ANNUALREPORT2018 TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS Inside cover
STATEMENT OF THE CHAIRMAN 6
BOARD OF DIRECTORS 10 BIOGRAPHIES OF BOARD MEMBERS 11
SENIOR MANAGEMENT 20
COMMITTEES 23
CORPORATE STRUCTURE 28
MAIN BUSINESS ACTIVITIES 29
SUBSIDIARIES 36
MANAGEMENT DISCUSSION AND ANALYSIS 38
HUMAN RESOURCES DEVELOPMENT 56
CORPORATE SOCIAL RESPONSIBILITY 62
RESOLUTIONS OF THE ANNUAL ORDINARY GENERAL ASSEMBLY 65
INDEPENDENT AUDITORS’ REPORT 71 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 76 CONSOLIDATED INCOME STATEMENT 78 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 79 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 80 CONSOLIDATED CASH FLOW STATEMENT 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84
MAP OF BRANCH LOCATIONS 152
MAP OF ATM LOCATIONS 153
DIRECTORY 154
MAIN CORRESPONDENT BANKS 158
Mar Mikhael district in Beirut is the home of many hidden gems and historical traces, and hosts a socio-cultural melting pot, both eclectic and friendly, as well as a contemporary art scene and a vibrant nightlife. It is also the home of the future headquarters of Banque Libano-Française, currently in the making. In a tribute to our future neighborhood, we are displaying in our 2018 Annual Report modern-day photographs and descriptions on Mar Mikhael by Anthropologist and Photographer Houda Kassatly. 1 I Consolidated Financial Highlights
TOTAL ASSETS BANQUE LIBANO-FRANÇAISE S.A.L. In millions of USD CAGR 13-18 SELECTED CONSOLIDATED FINANCIAL DATA
20000 In millions of USD and % 2013 2014 2015 2016 2017 2018 6.40% 15000 15,085 Total assets 11,064 11,271 11,641 12,715 13,620 15,085 13,619 12,715 Total loans 3,808 4,130 4,245 4,272 4,414 4,386 11,641 10000 11,064 11,271 Customers’ deposits 9,508 9,580 9,848 10,423 10,935 11,315 Shareholders’ equity 919 1,004 1,118 1,164 1,264 1,315 SHAREHOLDERS’ EQUITY Net financial revenues 236 247 248 264 275 284 5000 In millions of USD CAGR 13-18 Net earnings 100 102 106 112 120 121 Number of branches (Group) 62 65 67 67 62 64 1500 7.43% 0 Number of staff (Group) 1,308 1,428 1,509 1,546 1,447 1,469 2013 2014 2015 2016 2017 2018 1,315 1200 1,264 1,164 Liquidity and asset quality 1,118 Primary Liquidity / deposits 37.32% 34.75% 32.33% 38.26% 45.31% 49.32% 900 1,004 919 Liquid assets / deposits 43.67% 45.82% 51.27% 55.75% 62.27% 61.41% Loans to deposits 40.05% 43.11% 43.11% 40.99% 40.36% 38.77% LOANS AND ADVANCES 600 In millions of USD CAGR 13-18 Net doubtful loans / net loans* 0.21% 0.54% 0.98% 1.82% 3.88% 4.32% Loan loss provisions / 300 2.87% gross doubtful loans 97.39% 93.18% 88.79% 80.85% 69.74% 72.42% 5000 Net doubtful loans / equity* 2.78% 3.80% 4.76% 7.59% 13.35% 14.20% 0 2013 2014 2015 2016 2017 2018 4,272 4,414 4,386 4000 4,130 4,245 Capital adequacy 3,808 Average equity to assets 8.16% 8.61% 9.26% 9.37% 9.22% 8.99% 3000 Capital adequacy ratio** 13.13% 12.87% 13.41% 16.76% 16.15% 15.59%
2000 NET INCOME Profitability In millions of USD CAGR 13-18 ROAA 0.93% 0.92% 0.92% 0.92% 0.90% 0.8% 1000 ROAE 11.35% 10.65% 9.95% 9.79% 9.90% 9.4% 150 ROAE adjusted with interest 4.0% 0 2013 2014 2015 2016 2017 2018 on cash contribution to capital 11.58% 10.85% 10.13% 9.98% 10.10% 11.9% 120 120 121 112 106 Management efficiency 100 102 90 Commissions and other financial revenues to net financial income 26.65% 25.03% 24.21% 22.22% 34.00% 17.51% TOTAL CUSTOMERS’ DEPOSITS 60 Cost to income 51.04% 51.29% 50.27% 49.63% 48.70% 48.46% In millions of USD CAGR 13-18 Footings per branch (in USD million) 221.6 223.0 214.4 231.9 268.9 282.3% 30 Footings per staff (in USD million) 10.5 10.2 9.5 10.1 11.5 12.3% 12000 3.54% 11,315 0 Share data 10,935 2013 2014 2015 2016 2017 2018 10000 10,423 Common Shares outstanding 21,000,000 21,000,000 22,000,000 23,500,000 23,500,000 23,500,000 9,848 9,508 9,580 Preferred Shares outstanding 2,500,000 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 8000 Net dividends on Common Shares (in USD million) 23.26 23.26 23.35 29.85 38.97 38.97 6000 Net dividends on Preferred Shares 4000 (in USD million) 18.50 18.50 21.00 20.44 20.44 20.44 Earnings per Common Share (in USD) 3.99 3.91 3.72 3.73 4.1 4.4 2000
0 *The ratios for the year 2017 and 2018 are calculated taking into account substandard loans in addition to doubtful loans in 2013 2014 2015 2016 2017 2018 accordance with IFRS 9 regulations. **As per Basel IIII requirements. BLF Annual Report 2018 I Mar Mikhaël
The house with three arches
House on Armenia street.
Beirut’s central hall house appeared during the second half of the 19th century. With a triple arcade opening at its heart, and built in a private garden, the housing type is also characterized by a pyramidal roof covered with red tiles.
As Beirut gained international prominence for commercial trade in the 1850s, it became a provincial capital, which led to the introduction of a new style of interior that reflected Ottoman modernity, both in appearance and in the materials used.
The structure of such buildings typically includes several living rooms around a main central room. The back of the main hall is occupied by a characteristic room called “liwan”, often projecting and functioning as an extension of the living room. The front has a decorated triple-glazed arcade opening onto a narrow House on Armenia street. balcony overlooking the garden or street, with rooms lined up on the sides of the building. These elements Sketch of a house with three arches. are constitutive of this type of interior, however, size, decoration and location depend on the wealth of the landowner. BLF Annual Report 2018 I Mar Mikhaël
The stairs
Al Sayde stairs.
Al Sayde stairs.
To ensure pathways between the Geitawi district in the hills and the Mar Mikhaël district lower down, several stairs were carved into the rock in the 19th century. Many have now become emblems of both Mar Mikhaël and Beirut and are home to many events and activities that locals often feel associated with.
Among the oldest stairs are the Vendôme, Massaad, or Al Sayde, which are registered nationally as listed properties since residents have fought to keep them.
While these stairs are certainly of great importance, it is the Vendôme staircase that has become an emblem for Beirut. Formerly known as the Geara staircase, it took the name of the adjoining cinema, Le Vendôme, destroyed in 2014. In order to revive and revitalize its neighborhood, the collective Kahraba was created. It brings together several young Lebanese artists who organize events, such as the cultural festival that is held in July of each year.
Massaad stairs.
Vendôme stairs. Massaad stairs. STATEMENT OF THE CHAIRMAN
2 I Statement of the Chairman
Lebanon witnessed a relatively promising first quarter of the year 2018, as the parliament adopted a budget In the midst of such political and economic instability, Banque Libano-Française continued to demonstrate a strong with the stated aim to reduce the budget deficit, and the country has received a strong support from the business model. Consolidated assets grew by 10.8% to USD 15.1 billion, while Assets Under Management grew international community. Indeed, the Rome conference which was held in March 2018 focused on increasing by 9.7%, bringing the total balance sheet and assets under management to USD 17.3 billion. In the meantime, the capabilities of the Lebanese army, while the April Brussels conference concentrated on channeling Customer Deposits increased by 3.5% to reach USD 11.3 billion at the end of 2018, while the loan portfolio remained humanitarian aid to support Lebanon, which suffers from the weight of the Syrian refugee crisis since 2011. In steady at USD 4.3 billion. Net income for 2018 amounted to USD 121 million, an increase of 1.1% over 2017, leading April 2018, France organized the CEDRE conference in order to mobilize international help for Lebanon to face to a stable Return on Average Common Equity (ROACE) of 12.2% and a slightly lower Return on Average Assets the economic downturn. That conference resulted in a very positive outcome, with more than USD 11 billion (ROAA) of 0.85% compared to 0.91% the previous year. in commitments of concessional loans and grants to finance the government’s multi-year Capital Investment Plan. The CEDRE conference subjected these commitments to a set of reforms in the public sector, a path to a Shareholders’ Equity continued to grow, in line with the Bank’s longstanding strategy of maintaining a high Equity reduction in Budget deficit and the participation of the private sector in the infrastructure projects. buffer in excess of regulatory requirements. It stood at USD 1.3 billion as at December 31, 2018, accounting for 8.7% of Total Assets. Our Bank’s Total Capital Adequacy Ratio as per Basel III guidelines stood at 15.6% as at year-end The second quarter of 2018 was on a ‘wait and see’ mode, with all political parties focusing on the overdue 2018. parliamentary elections. These were finally held in May, nine years after the last such elections in Lebanon. However, in spite of the positive momentum created by the international conferences and the parliamentary During 2018, Banque Libano-Française continued to develop its branch network and enhance its technology, while elections, politicians spent nine months haggling over the formation of a national unity government. This efficiently managing its cost base. The consolidated Cost-to-Income ratio improved from 48.7% in 2017 to 48.5% in delay in the formation of the government had a very negative impact on the economy and on the fiscal and 2018, while the number of branches and ATM’s in Lebanon increased to 60 from 58 and to 180 from 171 respectively. monetary situations, and contributed to a 12% decrease in foreign reserves of the Central Bank from USD 45.3 billion in June 2018 to USD 39.7 billion by December 2018. The protracted discussions over the formation of Banque Libano-Française continued its digitization journey and launched the new e-branch concept. The bank the government and the miscalculation of the cost of the new public salary scale and of government revenue continued to develop its mobile application and its e-banking services; the new versions of our internet portal and estimates, resulted in a steep increase in the budget deficit, which closed the year at USD 6.2 billion, or 32.6% mobile app enhance our clients’ digital experiences through highly user friendly digital user interfaces, a seamless higher than the budget, and accounting for 11% of GDP. experience for managing the relationship with our bank, and enhanced safety features. Along with the introduction of new transactions on our bank’s ATMs, these smart measures contributed to a reduction in the number of manual Despite this challenging and uncertain environment, the Banking sector continued to demonstrate strong transactions executed by tellers and to an 88% increase in the number of e-banking transactions, which reached resilience. Total assets of banks operating in Lebanon grew by 13.5% to USD 249.5 billion, driven by special 105,000 in 2018 for a volume of USD 65 million. transactions with the Central Bank and a mild increase in deposits and profits. Customer deposits increased by 3.2% to USD 178.6 billion, on the back of a 6.2% increase in foreign currency deposits, offsetting the 2.8% Compliance and Anti Money Laundering (AML) efforts remain major priorities for Banque Libano-Française, decline in local currency deposits. In spite of the continued fragile environment in Lebanon and the region and with continued investments in human and technological resources to maintain best in class systems, policies the relative lack of investment opportunities, loans to the private sector held steady, declining by 0.5% to USD and procedures as well as the best talent in the market. One of the major projects of the year was finalizing the 59.4 billion as at end of 2018, yet still accounting for 107% of GDP, compared to USD 59.6 billion and 111% of implementation of all requirements of the Common Reporting Standards. GDP in 2017. Finally, I would like to reiterate my thanks to the Bank’s clients, correspondents, employees and shareholders who have shown an unwavering commitment and who have helped us achieve the significant milestones that we reached in 2018.
Walid Raphaël Chairman General Manager
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The windows
In traditional Lebanese houses, special attention is given to the construction of windows. Large and mostly rectangular, they allow light to reach the central hall of the house. Although their panes are most often transparent, they can sometimes be sanded or adorned.
As the windows often overlook the street, security is added to them. On the ground floor, the windows are equipped with wrought iron gates, whereas on the upper floors, they are equipped with wooden shutters as well as a railing which serves for both decoration and security purposes when it descends to the ground.
The shutters which are usually made of “qotran” (cedrus libanus) or oak wood are painted in vivid colors: green, burgundy, red etc. Residents pull them down during the summer to reduce the heat and ensure darkness, thus creating the characteristic atmosphere of Mediterranean homes.
Windows on several building facades on Armenia street. The choice of the window frame patterns and ornaments depends on the taste of the owner as well as the style of the architect. Consequently, some windows include a protrusion and a frame entirely carved and molded, whereas others are Molding patterns on the windows. simply topped by a thin decorative molding. BOARD OF DIRECTORS
3 I Board of Directors
Mr. Walid Raphaël Chairman BIOGRAPHIES OF BOARD MEMBERS Mr. Elie Nahas Chairman of Group Banque Libano-Française
Mr. Zafer Chaoui Member Mr. Philippe Doré Member Dr. Samer Iskandar Member Mr. Habib Letayf Member Me. Philippe Lette Member Mrs. Raya Raphaël Nahas Member Dr. Marwan Nsouli Member
Raphaël & Associés Legal Advisor
Deloitte & Touche Auditors DFK Fiduciaire du Moyen-Orient Auditors
Mr. Walid Raphaël Mr. Elie Nahas
Born in 1971 Born in 1944 Chairman since September 2014 Director since April 2006 Term expires at the 2021 Annual General Term expires at the 2021 Annual General Meeting of Shareholders Meeting of Shareholders CHANGES TO THE BOARD OF DIRECTORS DURING Chairman of the Board Chairman of Group Banque Libano-Française THE YEARS 2018 AND 2019 TO DATE Member of the Board Risk Committee Member of the Board Risk Committee Member of the Board Compliance Committee Member of the Board Compliance Committee APRIL 2018 • Reelection of Mr. Walid Raphaël, Mr. Elie Nahas, Mr. Zafer Chaoui, Me. Philippe Lette and Mr. Habib Letayf for a three year term expiring upon holding of the Ordinary General Meeting of Shareholders that will examine the accounts and activity of the year 2020. Chairman of the Board of Directors since Member of the Board of Directors since April September 2014 and General Manager of 2006, Mr. Nahas has been the General Manager APRIL 2019 the Bank since March 2010, Chairman and of the Bank since 2004 and was Vice-Chairman General Manager of Libano-Française Finance between 2010 and 2014. He was elected • Reelection of Mrs. Raya Raphaël Nahas for a three year term expiring upon holding of the Ordinary General and Member of the Board of Banque SBA and Chairman of Group Banque Libano-Française in Meeting of Shareholders that will examine the accounts and activity of the year 2021. LF Finance (Suisse), Mr. Raphaël began his September 2014. He began his career in banking banking career in 1995 at Credit Agricole with ABN AMRO in 1964 and was Country Indosuez, where he held several positions in Manager Lebanon from 1986 to 2002. Mr. Nahas both Paris and London, in the International was General Manager and Member of the Board Project Finance Department and in capital of Directors of Byblos Bank between 2003 and markets covering emerging markets. He 2004. He was a Member of the Board of Directors joined the General Management of the Bank of the Association of Banks in Lebanon from in 2004 and was elected Member of the Board 1987 to 1990. He was Honorary Consul General of Directors and appointed Deputy General of Netherlands in Lebanon from 1988 to 2010. Manager in April 2006. Mr. Raphaël is also Mr. Nahas was recognized by H.M. Queen Member and Secretary of the Board of the Beatrix of the Netherlands as “Grootmeester der Association of Banks in Lebanon. He received orde van Oranje-Nassau” in 1997. He graduated a Masters degree in Law from Panthéon- from Saint-Joseph University in Beirut with a Assas University (France), a Masters diploma degree in Economics and Banking. in Banking and Financial Law from Panthéon- Sorbonne University (France), and a MBA from INSEAD (France).
