-2560 Beirut - Lebanon Ashrafieh – Saydeh Tel: (961-7) 728601-2-3-4, 723673. Fax: (961-7) 752704. Tel: (961-1) 318824, 319295-6. Fax: (961-1) 318657. Tel: (961-1) 994000. Fax: (961-1) 990555. Branch Manager: Mr. Jean Y. Azar Shibli Bldg., Istiklal Street. Branch Manager: Mrs. Hind A. Ghalayini E-mail: [email protected] Tel: (961-1) 200753-4, 202943, 204971-3, 320825. http://www.banqueaudi.com Shtaura Fax: (961-1) 204972. Sodeco Retail Area Manager: Mr. Fadi E. Chedid Commercial Banking Network Daher Bldg., Main Road. Alieh Bldg., Istiklal Street. Tel: (961-8) 540745, 542960-1-2, 545034. Badaro Tel: (961-1) 612779, 612790-1-2-6. Fax: (961-1) 612793. Fax: (961-8) 544853. Ashrafieh – Clover Ibrahim Ghattas Bldg., Badaro Street. Retail Area Manager: Mrs. Raghida N. Bacha Branch Manager: Mrs. Mona K. Cherro Clover Bldg., Charles Malek Avenue. Tel: (961-1) 387395-6-7. Fax: (961-1) 387398. Zarif Branch Manager: Mrs. Nayla S. Hanna Tel: (961-1) 204825-6-7, 215492-3, 332129-30. Tripoli – El-Mina Salhab Center, Algeria Street. Fax: (961-1) 201992. Tel: (961-1) 747550-1-2. Fax: (961-1) 747553. SOS Branch Manager: Ms. Mirella A. Karam Mandarine Bldg., Riad El-Solh Street, El-Mina Blvd. Basta Retail Area Manager: Mr. Mouayad A. Tabbara Tel: (961-6) 205100-1-2-6-8. Fax: (961-6) 205103. Ouza� Street, Noueiri Quarter. Dora Branch Manager: Mr. Georges A. Khodr Tel: (961-1) 661323-4-5-6. Fax: (961-1) 651798. Branch Manager: Mr. Zahi K. Chatila Mount Lebanon Cité Dora 1, Dora Highway. Tyre Tel: (961-1) 255686-7-8-9, 255691-2-3-4, 258877, Abou Saleh & Moughnieh Bldg., Main Road. Beshara El-Khoury Ain El-Remmaneh 259064-5-6-7-8, 259072-3-4-5-6, 254646. Tel: (961-7) 345196-7-8. Fax: (961-7) 345201. Etoile Center, El-Areed Street. Fax: (961-1) 255695, 259071. Banna & Sayrawan Bldg., Beshara El-Khoury Street. Commercial Area Manager: Mr. Georges K. Karam Tel: (961-1) 292870-1-2-3-4. Fax: (961-1) 292869. Branch Manager: Mr. Fadi V. Saade Tel/Fax: (961-1) 664093-4-5-6. Acting Branch Manager: Mrs. Leila K. Barakat Branch Manager: Mrs. Roula E. Fayad Zouk Gefinor Ajaltoun Gefinor Center, Clemenceau Street. Val de Zouk Center, Zouk Mikhael. Bliss Tel: (961-9) 211138-9, 211140-1, 211054, 226771-2-3-4. Tel: (961-1) 743400-1-2-3-4-5-6. Fax: (961-1) 743412. Kanater Bldg., Bliss Street. Bou Shaaya & Khoury Center, El-Midane. Fax: (961-9) 223603, 225505. Commercial Area Manager: Tel: (961-1) 361714-5, 361793-4-5. Fax: (961-1) 361796. Tel/Fax: (961-9) 234439, 234619, 234620-1. Branch Manager: Mr. Georges Z. Sayess Mrs. Joumana A. Moughrabi Branch Manager: Ms. Afaf M. Khoury Branch Manager: Mr. Antoine F. Boueiri

234 235 Baabda Tel: (961-1) 290713-4-5-6, 282105. Fax: (961-1) 282104. Mreijeh Tripoli – Azmi Branch Manager: Mr. Georges J. Tabet Boulos Brothers Bldg., Damascus International Road. Mreijeh Plaza Center, Abdallah Yaffi Avenue. Fayad Bldg., Azmi Street. Tel: (961-5) 451452, 953237-8-9, 953240-1-3. Tel: (961-1) 477980-1-2-4. Fax: (961-1) 477200. Ghazir Tel: (961-6) 430132-3, 445590-1-2-3. Fax: (961-5) 953236. Branch Manager: Mr. Bassam M. Harake Fax: (961-6) 435348. Branch Manager: Mrs. Marthe A. Kanaan Haddad Bldg., Kfarhebab, Main Road. Retail Area Manager: Mr. Hachem R. Zouk Tel/Fax: (961-9) 851720-1-2-3. Rabieh Bhamdoun Branch Manager: Ms. Michele P. Nader Rabieh First Entrance, Street No. 5. Tripoli – El-Bohsas Main Road. Tel: (961-4) 405950, 410336, 419881, Ghobeyri Fattal Tower 1, El-Bohsas Blvd. Tel: (961-5) 261285-6-7, 260132. Fax: (961-5) 261289. 