10 11 Back to Table of Contents Annual Report 2018 BOARD OF DIRECTORS
Mr. Zafer Chaoui Mr. Philippe Doré Dr. Samer Iskandar Mr. Habib Letayf
Born in 1947 Born in 1966 Born in 1967 Born in 1934 Director since June 1991 Director since April 2008 Director since 2017 First elected to the Board in 1979 Term expires at the 2021 Annual General Term expires at the 2020 Annual General Term expires at the 2020 Annual General Term expires at the 2021 Annual General Meeting of Shareholders Meeting of Shareholders General Meeting of Shareholders Meeting of Shareholders Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Member of the Board Risk Committee Chairman of the Board Risk Committee Chairman of the Audit Committee Member of the Corporate Governance Chairman of the Corporate Governance and Remunerations Committee and Remunerations Committe Member of the Audit Committee
Member of the Board of Directors, Mr. Chaoui is Mr. Doré is a Director at Financière de Courcelles, Dr. Iskandar is an international academic, Member of the Board of Directors, Mr. Letayf a businessman. He has been Honorary Consul a corporate finance advisory firm based in Paris. consultant and investor with more than 20 years was the General Manager of the National General of Finland in Lebanon since 1996. He is Mr. Doré was until September 2010 Assistant of experience in capital markets, corporate Council for Touristic Development in Lebanon also Chairman and a Board Member of various Director in the International Division at Credit finance and corporate governance. From 1989 from 1964 to 1984, Attaché to the Lebanese industrial and commercial companies and acts Agricole France. He graduated From Ecole to 1994, he was a Fund Manager at BAII in Paris Embassy in Paris from 1985 to 1992, and as an agent in Lebanon and in several Arab Nationale des Ponts et Chaussées (France) with (BNP Paribas Group). Between 1996 and 2001, Chairman and General Manager of Casino du countries for major international companies. a degree in Civil Engineering. Dr. Iskandar was a Senior Writer and Editor at Liban from 1992 to 1999. Mr. Letayf holds a Mr. Chaoui was recognized as “Commander The Financial Times in London, Brussels and degree in Economics. of the Finnish Lion” in 2001, received the Paris. In 2001-2003, he was an Executive Director “Finnish Army Medal” in 2001, and the “Medal at Euronext Group, Europe’s largest stock of the Catholic Church of Jerusalem” in 2006. exchange. Between 2006 and 2009, Dr. Iskandar He graduated from Saint-Joseph University in advised leading companies in the Middle East, Beirut with a degree in Economics. such as Solidere International and Medgulf Insurance, on their corporate governance and financial structure. Since 2010, Dr. Iskandar has been an Affiliate Professor of finance at ESCP Europe in Paris, and teaches regularly at ESA Business School and the Institute for Finance and Governance in Beirut. He graduated from London School of Economics, holds an Executive MBA from ESCP Europe and a PhD in Finance from Panthéon-Sorbonne University (France).
12 13 Back to Table of Contents Annual Report 2018 BOARD OF DIRECTORS
Me. Philippe Lette Mrs. Raya Raphaël Nahas Dr. Marwan Nsouli
Born in 1948 Born in 1973 Born in 1938 Director since April 2006 Director since April 2010 Director since May 2014 Term expires at the 2021 Annual General Term expires at the 2021 Annual General Term expires at the 2020 Annual General Meeting of Shareholders Meeting of Shareholders Meeting of Shareholders Non-Executive Director Executive Director Independent Non-Executive Director Member of the Audit Committee Member of the Board Risk Committee Member of the Corporate Governance Member of the Board Compliance Committee and Remunerations Committee
Dr. Marwan Nsouli is a lawyer who started his Member of the Board of Directors, Me. Lette Member of the Board of Directors since April career providing legal advice and assistance to is an international commercial lawyer with 2010, Mrs. Nahas serves as General Manager of private individuals and local and international offices in Toronto, Montreal, Paris and Geneva. the Bank since September 2014. She began her business firms as well as collaborating with He is a Board Member of various companies. career in banking at Banque Libano-Française an American Law Firm. He also worked for Me. Lette received a Bachelor of Civil Law from in 1997 as a Financial Analyst and subsequently, fourteen years at the Legal Department of the McGill University (Canada), a Masters diploma has taken responsibilities in project finance, International Finance Corporation (IFC) (World in Law from University of Bordeaux (France), a investment banking, retail banking and Bank Group) in Washington DC. His last position Masters diploma in Comparative Private Law bancassurance. She was elected Member with IFC was as Chief Counsel, member of the from Panthéon-Sorbonne University (France), of the Board of Directors and appointed team managing the Legal Department, and and a LLM from Faculté Internationale pour Deputy General Manager in March 2010. Advisor to the Vice President General Counsel l’Enseignement du Droit Comparé (France). Mrs. Nahas is a founding Member of LIFE on general policy and legal issues. On August 1, (Lebanese International Finance Executive). She 1998, Dr. Nsouli was appointed as Vice Governor is an active member of the Promote Pillar of this of the Banque du Liban and his mandate non-profit association that seeks to channel extended for ten years. He then resumed his the influence and expertise of its members to legal consultancy in private practice. Dr. Nsouli help them connect, promote Lebanon and its holds Bachelor degrees in French and Lebanese economy and nurture the next generation. Mrs. laws from Saint-Joseph University in Beirut, a Nahas received a degree in Economics and a Masters diploma in Comparative Jurisprudence Masters in Financial Management from Paris- (MCJ) from New York University and a Doctorate Dauphine University (France) and a Masters in Law (JSD) from the University of Paris V- René diploma in Money, Banking and Finance from Descartes. Panthéon-Sorbonne University (France).
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The wrought iron
Wrought iron entrance door of one of the buildings on Armenia street.
Beirut is famous for its balconies, balustrades and stairs. The use of wrought iron began in the 19th century with the construction of luxury housing. Craftsmen then made the wrought iron manually using a furnace called ‘kour’, which allows heating the metal before shaping it.
There are several recurring models of wrought iron in the city. Some are copies of European motifs while others are influenced by local tastes. The simplest is characterized by vertical and horizontal bars, complemented by scrolls in the shape of the letters C or S. Other more complex models form sets with few curves, whilst others are directly inspired by the art deco style, reflecting a mastering of ironwork. In this case, large uniform sections are used giving a feeling of solidity. BLF Annual Report 2018 I Mar Mikhaël
East Village building on Armenia street. A tree in the bus station parking lot.
The trees If ancient Beirut architecture had encouraged the growth of gardens adjoining the residences, often hosting rich orchards, plants and flowers, then the urbanization of the Lebanese capital has presented the city’s natural spaces with an obstacle to survival. Beirut can no longer be called a green city because trees and green spaces have become incredibly rare. The district of Mar Mikhaël, which succeeded in preserving some traditional houses, shelters some trees as well as occasional areas of wild greenery such as the Mar Mikhaël station whose neglect allowed nature to take back control of the landscape.
The current ‘greening’ of the facades of recently built buildings reflects a growing awareness of the need to reintegrate vegetation in Beirut in order to contribute to the reduction of pollution and combat global warming. The architects who designed these buildings participate in the cleansing and refreshing of the air, the embellishment of the city, and help urban dwellers reconnect with nature. SENIOR MANAGEMENT
4 I Senior Management
EXECUTIVE COMMITTEE BUSINESS DEVELOPMENT DIVISIONS
Walid Raphaël Branch Network International Chairman and General Manager Marwan Ramadan Maurice Iskandar
Elie Nahas Corporate Banking Loan Remediation Chairman of Group Banque Libano-Française Hoda Assi Moustapha Alwan and General Manager Middle-Market Banking Retail Banking Products and Marketing Raya Raphaël Nahas Elie Aoun Ronald Zirka General Manager Treasury, Capital Markets and Asset Management Cards Services Hoda Assi Georges Khoury Myrna Wehbé Assistant General Manager Head of Corporate Banking Private Banking and Wealth Management Charles Salem Elie Aoun Assistant General Manager Head of Middle-Market Banking
Joséphine Chahine Assistant General Manager Chief Risk Officer
Philippe Chartouny Assistant General Manager Head of Organization, Information Technology and Security
Maurice Iskandar Assistant General Manager Head of International
Georges Khoury Assistant General Manager Head of Treasury, Capital Markets and Asset Management
Marwan Ramadan Assistant General Manager Head of Branch Network
Charles Salem Assistant General Manager Global Head of Private Banking and Wealth Management
20 21 Back to Table of Contents Annual Report 2018 SUPPORT DIVISIONS 5 I Committees Risk Management Operations Joséphine Chahine Nada Khayat Credit Risk Communications, CSR Zahi Azouri and Customer Experience Tania Rizk Compliance Saïd Gebran Human Resources Legal Compliance Georges Behlock Maya Abboud BLF Training Academy BOARD COMMITTEES KYC Compliance Elie Dagher Youmna Nassif BOARD AUDIT COMMITTEE General Services The Board Audit Committee follows up the internal audit reports, keeps updated with the recommendations Finance Gabriel Rizk of the Banking Control Commission and of the Bank’s external auditors and ensures compliance with rules and Walid Issa regulations. Headed by an Independent Non-Executive Director, it has three members and meets four times per Internal Audit year. Organization, Information Technology Fady Lahoud and Security BOARD RISK COMMITTEE Philippe Chartouny Fiscal, Administrative and Financial The Board Risk Committee supervises the proper application of the Risk Management principles, establishes the risk policy of the Group and controls the Group’s exposure in terms of credit, market, liquidity, interest rate and Information Technology Affairs operational risks. Headed by an Independent Non-Executive Director, it has five members and meets four times Ghassan Sawaya Jean Medlege per year. Security Legal Iskandar Aoun Marc de Chadarevian CORPORATE GOVERNANCE AND REMUNERATIONS COMMITTEE The Corporate Governance and Remunerations Committee establishes the rules and principles of governance of the Bank and ensures their proper application. It validates the code of conduct and professional ethics that aims to promote a healthy governance culture. It also develops a remuneration policy in accordance with local regulations. Headed by an Independent Non-Executive Director, it has three members and meets on a semi- annual basis.
BOARD COMPLIANCE COMMITTEE The Board Compliance Committee assesses the AML/CFT policies and procedures of the Bank and follows up their proper implementation and their compliance with local laws and with international best practice. The Committee reviews the reports prepared by the Compliance Division and the internal Audit investigations on suspicious transactions and activities. Headed by an Independent Non-Executive Director, it has four members and meets on a semi-annual basis.
MANAGEMENT COMMITTEES
EXECUTIVE COMMITTEE The Executive Committee discusses strategic issues, takes major decisions and ensures the execution of the Bank’s annual plan. It has eleven members, is headed by the Chairman and General Manager and meets on a monthly basis.
MANAGEMENT COMMITTEE The Management Committee is comprised of the Heads of the Bank’s Divisions who share and discuss their ongoing projects. It has thirty-four members, is headed by the Chairman and General Manager and meets on a quarterly basis.
CREDIT POLICY AND STRATEGY COMMITTEE The Credit Policy and Strategy Committee reviews the Credit Policy, taking into account any major changes in the markets and environment. It defines and sets the strategies and risk policies in line with the budget and with local as well as international regulations. It has sixteen members, is headed by the Chairman and General Manager and meets on an annual basis.
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CREDIT RISK COMMITTEES OPERATIONS AND INFORMATION TECHNOLOGY COMMITTEE There are three Credit Risk Committees: the Board Credit Committee, the Corporate Credit Committee, and the Middle-Market Credit Committee. The objectives of these Committees are to approve and review loans and The Operations and Information Technology Committee identifies the needs of the Bank in terms of information credits, and to fix risk limits. The Board Risk Committee is headed by an Independent Non-Executive Director technology, prepares three to five year plans, determines the IT priorities of the Bank and supervises the and has five members. The Corporate Credit Committee is comprised of the Chairman and General Manager, installation of new software programs and security systems. It has thirteen members, is headed by the Chairman the Group Chairman and General Manager, the General Manager, the Chief Risk Officer and his Deputy and four General Manager and meets every four months. Senior Managers. The Middle-Market Credit Committee is comprised of the Chief Risk Officer and the Head of INTERNAL AUDIT AND OPERATIONAL RISKS COMMITTEE Middle-Market Banking and their Deputies. The Corporate and Middle-Market Credit Committees meet weekly, while the Board Risk Committee meets quarterly. The Internal Audit and Operational Risk Committee approves and monitors the annual plan of the Internal Audit Division, monitors the quality of internal audit reports, monitors the recommendations of the Banking Control LOAN REMEDIATION COMMITTEES Commission and of the Bank’s external Auditors and ensures that high risks are well covered by the Bank’s There are three Loan Remediation Committees: the Corporate Loans Remediation Committee, the Middle- Internal Audit function. It has seven members, is headed by the Chairman and General Manager and meets on Market Loans Remediation Committee and the Retail Loans Remediation Committee. Loan Remediation cases a semi-annual basis. are assigned to a particular committee on the basis of the nature and size of the credit. Each Loan Remediation HUMAN RESOURCES COMMITTEE Committee is comprised of the members of the corresponding Credit Committees as well as the Head of the Legal Department and the Head of the Loan Remediation Division. The Middle-Market and Corporate Loans The Human Resources Committee proposes a recruitment policy, prepares career development plans and Remediation Committees meet on a quarterly basis. The Retail Loans Remediation Committee meets on a training programs, formulates employee benefits policies, and supervises the annual employee evaluation semi-annual basis. process and the Bank’s code of conduct. It has eleven members, is headed by the Chairman and General Manager and meets on an annual basis. ASSET AND LIABILITY MANAGEMENT COMMITTEE COMPLIANCE COMMITTEE The Asset and Liability Management Committee manages the assets and liabilities of the Bank’s balance sheet in terms of interest risk, foreign exchange risk and liquidity risk, determines the Bank’s interest rate and cash The Compliance Committee sets the Bank’s anti-money laundering procedures and guidelines, and monitors management policies and approves the launch of new financial products. It has nine members, is headed by the issues related to money laundering and reports of suspicious activities on transactions. The Committee also Chairman and General Manager and meets on a monthly basis. A follow-up committee to the Asset and Liability reviews the activities of the Legal Compliance Division. It has seventeen members, is headed by the Chairman Management Committee meets bimonthly. and General Manager and meets on a semi-annual basis.
INVESTMENT COMMITTEE SECURITY COMMITTEE The Investment Committee monitors the economic and financial environments and proposes policies and The Security Committee sets the Bank’s security policy and monitors the anomalies in the realization of any investments for the Bank and its clients. It advises the Bank and its clients on wealth protection and capital project. It has ten members, is headed by the General Manager and meets on a quarterly basis. appreciation. It has eight members, is headed by the Global Head of Private Banking and meets on a quarterly CAREER DEVELOPMENT COMMITTEE basis. The Career Development Committee discusses the employees’ careers and establishes specific training programs ORGANIZATION AND STRATEGIC PLANNING COMMITTEE for employees that show potential to reach managerial positions. It has four members, is headed by the Human The Organization and Strategic Planning Committee has several functions related to the Bank’s annual plan, Resources Manager and meets on a monthly basis. including preparing and monitoring the implementation of the annual plan, identifying and initiating projects BUSINESS CONTINUITY COMMITTEE aimed at improving the Bank’s performance and efficiency, creating cross-synergies amongst the Bank’s Divisions and ensuring that the Bank’s procedures are documented and implemented properly. It has nine Business Continuity Planning (BCP) is a complete management process that identifies potential impacts members, is headed by the Chairman and General Manager and meets every four months. menacing an organization. The BCP Committee ensures that the organization has the proper response to major disruptions threatening its survival and operational capability. It has thirteen members, is headed by the Chairman and General Manager and meets on an annual basis.
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The graffiti
A rehabilitated building facade by Banque Libano-Française.
A graffiti on 61 street.
Although the first graffiti in Lebanon appeared in the late 1990s, tagging has since spread to the point that street art is now booming in Beirut.
Some tags are born of a protest like those designed after the war of 2006 with the thought of erasing conflict stigma, while others question the social, political and economic order, and express their refusal A graffiti on Pharaon street. toward the established order. Some others aim only to embellish certain areas deemed too neutral.
The techniques used by the graffiti artists are extremely varied, and their talents uneven. Some artists who are very active in the city have reached high recognition in the art world. Their drawings reflect ongoing experimentation and willingness of the youth to create new aesthetic forms and experiment visual styles based on a modern Arab typography or on the reproduction of iconic personalities of the Arab world.
In Mar Mikhaël, apart from walls which represent a classic support for their art, graffiti artists are tackling stairs, out of order buses, garbage bins as well as the wall surrounding the abandoned railway station.
The profusion and wealth of this practice led to the creation of a guided tour in Beirut that aims to showcase the characteristics of A graffiti on 70 Ibrahim Pacha street. the Lebanese graffiti scene. A graffiti on the wall behind the train station facing the highway.
Back to Table of Contents 6 I Corporate Structure 7 I Main Business Activities
MAJOR SUBSIDIARIES OF BANQUE LIBANO-FRANÇAISE AS AT DECEMBER 31, 2018 COMMERCIAL AND CORPORATE BANKING Banque Libano-Française has historically been one of Lebanon’s leading commercial banks, offering services to large and medium-sized private sector businesses and maintaining one of the largest loan portfolios among banks in Lebanon. Commercial banking products and services offered by the Bank include working capital lines and overdrafts, medium-term and long-term loans, trade finance, documentary credits and guarantees and other off-balance sheet facilities and financial consulting services, as well as all traditional term deposits accounts, cash management services and cards services. Commercial banking activities are carried out through two main commercial divisions: the Corporate Banking Division and the Middle-Market Banking Division. The Middle-Market Banking Division covers small-or medium-size businesses with a credit exposure at the Bank Representative offices of up to USD 1.5 million and an annual turnover of less than USD 10 million. As at December 31, 2018, the Middle- Market Banking Division had approximately 2,400 clients spread across the Bank’s 60 local branches. It is run by a specialized, fully dedicated team spread across seven regional branches and the Head Office. In addition to the primary products and services outlined above, the Corporate and Middle-Market Banking Division provide advisory services to the Bank’s clients. Such advisory services include, among others, the promotion and structuring of a wide array of financing programs such as Kafalat subsidized loans, Banque du Liban subsidized loans, Arab Trade Financing Program facilities, IFC Program facilities, as well as European Investment Bank, Agence Française de Développement and other international financial institutions loan 100% 99% 79,3% 50% 40% Baghdad branch Libano-Française Banque SBA S.A. Société de Centre de Traitement Bancassurance S.A.L. packages. Through these services, the Bank aims to reduce the financing costs of its customers and to offer Finance S.A.L. (LFF) (France) Construction et de Monétique S.A.L. (CTM) Commerce S.A.L. them various financing options and an easier access to export markets, thereby developing sustained customer (SODECO) relationships.
Financial institution Bank Real estate company Card processing Life insurance company Full branch The Corporate Banking Division was created in 2001 in order to cater to the Bank’s largest clients in terms of sales turnover or facilities extended. Corporate clients are currently defined as those with a sales turnover exceeding USD 10 million or whose banking facilities at the Bank exceed USD 1.5 million. As at December 31, 2018, the Corporate Banking Division had around 550 clients. Corporate client files are distributed among specialized units within the Corporate Banking Division, consisting of Relationship Managers and Junior Officers and headed by a Senior Relationship Manager. The teams work closely with Managers of the branches where the corporate accounts are held. These specialized teams are divided into six different specialized units focusing on various 100% LF Finance (Suisse) S.A. economic sectors: the General Trading Unit, the General Contracting and Real Estate Unit, the International Trading, Services and Insurance Unit, the Industries Unit, the Africa Unit and the Syndicated, Subsidized and Financial institution Special Loans Unit.
INVESTMENT BANKING AND GLOBAL MARKETS The Bank provides general investment banking services, including acting as arranger or participant in loan syndications (generally when the Bank acts as lead lender and agent bank), and placement agent in connection with the issuance of fixed and floating-rate bonds as well as structuring and managing shares and rights issues for corporate clients. The Bank also structures sophisticated investment products that are offered to both retail and private clients. It also advises its corporate and private banking clients and structures sophisticated hedging solutions. The Bank has a proprietary trading activity in Lebanese and international fixed income securities and foreign currencies. Since 1996, the Bank has managed and arranged primary-market investment-banking transactions with an aggregate value of over USD 2 billion.
28 29 Back to Table of Contents Annual Report 2018 MAIN BUSINESS ACTIVITIES
RETAIL BANKING PRIVATE BANKING AND WEALTH MANAGEMENT As at December 31, 2018, the Bank had 60 branches covering all the regions in Lebanon, a network of 180 ATMs The Private Banking activities were first launched by the Bank in 2000. In 2008, following a complete and more than 150,000 active customers. This network is managed by the Branch Network Division. This Division reorganization of the activities of Treasury, Capital Markets and Private Banking, the Wealth Management has two main objectives: to assume the hierarchical responsibility of the Branch Network and to implement the Department was created. It is composed of a team of Relationship Managers whose mission is to explore, Bank’s development strategy. It is composed of two departments: the Network Management Department and identify and attract high networth individuals in order to offer them personalized advice, professional guidance the Retail Loans Department. and tailor-made investment solutions. Relationship Managers are backed by product specialists. The priority of Relationship Managers is to offer an integrated and solid approach based on a relationship built on the highest NETWORK MANAGEMENT DEPARTMENT levels of trust, security, confidentiality and integrity. The Network Management Department is responsible for the coordination between the Branch Network and the various Business Development and support Divisions of the Bank, in order to assist each branch in achieving INTERNATIONAL AND CORRESPONDENT BANKING its objectives, improving its performance and increasing its operational efficiency, while developing the sales The International Division manages the Group’s relationships with Correspondent Banks and follows up the skills of branch personnel. The Network Management Department carries out its responsibilities by: Group’s exposure to counterparty and sovereign risks. By maintaining relationships and credit lines with a large • communicating and implementing the Bank’s policies among all branches, network of international banks, the International Division allows the Bank to provide efficient and competitive • ensuring the transfer of information from the Branch Network to the Management in an appropriate and timely services to its clients for all their international banking activities and transactions. This large network also allows manner, the Bank to generate business activities such as risk participation, forfeiting, pre-and post-export finance, as well • continuously monitoring the sales results and other relevant KPI’s of each branch, as local and international securities transactions. • assisting each Branch Manager in preparing and implementing the annual plan of the Bank, • ensuring that the Network staff is properly trained on all the Branch operations and new products, The Bank’s trade finance confirmation lines are continuously strengthened and the breadth of its activities with • rewarding competent and promising employees in the Branch Network. foreign banks and financial institutions is regularly expanded. Boosting its international profile, BLF was the first bank in Lebanon and the second the region to join the International Finance Corporation’s Global Trade Finance Program and the Bank is very active in international syndicated loans and structured trade transactions. RETAIL LOANS DEPARTMENT Banque Libano-Française has also structured several cross-border transactions and long-term borrowings The Retail Loans Department is in charge of the credit approval and administration of retail credit products, from international and multilateral financial institutions such as AFD (Agence Française de Développement), including the Bank’s housing loans, Public Corporation for Housing (PCH) loans, housing loans to military EIB (European Investment Bank), ATFP (Arab Trade Financing Program), OPIC (Overseas Private Investment personnel or other specialized programs, as well as personal loans and car loans. The Retail Loans Department Corporation), OFID (OPEC Fund for International Development), the Arab Investment Guarantee Corporation has created a dedicated Call Center for payment irregularities and has implemented a standardized and efficient and many others. retail loans distribution process. The International Division is in charge of the Group’s international expansion plans, and supervises the activities of the Bank’s Representative Offices in Abu Dhabi (UAE) and in Lagos (Nigeria) and its branch in Baghdad (Iraq). RETAIL BANKING PRODUCTS AND SERVICES Retail Banking offers a full range of products and services, including traditional products and services, a unique term deposit account featuring significant flexibility, a complete range of multi-currency debit and credit cards (MasterCard and Visa), a wide network of merchants affiliated to the Bank’s cards payment circuit, and electronic banking services (e-banking, phone banking, sms banking, call center). The Bank’s phone and internet distribution channels, Point Phone® and Point Com® and its Call Center Point Call®, allow customers to check account balances and movements, obtain answers to their inquires over the phone or internet, and execute many types of transactions. In addition, through the Bank’s subsidiary, Bancassurance S.A.L., Retail Banking offers life and non-life insurance, as well as retirement plans and education plans. Recently, the Retail Banking Division has concentrated its efforts on quality of service and client satisfaction, the development of new product offerings, the renovation of the Bank’s branches, the expansion of the Bank’s ATM network Point Cash® to include, among other innovative solutions, check and cash deposits. The Division has invested heavily in the training of Branch staff and Managers.
PERSONAL BANKING In its continuous drive to offer personalized service to its clients, the Bank launched a Personal Banking Department in 2013 that targets VIP clients of the branch network. The purpose of this new client segment is to improve customer loyalty and satisfaction by assigning a certain number of VIP clients to specific Relationship Managers in each branch, thereby enabling branch-based Relationship Managers to better follow-up, assist and advise clients on their various needs for banking products and services.
30 31 Back to Table of Contents Annual Report 2018 BLF Annual Report 2018 I Mar Mikhaël
The nightlife
Beirut is known for its dynamic and exciting nightlife and boasts a huge number of nightclubs, bars, pubs, and entertainment venues. Beirut’s nightlife has made a lasting contribution to the development of the city. Consequently, one of the main effects of gentrification remains the emergence of new nightlife venues shaping the city in an unprecedented way.
The redefinition of the urban space took place in turn: if Gemmayze and Monot were the trendy neighborhoods for many years, the rise in prices led to the decentralization of nightlife outings to other emerging neighborhoods such as Badaro, Hamra or Mar Mikhaël. The latter has grown enormously in popularity since 2010 and is now home to many major players in the food and beverage industry. Its main street, Armenia Street, has a large number of bars, pubs, eateries and restaurants all the way down its 500-meter length. It is, arguably, one of the busiest streets in Beirut by day and especially by night. Until when will Mar Mikhaël remain the ‘IT’ place when it comes to nightlife remains to be seen.
Pubs and restaurants on Armenia street. BLF Annual Report 2018 I Mar Mikhaël
The train station
The train station building.
When Lebanon’s railway lines which once provided widespread public transportation were active, the Mar Mikhaël district was home to one of Beirut’s three railway stations, the others being Beirut Port and NBT Nakoura-Beirut-Tripoli.
Following the termination of the railway during the Lebanese civil war, nature took over, leaving only traces of the old railway, rusty cars, the water tower, hangars, machinery… in addition to two buildings dating from the late 19th century that were designed in the traditional French architectural style. The station building itself, which was originally conceived for travelers, had a clock designed by Paul Garnier, and featured a traditional tripartite bay with a five-meter-high ceiling.
Some local residents wish to see the station transformed into a public garden, creating what would be an oasis of tranquility in a bustling neighborhood. Others lean towards a resumption of railway activity which would bring much-needed relief in a country where the road network is completely asphyxiated. However, until the authorities decide on its future, the train station hosts a colorful range of social events and serves as a thriving bar called the “Train Station”.
Inside an old wagon. SUBSIDIARIES
8 I Subsidiaries
BANQUE SBA S.A. LIBANO-FRANÇAISE FINANCE S.A.L. (LFF) Banque SBA (SBA) was established in Paris (France) in 1978 under the name of Société Bancaire Arabe LFF is a financial company wholly owned by the Bank, registered under N° 14 on the list of financial institutions by Banque Worms and Arab investors, mainly from Lebanon and Syria. In 2001, after selling Banque at “Banque du Liban”. It was established in 1995 in Lebanon under the name of Indosuez Capital Moyen-Orient Worms, AXA retained a 34-percent participation in SBA through its wholly owned subsidiary Compagnie S.A.L. In 1998, its name was changed to Crédit Agricole Indosuez Liban (CAIL). In 1999, the Bank increased its Financière de Paris. In 2004, AXA and the other main shareholders, together with the management stake to 100 percent of the share capital of CAIL and, in 2003, changed its name to Libano-Française Finance S.A.L. of SBA, hired BNP Paribas to launch a tender offer aimed at selling a controlling stake in SBA. In 2019, LFF was re-organized to enable it to better cater to the Private Banking and Wealth Management function Banque Libano-Française acquired 78.3 percent of SBA in 2006, which increased to 79 percent in 2007 and to of the Bank, while continuing to offer its brokerage services across the Banks diversified client base. 99 percent in 2008. SBA’s headquarters are located in Paris. SBA has a branch in Limassol (Cyprus) and a subsidiary, LF Finance LFF offers a wide range of brokerage services including both international and domestic equities, all types of (Suisse) S.A. (formerly Financière SBA (Suisse) S.A.) in Geneva (Switzerland). As at December 31, 2018, SBA had investments funds and structured products. LFF’s activities cover Lebanese and major international financial 56 employees and more than 1,800 clients, while LF Finance had 9 employees and more than 188 clients. markets in Europe, the United States, Japan, other parts of Asia, Australia and the GCC. LFF is recognized for its fast and efficient trading capabilities, superior service quality, strict risk management and competitive brokerage SBA specializes in trade finance and private banking. Its trade finance activities cover mainly Europe, the Middle rates. East and Africa. During 2018, trade finance transactions of SBA reached USD 769 million and assets under management reached USD 781 million. A fully fledged Investment Advisory desk was set up dedicated to servicing the investment needs of BLF Private As at December 31, 2018, SBA had total shareholders’ equity of EUR 121 million and total assets Banking clients. The Advisory Desk offers access to a wide range asset class solutions for high net worth clients. of EUR 859 million, with an equity-to-assets ratio of 14.1 percent and a capital adequacy ratio of Advisory capabilities include asset allocation, portfolio management and wealth assessment and planning. The 23.91 percent. Total deposits reached EUR 584 million against a loan portfolio of EUR 431 million, Advisory team is made up of asset class specialists, whose skills complement each other in providing cross asset accounting for 73.3 percent of customer deposits. For the year ended December 31, 2018, SBA had investment ideas and solutions. In addition, the desk also handles the origination and structuring of sophisticated EUR 18.5 million of net operating income and net profits of EUR 3.4 million. financial transactions. As at December 31, 2018, LFF employed 14 professionals who operate through two dedicated desks: Dealing Desk and Advisory Desk.
36 37 Back to Table of Contents Annual Report 2018 9 I Management Discussion and Analysis
The analysis that follows highlights the consolidated performance of Banque Libano-Française in 2018 compared to 2017. All figures ECONOMIC OVERVIEW are based on the audited consolidated financial statements of the Bank that have been prepared in accordance with the International For the second year in a row, Lebanon witnessed a slowdown in its economic activity with the real GDP growth rate decreasing to Financial Reporting Standards (IFRS). Unless otherwise indicated, all figures are expressed in US Dollars (USD). US Dollar amounts are 0.3% from 0.6% in 2017. The 2018 slowdown is associated to political and economic uncertainties, and translated in reduced private translated from Lebanese Pounds (LBP) at the closing rate of exchange published by the Central Bank of Lebanon (BDL) at the relevant sector investments in the real economy. date, which was LBP 1,507.5 as of each of December 31, 2018 and 2017. Lebanon’s economic and banking data and information are In spite of the uncertain environment, total assets of banks operating in Lebanon grew by 13.5% to USD 249.5 billion, driven mainly by derived from the Central Bank of Lebanon, Lebanese governmental sources and the Association of Banks in Lebanon. special transactions with the Central Bank of Lebanon and a mild increase in deposits and profits. The uncertain environment impacted The management discussion and analysis starts with a review of the economic and banking conditions that impacted the activity of the growth of customer deposits, which increased by 3.2% to USD 178.6 billion, on the back of a 6.2% increase in foreign currency the Bank in the year 2018 and follows with an analysis of the consolidated financial position and the operating results of the Bank. The deposits, offsetting the 2.8% decline in local currency deposits. The slowdown in economic activities during 2018 was reflected in a last segment includes a review of Human Resources and Corporate Social Responsibility activities during 2018. 1.5% decrease in banks’ loans to customers, compared to a growth of 5.5% in the previous year. The Central Bank of Lebanon continued during the year its policies of maintaining the stability of the exchange rate, preserving economic and monetary stability and safeguarding the soundness of the banking sector. Overall, the Central Bank’s assets in foreign ECONOMIC CONDITIONS currency declined by USD 2.4 billion in 2018, while the market value of its gold reserves (ranked second largest among Arab countries) The following table sets forth certain key economic and banking indicators for the Lebanese Republic for the years ended December 31, regressed to USD 11.8 billion due to the slight drop in the price of gold at the end of the year. In view of the large deficit in the trade 2013 to 2018. balance and its negative impact on the balance of payments, Central Bank’s gross foreign currency reserves decreased by 9.2% to USD 32.5 billion by the end of 2018. In millions of USD 2013 2014 2015 2016 2017 2018 The yearly average coincident indicator, a composite measure of economic activity published by the Central Bank of Lebanon and containing information about key sectors, increased slightly by 0.6% in 2018, while nominal GDP grew by 5.6% to reach USD 56.4 billion. Nominal GDP 46,867 48,296 49,974 51,239 53,394 56,409 Real GDP growth 2.6% 1.9% 0.4% 1.6% 0.6% 0.3% CPI % change 4.8% 1.8% (3.7%) (0.8%) 4.5% 6.1% Nominal GDP Trade balance (18.090) (18,130) (15,647) (16,148) (16,744) (17,033) In millions of USD Capital inflows 16,962 16,722 12,293 17,386 16,588 12,210 0000 sector Balance of payments (1,128) (1,408) (3,354) 1,238 (156) (4,823) Foreign 56,409
0000 53,394 Government revenues 9,420 10,879 9,575 9,923 11,625 11,064 49,974 51,239 48,296 Government expenditures (13,640) (13,952) (13,528) (14,867) (15,381) (17,264) 46,867 Budget deficit (4,220) (3,073) (3,952) (4,944) (3,756) (6,200) 0000 Total net public debt 53,212 57,126 61,344 65,223 69,147 75,723 sector - of which in local currency 27,076 31,513 34,255 37,109 38,752 42,233 0000
Public finance - of which in foreign currency 26,136 25,613 27,089 28,114 30,395 33,490 20000
M2 45,605 48,690 52,153 54,679 52,515 50,964 M3 111,158 117,676 123,622 132,797 138,617 141,289 Gold holdings 11,104 10,951 9,848 10,705 11,962 11,770 10000
situation FX reserves 31,713 32,403 30,638 34,028 35,806 32,514 Monetary 0 Total balance sheet 164,821 175,697 185,989 204,311 219,856 249,484 201 201 201 201 201 2018 Total customers’ deposits 136,206 144,426 151,585 166,446 172,966 178,556 - of which in LBP 46,126 49,524 53,244 59,494 57,064 55,484 Source: GDP figures from 2012 to 2017 are from the Central Administration of Statistics. For 2018, they are IMF estimates. - of which in FCY 90,080 94,902 98,342 106,952 115,902 123,073 Dollarization of deposits 66.1% 65.7% 64.9% 64.3% 67.0% 68.9% Total loans to customers 47,381 50,899 54,224 57,179 59,686 59,386
Banking sector - of which in LBP 11,116 12,437 13,647 15,660 17,512 16,484 - of which in FCY 36,265 38,462 40,577 41,520 42,173 42,901 Dollarization of loans 76.5% 75.6% 74.8% 72.6% 70.7% 72.2%
(1) GDP figures from 2013 to 2017 are from the Central Administration of Statistics. For 2018, they are IMF estimates. Sources: Ministry of Finance, Central Bank of Lebanon, Association of Banks in Lebanon.