521265, 525296, 525096. Fax: (961-4) 416105. Tel: (961-6) 410200-1-2. Fax: (961-6) 410799. Branch Manager: Mr. Elias J. Daniel Hoteit Bldg., Shiyah Blvd., Retail Area Manager: Mrs. Yolla Y. Hajjar Branch Manager: Mr. Ziad M. Kabbara Mousharrafieh Square. Bourj Hammoud Tel: (961-1) 541125-6, 541534. Fax: (961-1) 272342. Roueiss Tripoli – Square 200 Branch Manager: Mrs. Ghada S. Al-Ameen Mekheterian Bldg., Municipality Square. Hoteit Bldg., Hady Nasrallah Blvd. Akkad Bldg., Square 200. Tel: (961-1) 242631-2, 258146, 263325. Tel: (961-1) 541146-7-8. Fax: (961-1) 541149. Hadath Tel: (961-6) 437343, 448840-2. Fax: (961-6) 437383. Fax: (961-1) 265679. Branch Manager: Mr. Ali A. Jaber Branch Manager: Mr. Nasser N. Chahal Branch Manager: Mrs. Grace G. Nercessian El-Ain Square, Main Road. Tel: (961-5) 461916, 464050-1, 465726, 471854. Shiyah Broummana Fax: (961-5) 471853. Youssef Khalil Bldg., Assaad El-Assaad Street. Branch Manager: Mr. Charles A. Berberi South Lodge Center, Main Road. Tel: (961-1) 541120-1-2. Fax: (961-1) 541123. Tel: (961-4) 860163-4-6, 860451. Fax: (961-4) 860167. SOS Branch Manager: Mr. Hilal N. Zeineddine Haret Hreik Abra Retail Area Manager: Mr. Tanios F. Nabhan Ahmad Abbas Bldg., Sin El-Fil Nhouli & Solh Bldg., Main Road. Dbayeh Baajour Street, Main Road. Hayek Street. Tel: (961-7) 752267-8-9. Fax: (961-7) 752271. Tel/Fax: (961-1) 277270, 278654, 278656-7. Tel/Fax: (961-1) 482335, 490301, 490365, 510384. Branch Manager: Mr. Roni C. Tannous Dbayeh Highway, East Side. Branch Manager: Mr. Nader M. Hajj Ali Branch Manager: Mr. Antoine Y. Asmar Tel: (961-4) 521671-2-3-4-5. Fax: (961-4) 521677. Bent Jbeil Branch Manager: Mrs. Georgina Y. Nakad Jal El-Dib Zalka Ahmad Beydoun Bldg., Serail Square. Dekwaneh Milad Sarkis Bldg., Main Road. Romeo & Juliette Bldg., Zalka Highway. Tel: (961-7) 450900-1-2-5. Fax: (961-7) 450904. Tel: (961-4) 710391-2-3-4. Fax: (961-4) 710395. Tel: (961-1) 875123-4-5, 901962. Fax: (961-1) 900274. Branch Manager: Mr. Fares M. Ghostine El-Nefaa, Main Road. Branch Manager: Mrs. Carol S. Abou-Jaoude Branch Manager: Mrs. Karla M. Ghaoui Tel: (961-1) 693790-1-2-4. Fax: (961-1) 693795. Saida – East Branch Manager: Mr. Pierre A. Mezher Jbeil – East Zouk – Espace Byblos Sun Bldg., Jbeil Roundabout. Dandashli Bldg., Eastern Blvd. Dora – City Mall Vega Center, Zouk Mikhael Highway. Tel: (961-9) 541410, 543890-1-2-3-4. Fax: (961-9) 543895. Tel: (961-7) 751885-6-7. Fax: (961-7) 751889. Tel: (961-9) 210898-9, 210900-1, 210780, 216174-5. City Mall, Dora Highway. Branch Manager: Mr. Chady F. Kassis Branch Manager: Mr. Mohamad M. Bizri Fax: (961-9) 210897. Tel: (961-1) 884114, 884081, 884098. Branch Manager: Mr. Edgard A. Aoun Fax: (961-1) 884115. Jeita – Antoura Saida – Riad El-Solh Branch Manager: Mrs. Grace E. Moussa Antoura Square. Wakf El-Roum Catholic Bldg., Riad El-Solh Blvd. Tel: (961-9) 235257-8-9. Fax: (961-9) 