38 39 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
FOREIGN SECTOR PUBLIC FINANCE During 2018, exports increased by 3.8% while imports increased by 2.0% resulting in an increase in the trade deficit by 1.7% State Budget to USD 17 billion, accounting for 30% of GDP as at year-end 2018. The balance of payments recorded a deficit of USD 4.8 billion in 2018, The CEDRE conference held in Paris in April 2018, with the promised implementation of the necessary fiscal and administrative compared to a deficit of USD 156 million over the previous year, amid contracting inflows and a widening trade deficit. reforms, was expected to lead to a budget deficit of USD 4.8 billion, or 8.5% of GDP in 2018. Unfortunately the 2018 parliamentary elections and the ensuing 9 months political gridlock and the failure to form a new national unity government, along with the Balance of Payments miscalculation of the effects of the adoption of a new salary scale to public servants, had a dramatic impact on fiscal performance. In millions of USD Government expenditure therefore increased by 16% from USD 15.4 billion to USD 17.8 billion at the end of 2018, while government revenues remained at the same level of USD 11.5 billion, leading to a budget deficit of USD 6.2 billion or 11% of GDP. This budget 25000 deficit was 32.6% higher than the budget and 66% higher than the 2017 fiscal deficit.
20000 State Budget In millions of USD State budget 15000 in million of SD 12000 10000
5000 9000 2013 2014 2015 2016 2017 2018 0 6000 -5000
3000 -10000
-15000 0 2013 2014 2015 2016 2017 2018 -20000 -3000 -25000
-6000
Source: Central Bank of Lebanon. -9000
Imports Exports -12000 by Main Country of Origin by Main Country of Destination
8.5% 10.3% 7.2% 15.5% -15000 7% 8% 60.2% 5.9% 7.2% 59.4% 5% -18000 5.8% Government revenues Government expenses Fiscal balance (de cit)
Source: Ministry of Finance.
Other countries USA China Other countries South Africa UAE Italy Germany Greece Syria Saudi Arabia Iraq
Source: Association of Banks in Lebanon.
40 41 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
PUBLIC DEBT MONETARY SITUATION Gross public debt reached USD 85.1 billion at the end of December 2018, the equivalent of 150% of GDP, and 7.1% higher than the Money supply (M3) increased by USD 2.7 billion to USD 141 billion at the end of December 2018, accounting for a 1.9% growth over level reached at the end of December 2017. Taking into account public sector deposits at the Central Bank of Lebanon, net public debt year-end 2017. 63.9% of M3 is denominated in foreign currencies. amounted USD 75.7 billion, an increase of 9.5% over 2017. Between 2017 and 2018, local currency net public debt increased by 9% to the equivalent of USD 42.2 billion, while public debt denominated in foreign currencies increased by 10.2% to reach USD 33.5 billion. Central Bank FX Reserves and Gold Holdings In millions of USD Gross Public Debt In millions of USD 40000 35,806 90000 35000 34,028 85,133 32,403 32,514 31,713 30,638 80000 79,534 30000 150.9% 74,886 70,320 25000 70000 66,564 146.1% 149.0% 63,477 20000 60000 15000 11,962 11,104 10,951 10,705 11,770 9,848 50000 10000 140.7% 5000 40000 135.4% 137.8% 0 2013 2014 2015 2016 2017 2018 30000 FX reserves Gold holdings 20000 Source: Central Bank of Lebanon. 10000
0 2013 2014 2015 2016 2017 2018
Source: Ministry of Finance.
42 43 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
From 2017 to 2018, the Central Bank’s foreign currency reserves, excluding gold, decreased by 9.2% to USD 32.5 billion, an Customers Deposits equivalent of 64% of money supply in local currency (M2). In millions of USD in million of USD
The Central Bank of Lebanon total foreign assets, excluding gold and including the securities portfolio totaled USD 39.7 billion 200000 at the end of December 2018.
68.9% M2 - M3 Evolution In billions of USD M2 - M3 EVOLUTION 150000 67.0% in billion of USD 150 66.1% 65.7%
100000 64.9%
120 64.3% Lebanese Pounds 50000 Foreign currency Dollarization
90 0 2013 2014 2015 2016 2017 2018
Source: Central Bank of Lebanon.
60 Loans to the private sector stood at USD 59.4 billion as at year-end 2018, compared to USD 59.7 billion as at end of 2017, or a 0.5 percent decline, while constituting 23.8 percent of the total assets, coming from 27.1 percent in 2017.
Loans to Customers LOANS TO CUSTOMERS In millions of USD
in million of USD 30 2013 2014 2015 2016 2017 2018 60000 M2 M3 76.5% Source: Central Bank of Lebanon. 50000 75.6% During the year, increase of the US Dollar rates and competition among local banks to attract deposits in both local and foreign 74.8% currencies intensified. Consequently, the weighted average interest rate on deposits in Lebanese Pounds increased from 6.41% 40000 in December 2017 to 8.30% in December 2018, while the weighted average interest rate on US Dollar deposits increased from 3.89% in December 2017 to 5.15% in December 2018. 72.6% 72.2% 30000 BANKING SECTOR 70.7% Despite economic and political difficulties and a challenging operating environment in 2018, total consolidated assets of banks 20000 operating in Lebanon grew by 13.5% during the year to USD 249.5 billion, while customers’ deposits grew by 3.2% to reach Lebanese Pounds USD 179 billion, and accounting for 317% of GDP. This growth in deposits was accompanied by a 190 bps increase in the dollarization Foreign currency rate of deposits, which reached 68.9% in 2018 compared to 67% at year-end 2017 and was reflected in a USD 7 billion or 6.2% increase in Dollarization foreign currency deposits, which offset the USD 1.6 billion, or 2.8% decrease in local currency deposits. The increase in the dollarization 10000 rate was partly due to the delays in forming the government and to persisting rumors that affected depositors’ confidence.
0 2013 2014 2015 2016 2017 2018 Source: Central Bank of Lebanon.
This decrease in lending reflected the continuous weak economic environment in Lebanon and a low demand for credit in view of limited opportunities and increased interest rates. Lending in Lebanese Pounds decreased by 5.9% between 2017 and 2018, to reach USD 16.5 billion, whereas lending in US Dollars stagnated at USD 42.9 billion in 2018. This led to an increase in the dollarization of loans, which reached 72.2% in December 2018 compared to 71.0% in December 2017.
44 45 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
BANQUE LIBANO-FRANÇAISE CONSOLIDATED PERFORMANCE IN 2018 LIABILITIES In addition to the economic slowdown and the unstable political environment, the performance of Banque Libano-Française in 2018 Similar to other banks in Lebanon, stable and recurrent customers’ deposits are the main source of funding for the Bank. As indicated was impacted by the following external events. above, customers’ deposits increased by 3.5% and reached USD 11.3 billion at the end of 2018. Customer deposits account for 75% of 1. New taxation measures total assets. Starting the last quarter of 2017, the ministry of finance introduced a set of new tax measures whose stated aim was to finance the Shareholders’ equity increased by USD 51.3 million and accounted for 8.7% of total assets as at end of 2018, while borrowings salary scale. Law N° 64 stating the immediate application of these measures was voted and approved by the Lebanese parliament on from the Central Bank of Lebanon and deposits from banks and financial institutions, which include current accounts, short-term October 26, 2017. It affected the Lebanese banking sector at large and included the following amendments: money market borrowings as well as certain long-term borrowings from major international financial institutions, increased by • the corporate tax rate from 15% to 17%, USD 979 million between 2017 and 2018 to USD 1.9 billion, and accounted for 12.5% of total assets at year-end 2018. The increase in • the tax on interest rate from 5% to 7%, long-term borrowings is due to leverage arrangements with the Central Bank of Lebanon that was able to enhance the yield of our • the cancelation of the exemption from the tax on interest related to placements with the Central Bank of Lebanon, assets denominated in Lebanese Pounds and thus compensating the increase in the cost of funds. The following table provides a • the cancelation of the deductibility of the tax on interest thus introducing double taxation on the related interest income. breakdown of the Bank’s major funding sources as at December 31, 2017 and 2017. 2. The implementation of IFRS 9 With effect from the first of January 2018, Banque Libano-Française Group adopted the final version of IFRS 9 standards related to the . December 31, impairment of all financial assets and introducing some modifications on the classification of financial assets and liabilities. The increase in impairment allowances under IFRS 9 “Expected Credit Losses Model” as compared to the previously applied IAS 39 2017 2018 “Incurred Losses Model” amounts to USD 206 million that is totally covered by amounts set aside under “Regulatory Deferred Liability” USD million % USD million % Variation by the Group for this purpose, having thus no impact on the Group equity level. Banks and financial institutions 902 6.6 1,881 12.5 979 3. The increase in interest rates Of which current accounts 78 0.6 77 0.5 -1 2018 witnessed a large deficit in the balance of payments accompanied with significant conversions of customers’ deposits from Lebanese Of which short-term borrowings 18 0.1 20 0.1 2 Pounds to US Dollars. This was simultaneously caused by local political and economic uncertainties as well as to hikes in US interest rates Of which long-term borrowings 431 3.2 388 2.6 -43 and the global strengthening of the US Dollar. This led to an increase in the average cost of deposits for the Lebanese banking sector. Of which leverage arrangements 375 2.8 1,396 9.3 1,021 4. Leverage arrangements introduced by the Central Bank of Lebanon Customer deposits at amortized cost 10,935 80.3 11,315 75.0 380 The leverage arrangement helped banks to enhance the yield on their assets denominated in Lebanese Pound and compensate a Of which current accounts and demand deposits 1,644 12.1 1,638 10.9 -6 portion of the increase in cost of funds. Of which term deposits 8,099 59.5 8,370 55.5 271 Of which collateral 1,060 7.8 1,167 7.7 106 Given all the above events and in the midst of such political and economic instability, Banque Libano-Française continued to demonstrate Of which margins on L/C’s and L/G’s 52 0.4 47 0.3 -5 significant resiliency. Consolidated assets grew by 10.8% to USD 15.1 billion, while assets under management grew by 9.7%, bringing Of which other margins and cash provisions 27 0.2 28 0.2 0 the total balance sheet and assets under management to USD 17.3 billion. On the liabilities side, customers’ deposits increased by Accrued interest payable 53 0.4 66 0.4 13 3.5%, reaching USD 11.3 billion at the end of 2018. Meanwhile, the loan portfolio dropped slightly by 0.6% to USD 4.3 billion in view of Shareholders’ equity 1,264 9.3 1,315 8.7 51 lackluster demand for credit. The breakdown of assets and liabilities in 2017 and 2018 is highlighted in the following charts. Subtotal: major funding sources 13,101 96.2 14,511 96.2 1,410
Breakdown of Liabilities Breakdown of Liabilities Total assets 13,619 100.0 15,085 100 1,466 in 2017 in 2018 CUSTOMERS’ DEPOSITS 6.6% 3.8% 12.5% 3.8% 9.3% In line with the relatively high dollarization of the Lebanese economy, foreign currency deposits account for the largest share of 75.0% customers’ deposits at Lebanese banks. The majority of these foreign currency deposits are denominated in USD, which, at Banque 80.3% 8.7% Libano-Française, accounted for 66.2% of total deposits as at year-end 2018 compared to 61.9% the previous year.
Deposits by Currency Deposits by Currency in 2017 in 2018
8.4% 1.4% 8.3% 1.2% Customer deposits Shareholders’ equity Customer deposits Shareholders’ equity Bank deposits Other liabilities Bank deposits Other liabilities 28.2% 62.1% 24.3% 66.2% Breakdown of Assets Breakdown of Assets in 2017 in 2018
3.6% 5.2% 32.4% 29.1% 38% 46.2% US DollarsLebanese Pounds US DollarsLebanese Pounds Euro Other foreign currencies Euro Other foreign currencies 19.5% 26.0%
Net loansSecurities portfolio Net loansSecurities portfolio Central Bank of Lebanon Non interest earnings assets Central Bank of Lebanon Non interest earnings assets & banks placements & banks placements 46 47 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
The continued uncertainties and political instability in 2018 contributed to a further reduction in the share of LBP deposits, from 28.2% SECURITIES PORTFOLIO in 2017 to 24.8% in 2018. The Bank’s investment and trading portfolio includes local currency Lebanese treasury bonds, foreign currency sovereign bonds, Deposits by Maturity Deposits by Maturity Central Bank of Lebanon certificates of deposits, highly rated international fixed income securities, as well as shares and other in 2017 in 2018 securities with variable income. The Bank’s securities portfolio decreased by 18% reaching USD 2.85 billion in 2018, and accounted for 18.9% of total assets, compared to 25.5% in 2017. 0.7% 1.0% 6.5% 8.3% The following charts highlight the breakdown of the Bank’s local and international securities portfolio by instrument and currency, 55.8% 54.3% as at December 31, 2017 and 2018. 37.0% 36.4% Securities Portfolio Securities Portfolio in 2017 in 2018
1.1% 0.4% 21.7% 34.2% 12.5% 23.8%
Up to 3 months 3 months to 1 year Up to 3 months 3 months to 1 year 3.1% 1 to 3 years more than 3 years 1 to 3 years more than 3 years
Customer deposits are typically short-term in nature. Although the Bank has managed to extend the average maturity of its deposit 50.3% 4.3% 48.6% funding, from 131 days in 2017 to 150 days in 2018, deposits maturing within 12 months continued to account for the majority of customer deposits, at 90.7% of the total compared to 92.8% the previous year.
T-Bills in LBP Sovereign bonds in FC T-Bills in LBP Sovereign bonds in FC SHAREHOLDERS’ EQUITY Central Bank CD’s Corporate bonds Central Bank CD’s Corporate bonds Shareholders’ equity, the Bank’s second major funding source, increased by 4.1% to USD 1.3 billion as at December 31, 2018, accounting Equity instruments Equity instruments for 8.7% of total assets for a Capital Adequacy Ratio of 15.6%. This increase is attributed to the Bank’s strong internal capital generation and reflects the Bank’s longstanding strategy of maintaining a high buffer of equity to meet regulatory ratios and to face political uncertainties. The Bank’s payout ratio including dividends for preferred shares decreased to 48.9% in 2018 coming from 49.5% in 2017. With the adoption of IFRS 9 on January 1, 2018, the Bank reassessed its business model and reclassified part of its portfolio of Fair Value Through Profit & Loss (FVTPL) to Fair Value Through Other Comprehensive Income (FVTOCI). This reclassification did not have PRIMARY LIQUIDITY any impact on the Group’s capitalization. The Bank has always maintained a high level of primary liquidity in the form of placements with the Central Bank of Lebanon and with The trading portfolio accounted for 2.7% of the total portfolio in 2018, compared to 6.1% in 2017. The securities portfolio in Lebanese foreign, highly-rated, correspondent banks. As at December 31, 2018, primary liquidity, reached USD 5.5 billion, and accounted for Pounds totaled the equivalent of USD 1.2 billion at year-end 2018 against USD 1.7 billion at year-end 2017. In line with the Bank’s 37% of total assets and 49.3% of customers’ deposits. prudent and conservative liquidity policy and asset-liability management strategy, the average remaining life of the Lebanese Pounds-denominated securities portfolio as at year-end 2018 stood at 4.9 years with an average yield of 7.5%. December 31, The ratio of government bonds in foreign currency to customers’ deposits in foreign currency increased from 9.6% as at 2017 2018 December 31, 2017 to 11.4% at year-end 2018. USD million % USD million %
Cash 38 0.8 42 0.8 Central Bank of Lebanon 3,249 68.1 3,956 72.0 Breakdown Securities Portfolio Breakdown Securities Portfolio Foreign central banks 5 0.1 7 0.10 by Currency by Currency Financial institutions 1,477 31.0 1,510 27.10 Allowances for expected credit losses (ECL) - (18) in 2017 in 2018
2.1% 0.3% 1.7% 0.3% Total primary liquidity 4,770 100.0 5,497 100.0 48.3% 56.9% 49.3% 41.1% Placements at the Central Bank of Lebanon (excluding the leverage arrangements with the Central Bank of Lebanon) accounted for 72% of primary liquidity as at December 31, 2018 against 68.1% at the end of 2017. The Bank still has a strict and conservative allocation of liquidity. In addition to USD 4 billion in local and foreign currency deposits placed at the Central Bank of Lebanon both as reserve requirements and as regular deposits, the Bank maintained, as at year-end 2018, more than USD 1.5 billion in foreign currency, short-term deposits with its highly-rated international correspondent banks representing 17.6% of customers’ deposits in foreign currencies. The average life of the Bank’s placements with its correspondent banks is 30 days. LBP US Dollar LBP US Dollar Euro Other foreign currencies Euro Other foreign currencies
48 49 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
LOANS AND ADVANCES TO CUSTOMERS Breakdown of Net Loans Breakdown of Net Loans Banque Libano-Française has historically been one of the main contributors to the development of the private sector in Lebanon. It has by Customer Type by Customer Type consistently ranked as one of the leading private sector lenders. However, loans and advances to customers showed a slight decrease in 2017 in 2018 of 0.6% in 2018 due to some of the factors already mentioned. 7.5% 20.5% Indeed, the political and economic situation and the twin deficits - budget deficit and balance of payments - led to increased pressure 7.9% 16.9% on the LBP exchange rate and on interest rates, which discouraged borrowings. On the other hand the incentive programs provided by the Central Bank of Lebanon to encourage lending to certain economic sectors 75.2% 72.0% such as housing and industrial loans, were not renewed which further dampened demand for credit. The SME sector was particularly impacted by the higher cost of funds, as the benchmark interest rate, the Beirut Reference Rate, reached 12.39% on LBP and 8.99% on USD at the end of 2018. The Bank’s loans to deposits ratio decreased by 1.6% and reached 38.2% as December 31, 2018, against 39.8% at the end of 2017. The Bank manages its loan portfolio and credit risk in a conservative manner and has a long track record in corporate and asset-backed consumer loans, and in managing the credit cycle. The Bank undertakes detailed reviews of the loan portfolio and proactively assesses customers and sectors that are likely to come under stress, reducing limits where appropriate and adapting its forward looking Corporate banking clients Corporate banking clients expected credit loss provisions policy accordingly. Retail & personal banking clients Retail & personal banking clients SMEs & small businesses SMEs & small businesses Provisioning policy is substantially stricter than standard requirements and loan-loss provisions more than adequately cover credit impaired Stage 3 loans (previously substandard, doubtful and bad loans). By year-end 2018, loan loss provisions covered 72.4% of The breakdown of the Bank’s consolidated loan portfolio at the end of 2018 by customer type reveals that loans to corporate and SME non-performing loans, while the uncovered portion is fully secured by real guarantees in the form of cash collaterals and mortgages. customers accounted for 79.6% of total loans, against 83.1% in 2017. The share of retail loans reached 20.5% at year-end 2018 compared The ratio of net non-performing loans to total net loans stood at 4.3%. to 16.9% in 2017. This share of the retail loans is in line with the Bank’s strategy of diversifying its loan portfolio and developing new The Bank’s loan portfolio is predominately short-term, with 61.9% of the loan portfolio comprised of short-term working capital and and competitive retail products in order to expand the client base, mostly by capturing a bigger market share in mortgage lending trade finance facilities as at December 31, 2018, compared to 57.2% as at December 31, 2017. and in other asset-backed retail products.
Loans by Currency Loans by Currency Breakdown of Net Loans Breakdown of Net Loans in 2017 in 2018 by Economic Sector by Economic Sector in 2017 in 2018 18.7% 8.8% 15.5% 9.7% 14.3% 13% 1.6% 8.8% 19.3% 20.2% 1.7% 10.5% 73.2% 70.8% 9.9% 10% 22.8% 20.8%
24.9% 25.5%
US Dollars Euro US Dollars Euro Trade Industry Trade Industry Other foreign currencies LBP Other foreign currencies LBP Services & others Construction Services & others Construction Real Estate Individuals Real Estate Individuals In line with the rest of the banking sector in Lebanon, the loan portfolio is also characterized by a high level of dollarization, which reflects the high level of dollarization of the Lebanese economy. As at December 31, 2018, 73.2% of total loans were denominated in US Dollars, compared to 70.8% as at December 31, 2017. The Bank strives to diversify the credit risk of its loan portfolio by maintaining a balanced sectorial distribution of loans, with a focus on sectors that are considered to be the most productive and least risky. In 2018, the highest exposure was on loans to Individuals, with a share of 25.5% of the loan portfolio, followed by the Real Estate sector, with a share of 20.8%. It is important to note however, that the exposure to the real estate sector mentioned above consists of commercial and residential development projects that have high levels of equity funding and of pre-sales, as well as residential mortgages to private banking clients in Paris and London.
50 51 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
LOAN QUALITY PROFITABILITY Following the implementation of IFRS 9, net non-performing loans* increased by 10.7% between 2017 and 2018, reaching USD 187 million and accounting for 4.3% of total net loans. During 2018, following the application of IFRS 9, the total amount of provisions increased by 40% NET INCOME compared to 2017, reaching USD 596 million. The non-performing loans provisioning ratio increased by 2.5% reaching 72.4% by end of 2018. The following table highlights the quality of the loan portfolio as well as the provisions for non-performing loans as at December 31, Net income for 2018 reached USD 121.4 million, an increase of 1.1% over 2017. 2017 and 2018. Return on average equity (ROAE), adjusted for interest paid on cash contribution to capital and return on average assets (ROAA) reached 9.4% and 0.8% respectively as at year-end 2018. Earnings per common share, based on the number of shares outstanding as December 31, at December 31, 2018, increased to USD 4.4 coming from USD 4.1 in 2017. In thousands of USD 2017 2018 Year-on year-change Percent Percent December 31, Amount of gross Amount of gross Amount Percentage 2017 2018 Performing loans - Retail 829,457 17.4 894,665 18.2 65,208 7.9 USD thousands Percent of NFI USD thousands Percent of NFI Performing loans - Corporate 3,349,737 70.2 3,347,741 68.0 (1,996) (0.1) Performing loans 4,179,194 87.5 4,242,406 86.2 63,212 1.5 Interest income 669,290 243.1% 791,153 278.7% Interest expense (461,528) (167.7%) (554,532) (195.3%) Non performing loans 594,689 12.5 677,246 13.8 82,557 13.9 Net interest income 207,762 75.5% 236,621 83.4% Total gross loans 4,773,883 100.0 4,919,652 100.0 145,769 3.1 Allowance for collectively assessed loans in 2017 Fee and commission income 61,390 22.3% 67,874 23.9% Allowance for expected credit losses - Fee and commission expenses (23,136) (8.4%) (30,604) (10.8%) Performing loans (Stages 1 et 2) in 2018 (9,946) 0.2 (105,834) 2.2 95,888 N/A Unearned interest on non performing Net fee and commission income 38,255 13.9% 37,270 13.1% loans (Stage 3) (208,640) 4.4 (236,180) 4.8 27,540 13.2 Allowance for expected credit losses - Net gain on securities portfolio 8,182 3.0% (8,393) (3.0%) Non performing loans (Stage 3) (207,303) 4.3 (254,251) 5.2 46,948 22.6 Other Operating Income 64,487 23.4% 20,580 7.2% Net loan loss provisions (43,417) (15.8%) (2,211) (0.8%)
Net financial income after allowance for credit losses 275,268 100.0% 283,866 100.0% Total provisions (425,889) (8.9) (596,265) (12.1) 170,376 40.0 Total net non-performing loans 168,800 3.5 186,815 3.8 18,015 10.7 Operating expenses (134,067) (48.7%) (137,570) (48.5%)
Total net loans 4,347,994 91.1 4,323,387 87.9 (24,607) (0.6) Income before exceptional items and tax 141,201 51.3% 146,296 51.5% Ratio Non performing loans provisioning ratio Deffered tax on subsidiaries profits (279) (0.1%) (382) (0.1%) Income tax (20,844) (7.6%) (24,475) (8.6%) (Stage 3) 69.9 72.4 2.5 Net non-performing loans / Total net loans 3.9 4.3 0.4 Net income 120,078 43.6% 121,440 42.8% * Stage 3 loans under IFRS9. Under IAS, NPL’s were classified as substandard, doubtful and bad loans. Net Financial Income after allowance for credit losses reached USD 283.8 million as at December 31, 2018, achieving a growth of 3.1% CAPITAL ADEQUACY RATIO AS PER BASEL III compared to the previous year. On a consolidated basis, the Bank’s capital adequacy ratio as per Basel III stood at 15.59% at year-end 2018, against 16.15% at year- The Bank’s operating margin, defined as the ratio of income before exceptional items and tax to net financial income, increased slightly end 2017. Based on the standardized approach, risk weighted assets reached USD 7,950 million as at December 31, 2018 compared to from 51.3% as at December 31, 2017 to 51.5% as at December 31, 2018. USD 7,642 million as at December 31, 2017. Tier One ratio stood at 14.43% as at December 31, 2018 against 14.38% in 2017. The Bank has always maintained healthy capital ratios that exceed the minimum levels required by the Central Bank of Lebanon. These ratios place the Bank in a comfortable and solid capital position to grow its activities and balance sheet as well as to face any uncertainties.
December 31, Year-on-year change In millions of USD 2017 2018 Amount Percentage
Risk-weighted assets - standardized approach 7,642 7,950 308 4.03% o/w. Credit risk - standardized approach 6,887 7,259 372 5.40% o/w. Market risk - standardized approach 258 142 (116) (44.91%) o/w. Operational risk - Basic indicator approach 497 549 52 10.47%
Tier one after allocation of net income 1,099 1,147 48 4.41% o/w. Common 759 807 48 6.38% o/w. Preferred 340 340 (0) 0.00%
Tier two* 135 92 (43) NS Total regulatory capital after allocation of net income 1,234 1,239 6 0.45%
Tier one ratio 14.38% 14.43% 0.05% o/w. Common 9.93% 10.15% 0.22% Total capital adequacy ratio after allocation of net income 16.15% 15.59% (0.56%)
52 53 Back to Table of Contents Annual Report 2018 MANAGEMENT DISCUSSION AND ANALYSIS
NET INTEREST INCOME NON-INTEREST INCOME Net interest income before provisions increased by 13.9% from USD 207.8 million at year end 2017 to USD 236.7 million at year-end In 2018, non-interest income significantly decreased by 55.4% to USD 49.5 million from USD 110.9 million as per end of 2017. This 2018. This was mainly driven by the increase of interest income on deposits with central banks. significant decrease is mainly due to a one-off recognition in 2017 of USD 44 million net of tax recorded under “other income”, in line with Central Bank of Lebanon requirements of circular 446 that governs the treatment of the surplus realized in 2016 through AVERAGE BALANCES AND INTEREST RATES non-conventional transactions with the Central Bank of Lebanon that were used to constitute provisions. The following table summarizes average balances and interest rates of assets, liabilities and shareholders’ equity of the Bank and its In parallel, net commissions decreased to USD 37.3 million and accounted for 75.4% of total non-interest income at year-end 2018. consolidated subsidiaries for each of the two years ended December 31, 2017 and 2018. The trading activity and the reevaluation of securities portfolio designated at fair value through profit and loss generated a loss of USD 6.1 million in 2018, compared to a profit of USD 7.7 million in 2017. December 31, In millions of USD 2017 2018 Average Interest Average Average Interest Average Net Non-Interest Income Net Non-Interest Income balance amount rate balance amount rate in 2017 in 2018 5.9% 12.3% Loans and placements with banks 4,658 158 3.4% 6,144 298 4.9% 34.5% 75.4% Loans to customers 4,270 257 6.0% 4,336 276 6.4% 6.4% 7% Interest earning securities AC & FVTOCI 3,592 245 6.8% 3,087 212 6.9% Interest earning securities FVTPL 196 10 4.9% 149 5 3.7% 15.2% Interest-earning assets 12,717 669 5.3% 13,716 791 5.8% Other assets 450 - 0.0% 636 - 0.0% 46.3% 6.9% 14.1% Average assets 13,167 669 5.1% 14,352 791 5.5%
Interbank deposits 143 6 4.4% 96 5 5.3% Deposits from customers 10,679 446 4.2% 11,125 540 4.9% Long term borrowings 591 6 1.1% 1,295 7 0.6% Net commissions Net commissions Cash contribution to capital (CCC) 40 2 6.2% 40 3 6.5% Net gain on securities portfolio Net gain on securities portfolio Interest-bearing liabilities 11,453 462 4.0% 12,556 555 4.4% Other income (other operations) Other income (other operations) Other liabilities 540 - 0.0% 546 - 0.0% Foreign exchange operations Foreign exchange operations Shareholders’ equity (excluding CCC) 1,174 - 0.0% 1,250 - 0.0% Share in pro ts of associates Share in pro ts of associates Average liabilities 13,167 462 3.5% 14,352 555 3.9%
Average margin 13,167 208 1.6% 14,352 237 1.6% OPERATING EXPENSES The Bank’s total operating expenses reached USD 137.6 million for 2018, a 2.6% increase over 2017. Administrative expenses increased Average interest-earning assets accounted for 95.5% of average assets in December 2018, compared to 96.6% at the end of 2017, while from USD 42.9 million in December 2017, to USD 44.2 million in 2018 while staff costs increased from USD 82.4 million to USD 84.5 million average interest-bearing liabilities accounted for 87.5% of average assets compared to 86.9% in December 2017. The average margin, over the same period. measured by the difference between the average rate earned on assets and the average rate paid on liabilities remained unchanged In 2018, the Bank’s cost-to-income ratio after loan loss provisions improved to 48.5% against 48.7% in 2017. at 1.6% in 2018 as same 2017. The following pie charts provide a breakdown of the Bank’s operating expenses for 2017 and 2018.