235260. North Tel: (961-7) 720411-2, 733750-1-2-3-4. Dora – Vartanian SOS Branch Manager: Mrs. Christiane Y. Akiki Fax: (961-7) 724561. Amyoun Vartanian Center, Dora Highway. Retail Area Manager: Mr. Mohamad M. Kalo Tel: (961-1) 250202, 250303, 250404, 250606. Jounieh Main Road. Fax: (961-1) 241647. La Joconde Center, Fouad Shehab Blvd. Tel: (961-6) 955600-1-2-3. Fax: (961-6) 955604. SOS Branch Manager: Mr. Wahib N. Ibrahim Tel: (961-9) 641660-1-2-3-4. Fax: (961-9) 644224. Branch Manager: Mrs. Rana A. Khoury Bekaa Branch Manager: Mr. Emile J. Moukarzel Elyssar Halba Jeb Jannine Elyssar Main Road, Mazraat Yashouh. Jounieh – El-Shir Tel: (961-4) 913927-8-9, 916152-4. Fax: (961-4) 913932. Main Road. Majzoub Bldg., Main Road. Beaino Bldg., Notre Dame du Liban Hospital Street. Branch Manager: Mrs. Lizia E. Chidiac Tel/Fax: (961-6) 692020-1-2-3-4. Tel: (961-8) 661486-7-8. Fax: (961-8) 661481. Tel: (961-9) 638060-1-2, 915503. Fax: (961-9) 915511. SOS Branch Manager: Mr. Tannous N. Abi-Saab Branch Manager: Mr. Ibrahim M. Harati Branch Manager: Mrs. Nada S. Ghanem Fanar Shekka Zahleh La Rose Center, Main Road. Khaldeh Beshwati Bldg., El-Boulevard. Tel: (961-1) 879637-8, 879640, 870820. Main Road. Lebanese Commercial Mall, Saida Highway. Tel/Fax: (961-8) 813592-3-4-5. Fax: (961-1) 879641. Tel: (961-6) 545379, 545048, 545283. Tel: (961-5) 801985-6-7-8. Fax: (961-5) 806405. Retail Area Manager: Mr. Robert J. Moubarak Branch Manager: Mrs. Haifa A. Awad Fax: (961-6) 541526. Branch Manager: Mr. Ghassan M. Kaed Bey Branch Manager: Mr. Antoine T. Douaihy Furn El-Shebbak Mansourieh Michel & Antoine Badaro Bldg., Kikano Bldg., Main Road. Damascus International Road. Tel: (961-4) 533610-1-2-3. Fax: (961-4) 533614. Branch Manager: Mr. Salam N. Dagher

236 237 Audi Saradar Al-Madina Al-Mounawara Street Damascus Jordan Al-Ameer Complex, Investment Bank sal Al-Madina Al-Mounawara Street, Amman. Mohafaza (Main Branch) Tel: (962-6) 5563850. Fax: (962-6) 5563851. Mohafaza Bldg., Youssef Al-Azmeh Square. Bank Audi Plaza, Block B, Bab Idriss. Bank Audi sal - Branch Manager: Mr. Marwan M. Abu-Yousef Tel: (963-11) 23888000. Fax: (963-11) 2247782. P.O. Box: 16-5110 Beirut - Lebanon. Branch Manager: Mr. Bechara G. Charbel Tel: (961-1) 994000. Fax: (961-1) 987626. Jordan Branches Wadi Saqra E-mail: [email protected] Saqra Complex, Wadi Saqra Street, Amman. Mazzeh Tel: (962-6) 5672227. Fax: (962-6) 5652321. Headquarters Branch Manager: Mrs. Grace B. Atallah Mazzeh Highway (next to Bakri Kadora school). Audi Saradar Tel: (963-11) 6626612. Fax: (963-11) 6626619. Le Royal Hotel Complex, Zahran Street, Dabouq Branch Manager: Ms. Fadia N. Awad Private Bank sal 3rd Circle, Jabal Amman, Amman. P.O. Box 840006 Amman. 