Operating Expenses Operating Expenses in 2017 in 2018
6.5% 6.4% 61.5% 61.4%
32.0% 32.2%
Sta costs Sta costs Administrative expenses Administrative expenses Depreciation and amortization Depreciation and amortization
54 55 Back to Table of Contents Annual Report 2018 HUMAN RESOURCES DEVELOPMENT
10 I Human Resources Development
HR DEVELOPMENT EMPLOYEES GENDER COMPOSITION Over the 2013-2018 period, and to accompany the expansion strategy in Lebanon and abroad, employment at Banque Libano-Française Along with the increased headcount and the lower average age of the staff, and since gender equality is a key and basic principle for Group has been following an ascending trend. the Human Resources Division’s recruitment policy, the percentage of women has been steadily increasing over the past few years: The reduction in the headcount between 2016 and 2017 is due to the deconsolidation of Bank Al-Sharq. women accounted for 58% of total staff at the end of 2018 compared to 54% in 2013. Excluding the impact of the deconsolidation of Bank Al-Sharq, the number of employees reached 1,469 at the end of 2018, reflecting 58.22% a 2.4% CAGR over the period. 60 56.0% 56.8% 57.0% HR DEVELOPMENT 54.0% 54.4% 52.1% CAGR 50 47.9% 2000 46.0% 45.6% 44.0% 3% 43.2% 43.0% 41.78% 40 1,546 1500 1,509 1,428 1,447 1,308 1,363 1,247 30 1000 20 500 10
0 2012 2013 2014 2015 2016 2017 2018 0 2012 2013 2014 2015 2016 2017 2018
AVERAGE AGE Women In line with the Bank’s motto “A Partner for your Ambitions”, the Human Resources Division continued to attract young and talented Men individuals. This has resulted in a declining average age of the Bank’s employees from 39 years in 2013 to 38 years currently. AVERAGE AGE The Bank’s staff is mostly comprised of highly qualified individuals, most of whom have a university degree and strong academic 39.2 achievements. Many also have a successful professional track record. The Bank strives to provide its employees with the opportunity to develop their potentials and professional skills. In 2018, the Bank 39 39.01 38.96 provided 35,973 hours of training, equivalent to 24.9 hours of training per employee. 38.8 Training is provided both in-house and through external seminars and programs and covers both technical and managerial aspects. 38.6 Through its in-house training programs, the bank aims to establish a common culture among its employees and to adequately develop 38.56 their commercial and professional skills and standards. 38.4 38.44 In order to build a better framework for the training provided to the staff, the Bank established in 2009 a Training Center equipped 38.2 with state-of-the-art technology, and developed programs covering a wide variety of topics and skills. 38.15 38 38.03 38.10 37.8 37.6 37.4 2012 2013 2014 2015 2016 2017 2018
56 57 Back to Table of Contents Annual Report 2018 BLF Annual Report 2018 I Mar Mikhaël
The “Grande Brasserie du Levant”
The “Grande Brasserie du Levant” was one of the oldest in the Middle East © Anne Ilcinkas/Les archives de L’Orient-Le Jour. and the first brewery to be founded in Lebanon in 1930 by Georges and Émile Gellad. The company’s original beer was called “Gellad” which was renamed several times before finally being branded as “Laziza”, a term that translates into “delicious”. During the decades following its inception, the brewery grew in popularity, reaching peak sales in the 1960-1970’s with an extremely high production for such a small country. However, due to a rise in market competition, namely with Brasserie et Malterie Almaza, and because of the Lebanese civil war, the production slowed down then stopped between 1990 and 1995, and the company closed permanently in 2000.
Since then, the original premises, located between the neighborhoods of Mar Mikhaël, El Khodr and Geitawi, remained disused. However, it regularly opened its doors to host exhibitions, artistic and cultural events, leading to it playing an informal role as a known focal point for creative expression. Its accessibility had given rise to local graffiti artists, discoverers of unknown places and followers of urban exploration (Urbex) in search of unusual and abandoned places.
In March 2017, the “Grande Brasserie du Levant” made way for a large upscale real estate project initiated by Capstone Investment and designed by Architect Bernard Khoury, under the name of Mar Mikhaël Village. The development will include apartments, offices, shops and car parks over an area of 13,500 square meters. The brewery from the inside in 2016. BLF Annual Report 2018 I Mar Mikhaël
The Geara building
The story of Elias Geara is that of all the mediocre students who end up thriving professionally. Originally from a poor family, and put into apprenticeship with a cobbler by his Geara building in district 74. father who was desperate by his academic failures, little Elias quarrels with his master and runs away. Fearing his father’s anger, he goes to the Port of Beirut and embarks on the first departing boat. He lands in Brazil and like many Middle Eastern emigrants, he becomes a door-to-door salesman. His childlike face and his wooden box that he fills with products for women attract the generosity of customers and allow him to expand his business and acquire one, then several stores... He hoards a large capital with which he returns to Lebanon around 1915, buys large lands, and constructs the building that bears his name.
Located close to the stairs that bear the same name, the Geara building consists of two identical blocks separated by a staircase.
The building is now part of the revival of Mar Mikhaël and hosts a guest house, a restaurant, as well as workshops of artists and craftsmen. An interior view of one of the apartments.
The staircase separating the two identical blocks. CORPORATE SOCIAL RESPONSIBILITY
11 I Corporate Social Responsibility
BANQUE LIBANO-FRANÇAISE: A TRUE PARTNER FOR A SUSTAINABLE COMMUNITY Throughout time, Banque Libano-Française has been running its operations by embracing five founding values: Since 2013, BLF grants facilities to the Lebanese Cooperative for Development (LCD) which promotes Responsibility, Integrity, Competences, Humanism and Engagement. These values are the foundation stone development in rural regions by granting microcredits. As at end of 2018, 270 beneficiaries have benefited from of its Corporate Social Responsibility strategy that revolves around four main pillars: Marketplace, Workplace, microcredits granted by BLF, amounting up to LBP 4.6 billion at a low interest. Community and Environment. In addition to encouraging entrepreneurship through its support to business incubators and various events Entrenched in its motto, “A Partner for your Ambitions”, the Bank’s promise is to make an impact on the social such as Bader, Berytech and BIAT, BLF participated in various investment funds worth USD 30 million such as and environmental levels while contributing to foster sustainable economic development. Berytech Fund ll, Impact Fund, Leap Ventures Fund, Cedar Mundi Fund, Azur and Division One Fund by B&Y Venture Partners. As a result of its CSR commitment, BLF was selected in 2013 by LIBNOR, the Lebanese Standards Institution The Bank also empowers youth by providing them insights into the working realities of the banking sector affiliated to the Ministry of Industry, to participate as a pilot organization in the uptake and use of ISO 26,000 through various conferences at universities and open doors at its premises. guidelines, an international standard providing organizations with guidance concerning Social Responsibility. Following the conduction of a gap analysis based on seven core subjects (Organizational Governance, Labor On another front, the culture of a transparent and fair relationship with a customer-centric approach has always Practices, Human Rights, Environment, Fair Operating Practices, Consumer Issues, Community Involvement and been a priority at BLF. Established in 2013, BLF’s Customer Experience Department constantly monitors its Development), BLF put forth an action plan to further integrate social responsibility in its behaviors, operations, service through quality internal assessments, user experience barometers, mystery shoppers and satisfaction and interactions with stakeholders. In 2014, it also amended its mission statement to reflect shared value and surveys. For instance, 376 mystery shopper’s visits were carried to assess branches performance in 2018. In line sustainability and articulated a new strategy aiming at “Leading Sustainable Banking in Lebanon” through with the Intermediate Circular N° 458 by the Central Bank of Lebanon, BLF also rendered its branches accessible Sustainable Lending, Sustainable Financial Innovation, Sustainable Support to the Community, Sustainable for people with disabilities bringing to 72% the number of branches accessible to wheelchairs. Environmental Strategy, and Sustainable Engagement with Stakeholders. BLF set up in 2015 a CSR Committee, headed by its Chairman General Manager to oversee the implementation of the Bank’s CSR activities. WORKPLACE During that same year, BLF also signed a Letter of Commitment to join the United Nations Global Compact In December 2018, an Employee Barometer was conducted to assess BLF employees' expectations versus their (UNGC) aligning its operations and strategies with ten universally accepted principles in the areas of Human experience, resulting with a satisfaction level of 86%. Rights, Labor, Environment and Anti-Corruption. As a founding Board Member of the Global Compact Network BLF believes that human capital makes the ultimate difference for sustainable growth and thus persistently does Lebanon (GCNL), BLF pursued in 2018 its support to the advancement and implementation of the ten principles its utmost to attract, motivate and retain a talented workforce. The Bank is actively working on fostering a culture through dialogue, exchange of information and expansion of the Lebanon signatories to the network. As a of performance, where accomplishments are recognized and rewarded with development opportunities, career member of the GCNL Sustainable Development Goals (SDGs) Council, BLF also pledged to advance the SDGs, advancements, as well as attractive remuneration. and more particularly Reduced Inequalities (SDG10) which it champions since 2017. BLF published in 2017 a Human Rights Policy representing its moral code of conduct. BLF is an equal opportunity In parallel, it continued to deliver to its staff internal awareness sessions about CSR. Trainings took place employer, noting that in 2018 women made up 27% of the Members of the Executive Committee, 38% of the within the "Welcome to Ambitions Land” seminars, providing a vital introduction to CSR and highlighting the Upper Management, 55% of the Branch Managers and 55% of the Middle Management. relationship between the Bank’s core values and social responsibility. Because it actively promotes a work-life balance, the Bank set up a short schedule for mothers with children The Bank also integrated CSR into its procedures, objectives and performance appraisals. In order to raise under the age of 10. awareness on social responsibility within its sphere of influence, BLF incorporated a sustainability statement In 2018, the Bank allocated USD 775,670 to provide over 35,973 hours of internal and external trainings to in its contracts with suppliers, partners and clients to inform them about the Bank’s commitment to CSR and 92% of employees. To reinforce their belongingness and to keep communication lines open with the Bank’s encourage them to do the same. It also launched a Sustainable Procurement Policy that details how the Bank Management, BLF has built an internal culture of information and interaction. It keeps employees in the loop selects suppliers to ensure that all products and services they procure have the lowest environmental impact through dedicated numerous communication tools such as an employee handbook, an internal newsletter and most positive social and economic impacts possible. daily-updated Intranet site, social media channels, events and campaigns, challenges and rewards, polls and surveys... MARKETPLACE Besides, BLF is one of the few banks in Lebanon to have established a “Club” which organizes fun team-building activities outside the work premises, and heavily subsidizes employees’ participations in various social, cultural, Banque Libano-Française has always played a crucial role in Lebanon’s development as it firmly believes in its sport events and vacation trips… potential and mission. Therefore, it supported the Lebanese economy during the most difficult periods of its history. In the aftermath of war, BLF was actively involved in Lebanon’s reconstruction and extended financing to the country’s most important public and private projects and corporates. COMMUNITY BLF strives to propose products and services that cater to the growing needs of its clients. To get closer to them The community is a key focus of CSR strategy at BLF. As today’s environment is undergoing significant change, and help them develop their businesses, it is expanding regionally and internationally, and is building a large BLF works to uplift living conditions in many areas. network in Lebanon as well as an array of digital channels to make banking services easily accessible to all. In 2018, BLF supported 495 projects including charitable causes, community outreach programs and partnerships in arts, culture, youth, schools, health, education, environment, and entrepreneurship activities of major organizations and NGOs.
62 63 Back to Table of Contents Annual Report 2018 12 I Resolutions of the Annual Ordinary General Meeting
Examples of the main supported projects include Help Lebanon, Skoun Lebanese Addictions Center, Children’s EXTRACTS OF THE ANNUAL ORDINARY GENERAL MEETING Cancer Center of Lebanon, Beirut Art Center, National Museum, Sursock Museum, Beirut Museum of Art, HELD ON APRIL 30, 2019 Lebanese International Finance Executives, Lebanese Food Bank, Institut Français du Liban as well as various festivals and municipalities. The total community spending increased by 53% since 2014 reaching a total of FIRST RESOLUTION 2,183,270 beneficiaries. The Ordinary General Meeting of Shareholders of the Bank approved the Bank’s accounts, balance sheet and 2018 was also marked by the community involvement of BLF employees. The Bank launched a clothes donation profit and loss statement as at and for the year ended on December 31, 2018 and granted full discharge to the campaign with “FabricAid”. In addition, the Bank engaged its employees in volunteering during working hours Chairman and Members of the Board of Directors in respect of their management of the Bank’s activities during with “Injaz Lebanon“, to spread financial literacy and spark entrepreneurial spirit. BLF volunteers delivered 133 the year 2018. volunteering hours on “Be a leader”, “Be entrepreneurial” and “Personal Finance” to 341 beneficiaries in nine public schools and universities. This resolution was adopted unanimously.
SECOND RESOLUTION ENVIRONMENT The Ordinary General Meeting of Shareholders of the Bank notes that the non-consolidated net income for the A healthier environment undoubtedly ranks high on Banque Libano-Française’ CSR agenda. Its green strategy year ended December 31, 2018 amounted to LBP 175,135,436,000 and the consolidated net income after tax and is based on actively participating in shaping environmental policies, developing eco-friendly products and minority interests amounted to LBP 186,780,254,000, after setting aside all the provisions and reserves deemed services, adopting environmentally friendly practices at the workplace, while raising awareness among its necessary by the Board of Directors. internal and external stakeholders. This resolution was adopted unanimously. The total value of green loans, including the Retail Solar Water Heater and Photovoltaic loans, provided by BLF amounted to USD 1.9 million in 2018. Sustainable Energy and Environmental Finance loans to various projects in THIRD RESOLUTION 2016, 2017 and 2018 exceeded USD 98.9 million. The total value of the projects financed under BLF’s Sustainable Finance strategy exceeded USD 214.5 million in these years. The Extraordinary General Meeting of Shareholders of the Bank held on January 9th, 2015 having decided that holders of Series (4) Preferred Shares will receive USD 7 (Seven Dollars) per preferred share for the BLF and AUB launched in 2017 the Climate Change Student Competition dedicated to AUB graduate and year 2018, the Ordinary General Meeting of Shareholders of the Bank approves the distribution to holders post-graduate students. In 2018, the second edition of the competition went regional with the theme “Climate of Series (4) Preferred Shares, of a total amount of USD 10,500,000 for the year 2018, equivalent to Change and Water Scarcity, Exploring the Water-Energy-Food Nexus”. LBP 15,828,750,000, amounting to USD 7 per share. BLF sponsored the 9th edition of the International Beirut Energy Forum (IBEF) that gathered “energypreneurs” This amount will be distributed to the holders of Series (4) Preferred Shares and after deduction of the from all over the globe and discussed the integration of digital technologies in sustainable energy. The Bank also 10 percent distribution tax. supported local green initiatives such as the Jabal Moussa Biosphere Reserve and Jouzour Loubnan. The amount of USD 6.3 per share net of tax shall be paid at the counters of Banque Libano-Française S.A.L. in On another front, BLF also continuously strives to reduce its environmental footprint. It has recycled, between Beirut beginning April 30, 2019. 2011 and 2018, 2,930 e-waste items and 571,4 tons of paper the equivalent of saving 8,796 trees, 13,710,860 liters of water, 2,069,720 kilowatt hours of energy, 1,186 cubic meters of landfill space, and 1,034 barrels of oil. This resolution was adopted unanimously. The Bank has also recycled more than 2,310 cans recycled since 2017 and continued to ban plastic including plastic straws in its premises.
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FOURTH RESOLUTION SIXTH RESOLUTION The Extraordinary General Meeting of Shareholders of the Bank held on February 2, 2016 having decided that The “Cash Contribution to Capital” earns interest at annual rate equal either to 90 percent of the yield (at holders of Series (5) Preferred Shares will receive USD 6.625 (Six Dollars and six hundred twenty-five Cents) issuance) of the most recent USD Eurobond issued by the Lebanese Government during the second half of the per preferred share for the year 2018, the Ordinary General Meeting of Shareholders of the Bank approves previous year, with a maturity of 5 years or more, or to 90 percent of the arithmetic average of the yield – as at the distribution to holders of Series (5) Preferred Shares, of a total amount of USD 9,937,500 for the year 2018, December 31 of the previous year-of Lebanese Government USD Eurobonds with residual maturity of 5 years equivalent to LBP 14,980,781,250, amounting to USD 6.625 per share. or more. This amount will be distributed to holders of Series (5) Preferred Shares, after deduction of In view of the number issuance of Eurobonds during the second half of 2018 fiscal year, and taking into a 10 percent distribution tax. account that the last public issuances had an arithmetic average yield of 10.561%, the interest rate of the cash The amount of USD 5.9625 per share net of tax shall be paid at the counters of Banque Libano-Française S.A.L. contribution to capital for 2019 fiscal year is set at 9.505%. in Beirut beginning April 30, 2019. This remuneration will be paid within the limit of the Bank’s free net income and after the approval of the This resolution was adopted unanimously. Banking Control Commission. This resolution was adopted unanimously. FIFTH RESOLUTION The Ordinary General Meeting of Shareholders of the Bank decides to allocate the non-consolidated profits for SEVENTH RESOLUTION the fiscal year 2018 as follows: Noting that the term of office Mrs. Raya Raphaël Nahas has reached its term, the Ordinary General Meeting of Shareholders of the Bank renews its term, in accordance with article 18 of the By-Laws, for three-year terms In thousand of LBP expiring upon holding of the Ordinary General Meeting of Shareholders that will examine the accounts and
Legal reserve 17,406,221,000 activity of the year 2021. Reserve for fixed assets earmarked for liquidation and acquired in settlement of debt 11,860,203,000 This resolution was adopted unanimously. Special reserve 42,439,000 Profit carried forward for 2018 56,267,042,000 Dividends Preferred Shares Series (4) 15,828,750 Dividends Preferred Shares Series (5) 14,980,781 Dividends Common Shares 58,750,000 175,135,436,000
The dividend on common shares amounting LBP 58,750,000,000 will be paid as of April 30, 2019 at the counters of Banque Libano-Française S.A.L. as LBP 2,500 per common share after deducting the distribution tax of 10%. This resolution was adopted unanimously.