11184, Jordan. Bldg. 179, King Abdullah II Street, Amman. Abu Rummaneh Tel: (962-6) 4604000. Fax: (962-6) 4680015. Tel: (962-6) 5333305. Fax: (962-6) 5332704. Bank Audi Plaza, Block D, Bab Idriss, Beirut. Branch Manager: Mrs. Shada S. Abu-Saad Al-Jalaa 7 Street (facing Japanese Embassy), P.O. Box: 11-1121 & 11-3312 Beirut - Lebanon. E-mail: [email protected] Abu Rummaneh. Tel: (961-1) 205400, 208400. Fax: (961-1) 205480, 205454. Tel: (963-11) 3346408. Fax: (963-11) 3346410. Shmeissani (Main Branch) Irbid E-mail: [email protected] Al Busoul Complex, Feras Al Ajlouni Street, Branch Manager (on mission): Mr. Fadi B. Al-Kaed http://www.audisaradarpb.com Salah Center, Al-Shareef Abdul Hameed Al Qubbeh Circle, Irbid. Sharaf Street, Shmeissani, Amman. Tel: (962-2) 7261550. Fax: (962-2) 7261660. West Mazzeh** Tel: (962-6) 5606020. Fax: (962-6) 5604545. Branch Manager: Mr. Jihad A. Al-Zubi Al Massoudi Street (facing “City Mall” main entrance). Switzerland Branch Manager: Mrs. Ghada A. Tawil Tel: (963-11) 6630397. Fax: (963-11) 6630385. Aqaba Retail Branch Manager: Mr. Roger N. Obeid Al-Khalidy Dream Mall, Malki Banque Audi Ajnihat Ibn Khaldoun, Ibn Khaldoun Street, Sharif Hussein Bin Ali Street, Aqaba. (Suisse) sa 3rd Circle, Jabal Amman, Amman. Tel: (962-3) 2063200. Fax: (962-3) 2063201. Abdul Mona’em Riad Street (next to Tel: (962-6) 4648834. Fax: (962-6) 4648835. Branch Manager: Mr. Odeh T. Odeh “German Cultural Center - Goethe”). Acting Branch Manager: Mr. Tarek F. Fadda Tel: (963-11) 3739695. Fax: (963-11) 3739503. 18, Cours des Bastions. Retail Branch Manager: Ms. Saria G. Ali P.O. Box: 384. 1211 Geneva 12, Le Royal Hotel Switzerland. Kafarsouseh Tel: (41-22) 704 11 11 Fax: (41-22) 704 11 00. Le Royal Hotel Complex, Zahran Street, E-mail: [email protected] 3rd Circle, Jabal Amman, Amman. Syria Cham City Center, Street No. 2, Kafarsouseh. http://www.bankaudi.ch Tel: (962-6) 4604004. Fax: (962-6) 4680010. Tel: (963-11) 2111593. Fax: (963-11) 2111897. Branch Manager: Ms. Samar H. Toukan Bank Audi Branch Manager: Mr. Alaa A. Abbas Beirut Representative Office Mecca Mall Syria sa Kassaa Bank Audi Plaza, Bab Idriss. P.O. Box: 11-2666 Beirut - Lebanon. Mecca Mall Center (Ground Floor - Main Entrance), Droubi Bldg., Al Akhtal Street, Tel: (961-1) 977 544. Fax: (961-1) 980 535. Mecca Street, Amman. Kassaa Street extension, Al Abbassyeen Square. Tel: (962-6) 5518736. Fax: (962-6) 5518724. Headquarters Tel: (963-11) 4459160. Fax: (963-11) 4459322. Branch Manager: Mrs. Suha H. Abu-Ghosh Retail Branch Manager: Mr. Hani J. Dahdouh 1- Plaza 86 Bldg., Cham City Center, Street No. 2, Jabal Hussein Kafarsouseh, Damascus. P.O. Box 6228 Damascus, Syria. Harika France Tel: (963-11) 23888000. Fax: (963-11) 2248510. Al-Husseini Center, Khaled Ben Walid Street, E-mail: [email protected] Abd El Kader Al Husseini Street, Al Harika Square. Firas Circle, Jabal Hussein, Amman. http://www.bankaudisyria.com Tel: (963-11) 2217870. Fax: (963-11) 2218420. Bank Audi Tel: (962-6) 5605252. Fax: (962-6) 5604242. Branch Manager: Mr. Shadi E. Khouli Saradar France sa Branch Manager: Mr. Mohamad M. Abu Anzeh 2- Mohafaza Bldg., Youssef Al-Azmeh Square, Damascus. P.O. Box 6228 Damascus, Syria. Dummar Sweifieh Tel: (963-11) 23888000. Fax: (963-11) 2254197. Island No. 1, Cham Mall, Dummar Project. 73, Avenue des Champs-Elysées. Al Yanbouh Center, Abd El-Rahim Al-Hajj Mohamad E-mail: [email protected] Tel: (963-11) 3142320. Fax: (963-11) 3142324. 75008 Paris, France. Street, Sweifieh, Amman. http://www.bankaudisyria.com Retail Branch Manager: Mr. Hassan R. Baghdadi Tel: (33-1) 53 83 50 00. Fax: (33-1) 42 56 09 74. Tel: (962-6) 5865432. Fax: (962-6) 5853185. E-mail: [email protected] Branch Manager: Mrs. Miran M. Sirriyeh Midan Bardan Bldg., Al Kawkabi Avenue, Abdoun Cornishe Street, Midan. Moussa Nakho Complex, Queen Zain Al-Sharaf Street, Tel: (963-11) 8839110. Fax: (963-11) 8839116. Abdoun, Amman. Branch Manager: Mr. Abdulmajid M. Laham Tel: (962-6) 5935597. Fax: (962-6) 5935598. Branch Manager: Mrs. Samar B. Homsi

238 239 Damascus Reef Tartous El Haram (Islamic Branch) Egypt 42 El Haram Street, El Haram. Harasta* Tartous Tel: (20-2) 33865056. Fax: (20-2) 33865103. Basal Area (next to Dacia Cars Agency), Harasta. Salah Daniel Bldg., 8 March Street, Bank Audi sae Area Manager: Mr. Mohamed M. Attia Tel: (963-11) 4475890. Fax: (963-11) 4475891. Amn Al-Dawlah Square. Tel: (963-43) 324876. Fax: (963-43) 324866. Cairo Jaramana Acting Branch Manager: Mr. Firas N. Bashour Headquarters Al Baladia Square, Jaramana. Tahrir Tel: (963 11) 5637272. Fax: (963-11) 5637279. Al Hasaka Pyramids Heights Office Park, Cairo-Alexandria Desert 94 Tahrir Street, Dokki. Retail Branch Manager: Mr. Omar M. Salahi Road, Km 22, Sixth of October City. Al Qameshli Tel: (20-2) 33319500 . Fax: (20-2) 37486310. P.O. Box 300 El Haram. Postal Code 12556. Branch Manager: Mr. Raymond Y. Sleiman Aleppo Bldg. 116, Port Said Street (facing public park), Tel: (20-2) 35343300. Fax: (20-2) 35362120. E-mail: [email protected] Al Qameshli. Makram Ebeid Regional Office – Northern Area Tel: (963-52) 427222. Fax: (963-52) 447616. 1 Makram Ebeid Street, Nasr City. Branch Manager: Mr. Abdulghani A. Al-Ali Baghdad Station, Ameen Al Rihani Street Tel: (20-2) 26731300. Fax: (20-2) 22726755. Head of Mr. Mohamed Labib Ahmed Area Manager: Mr. Magdy A. El-Ashwah (next to Shabab Al Ouruba Club), Al Aziziyah. Branch Network Tel: (963-21) 2279801-6. Fax: (963-21) 2279809. Hama Regional Manager – North (Aleppo, Al Qameshli, Beirut Hama Deputy Heads of Mr. Ahmad M. Abdel-Kader Saad Deir Al Zour): Mr. Melhem J. Abou-Antoun Branch Network Mr. Ashraf M. Ryad 54 Demeshk Street, Heliopolis. Al Assi Square (behind Government Palace), Tel: (20-2) 24567600. Fax: (20-2) 24508653. Aziziyah (Main Branch) facing Al Nawaeer (next to MTN). Regional Managers Mrs. Khaireya M. Akef Regional Manager: Mr. Mohamed A. Hafeez Tel: (963-33) 2219561. Fax: (963-33) 2219567. Baghdad Station, Ameen Al Rihani Street Mr. Hatem A. Gheith Acting Branch Manager: Mr. Basem R. Lazkany (next to Shabab Al Ouruba Club), Al Aziziyah. Mr. Mohamed A. Hafeez Shoubra Tel: (963-21) 2279801-6. Fax: (963-21) 2288952. 128 Shoubra Street, Shoubra. Branch Manager: Mr. Nebras M. Khayata Area Managers Mr. Khaled A. Abbass Tel: (20-2) 22075682. Fax: (20-2) 22075779. Daraa Mr. Mohamed M. Attia Branch Manager: Mr. Ahmed M. Ebeid Souk Al Intaj** Mr. Magdy A. El-Ashwah Daraa Mr. Amgad I. El-Zawawy Bldg. No 6810/5, Souk Al Intaj Street, Mohafaza. Masaken Sheraton Daraa Tourism Hotel (next to Police Headquarters). Mr. Adel H. Gomaah Tel: (963-21) 2241033. Fax: (963-21) 2241023. 