66 67 Back to Table of Contents Annual Report 2018 BLF Annual Report 2018 I Mar Mikhaël
The Jabre building
It was in the 1930s, about fifteen years after the construction of the Geara building, that the Jabre building is erected in a Jabre building at the corner of 70 street Ibrahim Pacha. neighborhood that still includes many vacant grounds.
This building, whose style is very modern for the time, represents a turning point in the architectural history of the city, with its floors including several apartments smaller in surface than those built at the time and intended for rental.
It follows the contours of a ground occupying the corner of Armenia main street and Ibrahim Pacha street, and has four floors. The wrought-iron patterns of the balustrades of its semicircular balconies, its stair railings, and its ‘art nouveau’ entrance door with its stylized plant curves give this building its charm and special atmosphere. The apartments pavings are composed of ‘‘summer carpets’’, which are mosaic-colored tiles presenting various patterns: floral, cruciform or geometric with a 3D effect.
The construction of the Jabre building is attributed to Mardirios Altounian (1889-1958), a Lebanese-Armenian architect who, after studying at the Ecole des Beaux-Arts in France, practices his profession at the Lebanese Ministry of Public Works. He is responsible for the construction of the Lebanese Parliament in Nejmeh Square, the Abed clock and the Azounieh sanatorium The wrought iron patterns decorating the balconies. located in Chouf, among others.
The entrance door of Jabre building. INDEPENDENT AUDITOR’S REPORT
13 I Independent Auditor’s Report
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72 73 Back to Table of Contents Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
74 75 Back to Table of Contents Annual Report 2018 CONSOLIDATED FINANCIAL STATEMENTS
14 I Consolidated Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, December 31, In thousands of LBP Notes 2018 2017 In thousands of LBP Notes 2018 2017 Assets Cash and deposits at central banks 5 6,144,000,319 5,021,551,131 Liabilities Deposits with banks and financial institutions 7 2,268,738,809 2,226,040,003 Deposits from banks and financial institutions 16 145,636,229 143,421,097 Financial assets at fair value through profit or loss 10 121,424,274 326,613,113 Customers’ deposits at amortized cost 17 17,057,045,435 16,484,898,723 Loans to banks 8 94,953,011 99,416,760 Liability under acceptances 11 640,489,026 303,063,458 Loans and advances to customers 9 6,517,506,601 6,554,602,703 Borrowings 18 585,532,327 649,568,262 Investment securities at amortized cost 10 4,130,287,895 4,965,407,189 Leverage arrangement with the Central Bank of Lebanon 6 2,105,169,805 565,312,500 Investment securities at fair value through other comprehensive income 10 171,539,170 41,101,081 Other liabilities 19 183,623,296 458,502,771 Customers’ liability under acceptances 11 639,320,961 303,063,458 Provisions 20 40,259,378 19,726,463 Assets under leverage arrangement with the Central Bank of Lebanon 6 2,105,169,805 565,312,500 Investments in associates 12 41,846,109 39,460,824 Total liabilities 20,757,755,496 18,624,493,274 Assets acquired in satisfaction of loans 13 225,440,466 115,610,671 Tangible and intangible assets 14 213,149,372 190,709,508 Equity Other assets 15 67,075,650 81,030,300 Share capital 21 235,000,000 235,000,000 Preferred shares 22 452,250,000 452,250,000 Total assets 22,740,452,442 20,529,919,241 Shareholders’ cash contribution to capital 23 60,300,000 60,300,000 Reserves 24 728,268,177 615,422,393 Financial instruments with off-balance sheet risk Regulatory reserve for assets acquired in satisfaction of loans 13 25,790,147 21,117,682 Documentary and commercial letters of credit 36 152,224,405 62,084,346 Foreign currency translation reserve (17,976,088) (8,516,395) Guarantees and standby letters of credit 36 1,159,965,195 1,335,794,706 Cumulative change in fair value of financial assets Notional amount of derivative contracts 36 344,600,213 343,247,239 at fair value through other comprehensive income 25 (5,197,988) 6,006,596 Fiduciary deposits 534,296,085 417,778,332 Retained earnings 196,845,607 225,044,908 Profit for the year 27 186,780,254 175,850,911 Assets in safekeeping and under management 2,837,452,809 2,857,048,335 Equity attributable to the equity holders of the Bank 1,862,060,109 1,782,476,095
Non-controlling interests 26 120,636,837 122,949,872
Total equity 1,982,696,946 1,905,425,967
Total liabilities and equity 22,740,452,442 20,529,919,241
The accompanying notes form an integral part of the consolidated financial statements. The accompanying notes form an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Year ended December 31, Year ended December 31, 2018 Year ended December 31, 2017 In thousands of LBP Notes 2018 2017 Attributable to Attributable to equity holders Non-controlling equity holders Non-controlling Interest income 28 1,244,190,571 996,843,359 In thousands of LBP of the Group interest Total of the Group interest Total Less: Tax on interest 28 (59,771,814) (2,390,318) Interest income net of tax 1,184,418,757 994,453,041 Profit for the year 186,780,254 (3,709,876) 183,070,378 175,850,911 5,167,416 181,018,327 Interest expense 29 (835,956,931) (695,753,720) Other comprehensive income: Items that may be reclassified Net interest income 348,461,826 298,699,321 subsequently to profit or loss: -Effect of deconsolidation Fee and commission income 30 102,320,431 92,546,161 of a subsidiary (Note 39) - - - 10,154,773 - 10,154,773 Fee and commission expense 31 (46,135,445) (34,876,837) -Change in fair value of equity securities at fair value through other Net fee and commission income 56,184,986 57,669,324 comprehensive income (FVTOCI) (10,858,190) - (10,858,190) - - - -Exchange differences on translating Net (loss)/income from financial assets at fair value through profit or loss 32 (3,469,513) 22,952,537 foreign operations (4,135,088) (100,994) (4,236,082) 10,005,103 57,537 10,062,640 (Loss)/gain from derecognition of financial assets measured at amortized cost 10 (939,517) 3,882,618 Items that will not be reclassified Other operating income 33 31,024,028 97,214,512 subsequently to profit or loss: -Change in fair value of equity Net financial revenues 431,261,810 480,418,312 securities at fair value through other comprehensive income (FVTOCI) (537,808) - (537,808) (3,846,038) - (3,846,038) Allowance for credit losses, net 9&41 (3,333,425) (65,451,159) Total other comprehensive income (15,531,086) (100,994) (15,632,080) 16,313,838 57,537 16,371,375 Net financial revenues after net impairment charges 427,928,385 414,967,153 Total comprehensive income 171,249,168 (3,810,870) 167,438,298 192,164,749 5,224,953 197,389,702 Staff costs 34 (127,326,916) (124,210,268) General and administrative expenses 35 (66,690,205) (64,751,246) Depreciation and amortization 14 (13,369,491) (13,145,179)
Profit before tax 220,541,773 212,860,460
Income tax expense 19 (36,896,184) (31,422,103) Deferred tax on subsidiaries’ undistributed profits 19 (575,211) (420,030)
Profit for the year 183,070,378 181,018,327
Attributable to: Equity holders of the Bank 186,780,254 175,850,911 Non-controlling interests 26 (3,709,876) 5,167,416
183,070,378 181,018,327
The accompanying notes form an integral part of the consolidated financial statements. The accompanying notes form an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributed to the equity holders of the Group Cumulative Regulatory change Shareholders’ reserve for Foreign in fair value cash assets acquired currency of financial Non- Share Preferred contribution in satisfaction translation Retained assets Profit for controlling In thousands of LBP capital shares to capital of loans Reserves reserve earnings at FVTOCI the year Total interests Total Balance at January 1, 2017 235,000,000 452,250,000 60,300,000 31,482,809 550,855,094 (44,206,488) 191,325,180 9,852,634 162,944,641 1,649,803,870 104,812,173 1,754,616,043
Total comprehensive income for the year 2017 - - - - - 20,159,876 - (3,846,038) 175,850,911 192,164,749 5,224,953 197,389,702 Allocation of 2016 profits - - - 6,596,682 64,567,299 - 15,968,629 - (87,132,610) - - - Effect of deconsolidation of a subsdiary (Note 39) - - - - - 15,530,217 - - - 15,530,217 (36,848,090) (21,317,873) Other adjustments ------789,290 - - 789,290 - 789,290 Transfer to retained earnings from regulatory reserves on liquidated assets (Note 13) - - - (16,961,809) - - 16,961,809 - - - - - Dividends paid (Note 27) ------(75,812,031) (75,812,031) - (75,812,031) Net increase of non-controlling interests in the fund managed by the Group ------49,760,836 49,760,836
Balance at December 31, 2017 235,000,000 452,250,000 60,300,000 21,117,682 615,422,393 8,516,395 225,044,908 6,006,596 175,850,911 1,782,476,095 122,949,872 1,905,425,967
Effect of adoption of IFRS 9 impairment (Note 2) ------(311,078,725) 1,064,104 - (310,014,621) - (310,014,621) Allocation from designated regulatory deferred liability (Note 8) ------308,463,867 - - 308,463,867 - 308,463,867 Total comprehensive income for the year 2018 - - - - - (4,135,088) - (11,395,998) 186,780,254 171,249,168 (3,810,870) 167,438,298 Allocation of 2017 profit - - - 4,878,265 113,320,784 - (31,907,669) - (86,291,380) - - - Transfer from retained earnings - - - - - (5,324,605) 5,324,605 - - - - - Other adjustments ------(337,262) - - (337,262) - (337,262) Transfer from regulatory reserves to retained earnings - - - (205,800) (475,000) - (680,800) - - - - - Dividends paid (Note 27) ------(89,559,531) (89,559,531) - (89,559,531) Loss allowance on debt securities at FVTOCI ------(217,607) - (217,607) - (217,607) Gain resulting from the sale of equity securities at fair value through other comprehensive income ------655,083 (655,083) - - - - Net increase of non-controlling interests in the fund managed by the Group ------1,497,835 1,497,835
Balance at December 31, 2018 235,000,000 452,250,000 60,300,000 25,790,147 728,268,177 (17,976,088) 196,845,607 (5,197,988) 186,780,254 1,862,060,109 120,636,837 1,982,696,946
The accompanying notes form an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, Year ended December 31, In thousands of LBP Notes 2018 2017 In thousands of LBP Notes 2018 2017
Cash flows from operating activities: Cash flows from investing activities: Profit for the year before tax 220,541,773 212,860,460 Net change in tangible and intangible assets (35,809,355) (32,476,845) Adjustments for: Net allowance for impairment of loans and advances to customers 34 3,333,425 65,451,159 Net cash used in investing activities (35,809,355) (32,476,845) Provision for staff termination indemnity 20 2,549,054 2,450,534 Provision for risks and charges 20 100,905 (4,124,927) Cash flows from financing activities: Depreciation and amortization 14 13,369,491 13,145,179 Dividends paid 27 (89,559,531) (75,812,031) Share in profits of associates 12 (11,350,975) (10,743,590) Net (decrease)/increase in borrowings (59,367,493) 646,090,778 Accretion of treasury bills discount (2,107,309) (2,737,188) Subscription/(redemption) of non controlling interests in fund managed by the Group 1,497,835 49,760,836 Unrealized loss/(gain) for securities designated at fair value through profit or loss 32 11,886,944 (2,074,687) Net cash (usedin)/generated by financing activities (147,429,189) 620,039,583 Other adjustments (337,262) 792,890 Net interest income (including interest on FVTP&L and FVTOCI) (356,705,733) (307,887,782) Net (decrease)/increase in cash and cash equivalents 463,085,649 (390,945,845) Dividends income 32&33 (939,153) (1,126,884) Gain on disposal of assets acquired in satisfaction of loans 33 (42,439) (7,238,246) Cash and cash equivalents at beginning of year 1,782,458,267 2,183,669,596 Gain on derecognition of investment securities measured at amortized cost 10 (2,674,770) 3,882,618 Net cash outflow deconsolidation 39 - (30,582,254) Transfer from regulatory deferred liability 33 (2,908,345) (78,021,556) Effect of foreign exchange rate changes on cash and cash equivalents (4,308,749) (20,316,770)
(125,284,394) (123,137,256) Cash and cash equivalents at end of year 38 2,241,235,167 1,782,458,267
Net increase in financial assets at fair value through profit or loss 28,845,758 (74,663,447) Net decrease in loans to banks 614,237 21,570,214 Net increase in loans and advances to customers (295,488,807) (353,853,719) Net (increase)/decrease in compulsory deposits with central banks 1,413,866 (3,531,267) Net increase in deposits with central banks, commercial banks and financial institutions (674,319,148) (1,861,343,105) Net change in investment securities 38 879,374,873 491,200,500 Proceeds from sale of assets acquired in satisfaction of loans 38 248,437 24,205,114 Dividends received 7,289,985 5,607,601 Net (decrease)/increase in other assets 13,954,650 3,287,744 Net decrease in deposits and borrowings from banks 2,094,530 (122,390,288) Net (decrease)/increase in other liabilities 38 10,779,974 (57,692,255) Net increase in customers’ deposits at amortized cost 552,961,283 801,319,585 Net increase/(decrease) in provisions 15,480,683 (1,134,119) Interest received 1,141,262,634 983,572,123 Interest paid (823,790,749) (676,138,951) Income tax paid (31,422,103) (28,811,569)
Net cash (used in)/generated by operating activities 646,324,193 (978,508,583)
The accompanying notes form an integral part of the consolidated financial statements. The accompanying notes form an integral part of the consolidated financial statements.
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The Group applies three-stage approach to measuring expected credit losses (ECL) on financial assets carried at amortised cost and debt instruments classified as FVTOCI. Assets migrate through the following three stages based on the change in credit quality since initial recognition. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Stage 1: 12 months ECL YEAR ENDED DECEMBER 31, 2018 Stage 1 includes financial assets that did not experience a significant increase in credit risk since the initial recognition or that have low credit risk. For these assets, ECL are recognised on the gross carrying amount of 1. GENERAL INFORMATION the asset based on the expected credit losses that result from default events that are possible within 12 months after the reporting date. Interest is computed on the gross carrying amount of the asset. Banque Libano-Française S.A.L. (the “Bank” or “BLF”) is a Lebanese joint-stock company registered in the Stage 2: Lifetime ECL Register of Commerce under N° 19618 and on the Central Bank of Lebanon list of banks under N° 10. The Bank’s headquarters are located in Hamra Street, Beirut, Lebanon. Stage 2 includes financial assets that have had a significant increase in credit risk (SICR) since initial recognition but that do not have objective evidence of impairment. For these assets, lifetime ECL are recognised, but The Group provides a full range of corporate and retail banking, investment and private banking and operates interest is still calculated on the gross carrying amount of the asset. Lifetime ECL are the expected credit losses through a network of 60 branches throughout the Lebanese territory and a branch in Baghdad, in addition to that result from all possible default events over the expected life of the financial instrument. a subsidiary in Paris having a branch in Limassol and a subsidiary in Geneva, one representative office in Abu Stage 3: Lifetime ECL Dhabi (UAE), and one representative office in Lagos (Nigeria). Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these The consolidated financial statements of the Bank comprise the financial statements of the Bank and those of assets, lifetime ECL are recognised. its subsidiaries (the “Group”) described under (Note 3'A'). The impact of the adoption of IFRS 9 impairment model on the Group’s financial assets and their carrying values and equity is disclosed in section (d) below. 2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSS) c. Hedge accounting 2.1 New and revised IFRSs applied with no material effect on the financial statements IFRS 9 incorporates new hedge accounting rules that align hedge accounting with risk management practices. IFRS 9 does not cover guidance on macro hedge accounting as IASB is working on it as a separate project. IFRS 9 The following new and revised IFRSs and amendments to IFRSs and Interpretations, which became effective includes an accounting policy choice to defer the adoption of IFRS 9 hedge accounting and to continue with IAS for annual periods beginning on or after January 1, 2018, have been adopted in these consolidated financial 39 hedge accounting. The Group, however, has elected to adopt the new hedge accounting provisions of IFRS 9. statements. The existing hedging relationships continue to qualify and be effective under the IFRS 9 hedge accounting 2.1.1 IFRS 9 Financial Instruments provisions and did not have any transition impact on the Group financial statements. d. Transition In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are mandatorily effective for an accounting period that Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except begins on or after January 1, 2018. Transition provisions of IFRS 9 allow an entity not to restate comparatives. as described below: Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: disclosures that • as permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures. were applied to the disclosures about 2018 and to the comparative period. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings as at January 1, 2018. Accordingly, the information presented for IFRS 9 introduced new requirements for: 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented a. Classification and measurement of financial assets for 2018 under IFRS 9, The Group early adopted IFRS 9 (2009) and IFRS 9 (2010) with respect to classification and measurement • the following assessments have been made on the basis of the facts and circumstances that existed at the requirements of its financial assets and financial liabilities. date of initial application, • the determination of the business model within which a financial asset is held, On January 1, 2018 the Group adopted IFRS 9 (July 2014) and therefore reassessed the classification and • the designation of certain investments in equity instruments not held for trading as at FVTOCI, measurement of its financial assets and financial liabilities that have not been derecognised as at January 1, 2018 • if a debt security had low credit risk at the date of initial application of IFRS 9, then the Group has assumed that and has not applied the requirements to instruments that have already been derecognised as at January 1, 2018. credit risk on the asset had not increased significantly since its initial recognition. All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Refer to (Note 3). Debt instruments that are measured subsequently at amortised cost or at FVTOCI are subject to impairment. See (b) below. The impact on the classification of financial assets and their carrying amounts is disclosed under section (d) below. b. Impairment of financial assets In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. The new impairment model applies to all financial assets measured at amortised cost (including debts instruments measured at FVTOCI). It also applies to certain loan commitments and financial guarantee contracts but not to equity investments.