11 Khaled Ibn El Waleed Street, Masaken Sheraton. Tel: (963-15) 211400. Fax: (963-15) 211407. Mr. Amr Y. Rizk Retail Branch Manager: Mrs. Josepha Z. Hadaya Tel: (20-2) 22683381, 22683397. Fax: (20-2) 22683433. Retail Branch Manager: Mr. Omar M. Salahi Mr. Mohammad H. Saad Acting Branch Manager: Mrs. Christine R. Farag Lattakia Giza Deir Al Zour Nady El Shams Lattakia 17 Abdel Hamid Badawy Street, Heliopolis. Dokki (Main Branch) Deir Al Zour* Tel: (20-2) 26210943, (20-10) 68822192. Bldg. 896/1, Old Port Area, Al-Jazair Street, Slaybeh. 104 El Nile Street, Dokki. Fax: (20-2) 26210945. Tel: (963-41) 486023. Fax: (963-41) 486024. Al Nahr Street (next to Nour Specialist Hospital). Tel: (20-2) 33337100. Fax: (20-2) 37483818. Branch Manager: Mrs. Maha A. Hegazy Branch Manager: Mr. Mohamad M. Sahyouni Tel: (963-51) 375900. Fax: (963-51) 375907. Area Manager: Mr. Mohammad H. Saad Mukattam Homs Sweida Mosaddak (Islamic Branch) Plot 6034, Street 9, Mukattam. 56 Mosaddak Street, Dokki. Tel: (20-2) 25057040, 25053634. Fax: (20-2) 25057566. Homs* Sweida Tel: (20-2) 37480241. Fax: (20-2) 37480242. Branch Manager: Mrs. Eman A. Khazragy Al Atassi Bldg., Dablan Street, Downtown. Branch Manager: Mr. Mohamed A. El-Ahmadawy Al Muhwari Street. Tel: (963-31) 2454413. Fax: (963-31) 2454420. Abbassia Tel: (963-16) 228146. Fax: (963-16) 228137. Area Manager for Homs, Lebanon Branch Manager: Mr. Malek H. Hamzeh 109 Abbassia Street, Abbassia. Hama and Tartous: Mr. Jean E. Nseir 60 Lebanon Street (Lebanon Tower), Tel: (20-2) 24664455-1. Fax: (20-2) 24664453. Lebanon Square, Mohandesseen. Acting Branch Manager: Tel: (20-2) 33006400. Fax: (20-2) 33026454. Mr. Mohamed S. Abdel-Fattah Branch Manager: Mr. Tamer N. Kamel El-Obour El Batal Ahmed Abdel Aziz Shops 43, 44, 45, Golf City, El-Obour City. 44 El Batal Ahmed Abdel Aziz Street, Mohandesseen. Tel: (20-2) 46104325, (20-10) 68822189. Tel: (20-2) 33332000. Fax: (20-2) 37480599. Fax: (20-2) 46104324. * Temporarily closed upon Central Bank’s approval due to current circumstances. ** Temporarily merged with other branch upon Central Bank’s approval due to current circumstances. Area Manager: Mr. Amgad I. El-Zawawy Branch Manager: Mr. Karim A. El-Touny

240 241 El-Manial Alexandria South Sinai 90 El-Manial Street, El-Manial. Saudi Arabia Tel: (20-2) 23629935-55. Fax: (20-2) 23630099. Smouha Naema Bay Branch Manager: Mr. Omar M. Wally 35 Victor Ammanuel Square, Smouha. 207 Rabwet Naema Bay Street, Sharm El Sheikh. Tel: (20-3) 4193700. Fax: (20-3) 4244510. Audi Capital (KSA) cjsc Triumph Tel: (20-69) 3604513-5. Fax: (20-69) 3604520. Branch Manager: Mr. Mohamed A. Mohamed Ahmed Branch Manager: Mr. Mohamed K. Abbas 8 Othman Ibn Affan Street, Plot 740, Heliopolis. Tel: (20-2) 26342243, 26352220. Fax: (20-2) 26424900. Sultan Hussein Headquarters Branch Manager: Mrs. Sandra G. Cossery 33 Sultan Hussein Street, Azarita. Arabeya Online Brokerage Tel: (20-3) 4855791-2. Fax: (20-3) 4877198. Centria Bldg., 3rd Floor, Abd El Khalek Tharwat Branch Manager: Mr. Mahmoud A. Khalaf 12, El Shaheed Ismail Mohie El Din Street, Prince Mohammad Bin Abdul Aziz Road (Tahlia). 42 Abd El Khalek Tharwat Street, Downtown. Miami Ard El Golf, Heliopolis, Cairo, Egypt. P.O. Box 250744, Riyadh 11391 Tel: (20-2) 23904866, 23910638. Fax: (20-2) 23904162. P.O. Box: 11341. Kingdom of Saudi Arabia. Branch Manager: Mr. George F. Badra 489 Street 4, Montazah. Tel: (20-2) 24140025. Fax: (20-2) 24180666. Tel: (966-1) 2199300. Fax: (966-1) 4627942. Tel: (20-3) 5505212-3, 5505227. Hotline: 16225. E-mail: [email protected] Garden City Fax: (20-3) 5505136. E-mail: [email protected] http://www.audicapital.com Branch Manager: Mrs. Hanan M. Ouf 1 Aisha El Taymoria Street, Garden City. http://www.aolbeg.com Tel: (20-2) 27928976-8. Fax: (20-2) 27928977. Gleem Branch Manager: Mr. Hisham M. Oweida 1 Mostafa Fahmy Street, Gleem. Salah Salem Tel: (20-3) 5816000. Fax: (20-3) 5825866. Qatar Branch Manager: Mr. Sherif S. El-Nozahy Sudan 15 Salah Salem Street, Heliopolis. Tel: (20-2) 24006400. Fax: (20-2) 22607168. National Bank of Sudan Bank Audi LLC Branch Manager: Mrs. Rasha M. Ramadan Daqahlia Authorised by the QFC Regulatory Authority License No. 00027 Sixth of October Mansoura Headquarters 26 Saad Zaghloul Street, Toreil, Mansoura. Qatar Financial Centre, 18th Floor, Sixth of October Tel: (20-50) 2281600. Fax: (20-50) 2309782. National Bank of Sudan Bldg., Block 1, Qatar Financial Centre Tower, Area Manager: Mr. Amr Y. Rizk Kasr Avenue, Khartoum. Diplomatic Area, Doha. Plot 2/23, Central District, Sixth of October. P.O. Box 1183, Khartoum, Sudan. P.O. Box: 23270 Doha, Qatar. Tel: (20-2) 38270900. Fax: (20-2) 38353780. Tel: (249-183) 778154. Fax: (249-183) 779545. Tel: (974) 44967365. Fax: (974) 44967373. Area Manager: Mr. Adel H. Gomaah Gharbia E-mail: [email protected] E-mail: [email protected] http://www.nbs.com.sd Pyramids Heights Tanta Pyramids Heights Office Park, Cairo-Alexandria Khartoum (Main Branch) Desert Road, Km 22, Sixth of October. El Gueish Street and El Nahda Street Intersection, Tanta. National Bank of Sudan Bldg., Main Floor, Tel: (20-2) 35343667, 35343712. Fax: (20-2) 35362053. Tel: (20-40) 3389600. Fax: (20-40) 3403100. Monaco Kasr Avenue, Khartoum. Branch Manager: Mr. Tarek A. Negm Branch Manager: Mr. Amr A. Dorgham Tel: (249-183) 774090. Fax: (249-183) 779497. Audi Capital Gestion sam* Helwan Red Sea Omdurman Kabashi Bldg., Block 4-1, Monte-Carlo Palace, 3-9 Boulevard des Moulins. Maadi – Degla El Gouna Al Mowrada Street, Omdurman. MC - 98000 Monaco. Tel: (249-187) 573231. Fax: (249-187) 555771. Tel: (377) 97 97 65 11. Fax: (377) 97 97 65 19. 1-B, 256 Street, Degla, Maadi. Service Area Fba-12e, El Balad District, E-mail: [email protected] Tel: (20-2) 25162094, 25195238. Fax: (20-2) 25162017. El Gouna, Hurghada. Bahry http://www.bankaudi.ch Branch Manager: Mr. Mohamed A. Kandil Tel: (20-65) 3580096, (20-10) 66614840. Fax: (20-65) 3580095. Bldg. No. 98, Block 1, New Maadi Branch Manager: Mr. Hossam S. Zaki Industrial Area, Bahry, North Khartoum. * Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Tel: (249-185) 330669. Fax: (249-185) 336493. Group (please refer to Page 232). Plot 1/2, 5 Taksim El-Laselky, New Maadi. Sheraton Road Tel: (20-2) 25197901. Fax: (20-2) 25197921. Portsudan Area Manager: Mr. Khaled A. Abbass 23 Taksim El Hadaba El Shamaleya, 167 Sheraton Road, Hurghada. National Bank of Sudan Bldg. No. 4, Block 8, Tel: (20-65) 3452017. Fax: (20-65) 3452015. Portsudan Market (next to Al-Baladia gardens). Reporting to Area Manager: Mr. Amr Y. Rizk Tel: (249-311) 822803. Fax: (249-311) 839970.

242 243 Turkey Ankara Ankara Eskişehir Devlet Yolu (Dumlupinar Bulvari), 9 Km, Odeabank A.Ş. B Blok, Zemin Kat. No. 11, Çankaya, Ankara. Tel: (90-312) 2489800. Fax: (90-312) 2489801. Branch Managers: Mr. Mustafa Bora Gencer (Commercial); Headquarters Ms. Gülhan Erol (Corporate)

Maslak Mahallesi, Ahi Evran Caddesi, Olive Plaza No. 11, Zemin Kat. 34398, Şişli, Istanbul. Izmir Tel: (90-212) 3048644. Fax: (90-212) 3048445. E-mail: [email protected] Izmir http://www.odeabank.com.tr Anadolu Caddesi, No. 41/20A, Bayrakli, Izmir. Tel: (90-232) 4951500. Fax: (90-212) 3481837. Istanbul Branch Managers: Mr. Orhan Timurhan (Commercial); Mr. Hüseyin Cem Taner (Corporate) Maslak (Main Branch) Maslak Mahallesi, Ahi Evran Caddesi, Bursa Olive Plaza No. 11, Zemin Kat. 34398, Şişli, Istanbul. Tel: (90-212) 3048100. Fax: (90-212) 3481835. Bursa Branch Managers: Mr. Ayhan Şahin (Commercial); Izmir Yolu, No. 116 No. 13-14, Nilüfer, Bursa. Mr. Kudret Uslu (Corporate); Tel: (90-224) 2753400. Fax: (90-224) 2753401. Mrs. Pemra Hiçsönmez (Retail) Branch Manager: Mrs. Şebnem Cengiz (Commercial)

Güneşli Bağlar Mahallesi, Osmanpaşa Caddesi No. 65, 34209, Bağcilar, Istanbul. Tel: (90-212) 4646000. Fax: (90-212) 3481840. United Arab Branch Manager: Mr. Namik Ülke (Commercial) Emirates Kozyataği Saniye Ermutlu Sokak, G. Kemal Persentili Iş Merkezi, 34742, Kadiköy, Istanbul. Bank Audi sal - Tel: (90-216) 6657000. Fax: (90-212) 3481839. Branch Managers: Mrs. Arzu Ertekin (Commercial); Audi Saradar Group Mr. Zafer Seyar (Corporate) Representative Office

Caddebostan Arab Monetary Fund Bldg., 9th Floor, Bağdat Caddesi No. 270, Ak. Apartmani No. 17-18, Corniche Street. P.O. Box 94409 Abu Dhabi, Göztepe, Istanbul. United Arab Emirates. Tel: (90-216) 4686800. Fax: (90-212) 3481850. Tel: (971-2) 6331180. Fax: (971-2) 6336044. Branch Manager: Ms. Seda Tokgöz (Retail) E-mail: [email protected]

Nişantaşi Nişantaşi Bostan Sk., A. Ipekçi Köş., No. 15 Louis Vuitton Orjin Bina, Teşvikiye, Şişli, Istanbul. Tel: (90-212) 3739689. Fax: (90-212) 3481853. Branch Manager: Mrs. Hülya Küçük (Retail)

Bebek Bebek Mahallesi Cevdetpaşa, Caddesi No. 36, 34342, Beşiktaş, Istanbul. Tel: (90-212) 3624700. Fax: (90-212) 3481851. Branch Manager: Mrs. Aylin Bakay Tercan (Retail)

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