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Impact of change in classification and measurement Except for the financial statement captions listed in the below table, there have been no changes in the carrying amounts of assets and liabilities on application of IFRS 9 (2014) as at January 1, 2018.
Classification under IFRS 9 (2010) Classification under IFRS 9 (2014) December 31, 2017 Re-measurement January 1, 2018 Effect of In thousands of LBP Category Amount Reclassification ECL reclassification Category Amount
Financial assets Cash and deposits with Central Banks Amortized cost 5,021,551,131 - 19,524,156 - Amortized cost 5,002,026,975 Deposits with banks and financial institutions Amortized cost 2,226,040,003 - 8,663,369 - Amortized cost 2,217,376,634 Financial assets at fair value through profit or loss FVPL 326,613,113 (220,211,746) - - FVTPL 106,401,367 Loans to banks Amortized cost 99,416,760 - 2,954,087 - Amortized cost 96,462,673 Loans and advances to customers Amortized cost 6,539,652,703 - 226,246,047 - Amortized cost 6,313,406,656 Investment securities at amortized cost Amortized cost 4,965,407,190 7,007,723 28,987,514 - Amortized cost 4,943,427,399 Investment securities at fair value through other comprehensive income FVTOCI 41,101,081 213,204,023 1,064,104 - FVTOCI 253,241,000 Customers’ liability under acceptance Amortized cost 303,063,458 - 998,428 - Amortized cost 302,065,030
19,522,845,439 - 288,437,705 - 19,234,407,734
Liabilities Provisions (Note 20) 19,726,463 20,026,162 Amortized cost 39,752,625 308,463,867
The increase in impairment allowances when measured in accordance with IFRS 9 expected credit losses model compared to IAS 39 incurred loss model amounts to LBP 308.5 billion. The effect of adoption of IFRS 9 Impairment on the Group’s equity is as follows.
In thousands of LBP Effect of ECL on the Bank and its subsidiaries 308,463,867 Add: provision for expected credit losses from associates (Note 12) 2,614,858 ECL charged to opening retained earnings 311,078,725
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2.1.2 IFRS 15 Revenue from contracts with customers 2.2 Adoption of new and revised standards In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended in 2.2.1 New and revised IFRS in issue but not yet effective and not early adopted April 2016) which is effective for an annual period that begins on or after January 1, 2018. IFRS 15 introduced a 5‑step approach to revenue recognition. The impact of IFRS 15 is not material on the consolidated financial At the date of authorisation of these financial statements, the Group has not applied the following new and statements of the Group. revised IFRS Standards that have been issued but are not yet effective:
2.1.3 Other IFRSs and amendments Effective for annual periods New and revised IFRSs beginning on or after In the current year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are effective for an annual period that • Annual Improvements to IFRS Standards 2015–2017 Cycle amending IFRS 3, January 1, 2019 begins on or after January 1, 2018. Their adoption has not had any material impact on the disclosures or on the IFRS 11, IAS 12 and IAS 23, amounts reported in these consolidated financial statements. • Amendments to IFRS 9 Financial Instruments January 1, 2019 • Annual Improvements to IFRS Standards 2014 – 2016 Cycle amending IFRS 1 and IAS 28, Relating to prepayment features with negative compensation. This amends • Amendments to IFRS 2 Share Based Payment regarding classification and measurement of share based the existing requirements in IFRS 9 regarding termination rights in order payment transactions, to allow measurement at amortized cost (or, depending on the business • Amendments to IAS 28 Investments in Associates and Joint Ventures: the amendments clarify that the option model, at fair value through other comprehensive income) even in the case for a venture capital organization and other similar entities to measure investments in associates and joint of negative compensation payments, ventures at FVTPL is available separately for each associate or joint venture, and that election should be made • IFRS 16 Leases January 1, 2019 at initial recognition, IFRS 16 specifies how an IFRS reporter will recognize, measure, present and • In respect of the option for an entity that is not an investment entity (IE) to retain the fair value measurement disclose leases. The standard provides a single lessee accounting model, applied by its associates and joint ventures that are IEs when applying the equity method, the amendments requiring lessees to recognize assets and liabilities for all leases unless the make a similar clarification that this choice is available for each IE associate or IE joint venture, lease term is 12 months or less or the underlying asset has a low value. Lessors • Amendments to IAS 40 Investment Property: amends paragraph 57 to state that an entity shall transfer a continue to classify leases as operating or finance, with IFRS 16’s approach to property to, or from, investment property when, and only when, there is evidence of a change in use. A lessor accounting substantially unchanged from its predecessor, IAS 17, change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in • A mendments to IAS 28 Investment in Associates and Joint Ventures: January 1, 2019 management’s intentions for the use of a property by itself does not constitute evidence of a change in use, Relating to long-term interests in associates and joint ventures. These • IFRIC 22 Foreign Currency Transactions and Advance Consideration: the interpretation addresses foreign amendments clarify that an entity applies IFRS 9 Financial Instruments to currency transactions or parts of transactions where: long-term interests in an associate or joint venture that form part of the net - there is consideration that is denominated or priced in a foreign currency, investment in the associate or joint venture but to which the equity method - the entity recognizes a prepayment asset or a deferred income liability in respect of that consideration, in is not applied. advance of the recognition of the related asset, expense or income, - the prepayment asset or deferred income liability is non-monetary. 2.2.2 New and revised IFRSs Other than the above, there are no other significant IFRSs and amendments that were effective for the first time • IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019 for the financial year beginning on or after January 1, 2018. The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers: - whether tax treatments should be considered collectively, - assumptions for taxation authorities’ examinations, - the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, - the effect of changes in facts and circumstances. Amendment to IFRS 3 Business Combinations relating to definition of a business January 1, 2020 Amendments to IAS 1 and IAS 8 relating to definition of material IFRS 17 Insurance Contracts January 1, 2020 IFRS 17 requires insurance liabilities to be measured at a current fulfillment January 1, 2021 value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 Insurance Contracts as of 1 January 2021. Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Effective date deferred Investments in Associates and Joint Ventures (2011): indefinitely. Adoption is Relating to the treatment of the sale or contribution of assets from and still permitted investor to its associate or joint venture.
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The Directors anticipate that these new standards, interpretations, and amendments will be adopted in When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting the Group’s financial statements as and when they are applicable and adoption of these new standards, policies into line with the Group’s accounting policies. interpretations and amendment, except for IFRS 16, may have no material impact on the consolidated financial All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between statements of the Group in the period of initial application. Management is still in the process of assessing members of the Group are eliminated in full on consolidation. the impact of IFRS 16 and therefore an estimate of any impact on the consolidated financial statements as of January 1, 2019 cannot be reasonably determined at present. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Bank loses control over a subsidiary, it: • derecognizes the assets (including goodwill) and liabilities of the subsidiary, 3. SIGNIFICANT ACCOUNTING POLICIES • derecognizes the carrying amount of any non-controlling interests, • derecognizes the cumulative translation differences recorded in equity, Statement of compliance • recognizes the fair value of the consideration received, The consolidated financial statements have been prepared in accordance with International Financial Reporting • recognizes the fair value of any investment retained, Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). • recognizes any surplus or deficit in profit or loss, • reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained earnings, Basis of preparation and measurement as appropriate, as would be required if the Bank had directly disposed of the related assets or liabilities. The consolidated financial statements have been prepared on the historical cost basis except for the following measured at fair value: The consolidated subsidiaries consist of the following. • financial instruments designated at fair value through profit or loss (FVTPL). • investments in equity securities designated at fair value through other comprehensive income (OCI). Country of Percentage of • derivative financial instruments measured at fair value. incorporation ownership Business ativities Assets and liabilities are prepared according to their nature and are presented in an approximate order that 2018 2017 reflects their relative liquidity. Compagnie Libanaise Lebanon 99.5% 99.5% Software The principal accounting policies applied are set out below: pour l’Informatique S.A.R.L. (limited activity)
A. Basis of consolidation Beirut Liberty Plaza S.A.L. Lebanon 100% 100% Real estate – Bank’s Head Office Premises The consolidated financial statements of Banque Libano-Française S.A.L. incorporate the financial statements (Dormant) of the Bank and entities controlled by the Bank and its subsidiaries. Control is achieved when the Bank: Société de Construction • has power over the investee, et de Commerce S.A.L. (Sodeco) Lebanon 79.32% 79.32% Real estate • is exposed, or has rights, to variable returns from its involvement with the investee, • has the ability to use its power to affect its returns. Libano-Française Finance S.A.L. Lebanon 100% 100% Financial institution The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Banque SBA S.A. and subsidiary France 99% 99% Bank having its headquarters in Paris, a branch in Cyprus and a subsidiary in Geneva When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee LF Funds Luxembourg 22.35% 21.99% Open Ended Fund unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including: Lebanon Income Fund (USD) • the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote Segregated Portfolio Cayman Islands 33.68% 30.91% Open Ended Fund holders, • potential voting rights held by the Bank, other vote holders or other parties, • rights arising from other contractual arrangements, Effective May 31, 2017, the Group lost the power to control Bank Al-Sharq S.A., that is owned to the extent of • any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to 49% by the Group and as a result deconsolidated this subsidiary effective June 1, 2017 (refer to 'Note 39' for direct the relevant activities at the time that decisions need to be made, including voting patterns at previous more details). shareholders’ meetings. Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the B. Business combinations Bank loses control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit or loss and other comprehensive income from the date the Bank Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a gains control until the date the Bank ceases to control the subsidiary. business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not owned directly of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree or indirectly by the Bank. Profit or loss and each component of other comprehensive income (OCI) are attributed and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs to the equity holders of the Bank and to the non-controlling interests, even if this results in the non-controlling other than those associated with the issue of debt or equity securities are generally recognized in profit or loss interests having a deficit balance. as incurred.
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The consideration transferred does not include amounts related to the settlement of pre-existing relationships. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the Such amounts are generally recognized in profit or loss. determination of the profit or loss on disposal. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non- The Group’s policy for goodwill arising on the acquisition of an associate is described under “Investments in controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in associates”. the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. When the excess is negative, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts D. Foreign currencies to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net The consolidated financial statements are presented in Lebanese Pounds which is the Group’s reporting assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss. currency. Each entity in the Group determines its own functional currency and items included in the financial Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries and associates are statements of each entity are measured using that functional currency. identified separately from the Group’s equity therein. In preparing the financial statements of each individual Group entity, transactions in foreign currencies are Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share initially recorded at the functional currency rates of exchange prevailing at the dates of the transactions. At the of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non- end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that interests are measured at fair value or, when applicable, on the basis specified in another IFRS. are measured in terms of historical cost in a foreign currency are not retranslated. When the consideration transferred by the Group in a business combination includes assets or liabilities Exchange differences on monetary items are recognized in profit or loss in the period in which they arise resulting from a contingent consideration arrangement, the contingent consideration is measured at its except for exchange differences on transactions entered into in order to hedge certain foreign currency risks, acquisition-date fair value and included as part of the consideration transferred in a business combination. and except for exchange differences on monetary items receivable from or payable to a foreign operation for Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are which settlement is neither planned nor likely to occur in the foreseeable future, which are recognized in other adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments comprehensive income, and presented in the translation reserve in equity. These are recognized in profit or are adjustments that arise from additional information obtained during the ‘‘measurement period‘’ (which loss on disposal of the net investment. cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s date. foreign operations are translated into Lebanese Pound using exchange rates prevailing at the end of each The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify reporting period. Income and expense items are translated at the average exchange rates for the period, unless as measurement period adjustments depends on how the contingent consideration is classified. Contingent exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is accumulated in equity (attributed to non-controlling interests as appropriate). Such exchange differences are remeasured at subsequent reporting dates in accordance with IFRS 9, or IAS 37 Provisions, Contingent Liabilities recognized in profit or loss in the period in which the foreign operation is disposed of. and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non- is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or controlling interests and are not recognized in profit or loss. loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of recognized in other comprehensive income are reclassified to profit or loss where such treatment would be a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of appropriate if that interest were disposed of. exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other If the initial accounting for a business combination is incomplete by the end of the reporting period in which comprehensive income. the combination occurs, the Group reports provisional amounts for the items for which the accounting is Cash flows provided by and used in foreign currencies under various activities, as included in the statement incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional of cash flows, are converted into Lebanese Pounds at year-end exchange rates, except for cash and cash assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that equivalents at the beginning of the year which is converted at the prior year closing exchange rates and the existed at the acquisition date that, if known, would have affected the amounts recognized at that date. effect of currency fluctuation, if any, is disclosed separately. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. E. Financial instruments
C. Goodwill Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Goodwill arising on an acquisition of a business is carried at cost. Refer to (Note 3'B') for the measurement of goodwill at initial recognition. Subsequent to initial recognition, goodwill is measured at cost less accumulated Recognised financial assets and financial liabilities are initially measured at fair value. Transaction costs that are impairment losses, if any. directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss. allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.
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If the transaction price differs from fair value at initial recognition, the Group will account for such difference Debt instruments at amortised cost or at FVTOCI as follows: For an asset to be classified and measured at amortised cost or at FVTOCI, its contractual terms should give rise • if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a to cash flows that are solely payments of principal and interst on the principal outstanding (SPPI). valuation technique that uses only data from observable markets, then the difference is recognised in profit or loss on initial recognition (i.e. day 1 profit or loss), An assessment of business models for managing financial assets is fundamental to the classification of a • in all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 profit or financial asset. The Group determines the business models at a level that reflects how groups of financial loss will be deferred by including it in the initial carrying amount of the asset or liability). assets are managed together to achieve a particular business objective. The Group’s business model does not Central Bank of Lebanon Circular N° 143 dated November 7, 2017 prohibits recognition of day one profits on depend on management’s intentions for an individual instrument, therefore the business model assessment is designated non-conventional transactions concluded between the Central Bank of Lebanon and banks and performed at a higher level of aggregation rather than on an instrument-by-instrument basis. whose purpose is to secure yield adjustment to maturity on certain designated financial assets as part of the When a debt instrument measured at FVTOCI is derecognised, the cumulative gain/loss previously recognised Central Bank’s monetary policy. The Group recognized the designated financial assets at amortized cost. These in OCI is reclassified from equity to profit or loss. In contrast, for an equity investment designated as measured non-conventional transactions with the Central Bank of Lebanon consist of non-transferable non-negotiable at FVTOCI, the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or agreements. loss but transferred within equity. After initial recognition, the deferred gain or loss will be released to profit or loss on a rational basis, only to the The Group reassess its business models each reporting period to determine whther the business models have extent that it arises from a change in a factor (including time) that market participants would take into account changed since the preceding period. when pricing the asset or liability. Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment. In the current and prior reporting period the Group has applied the fair value option and so has designated F. Financial assets debt instruments that meet the amortised cost or FVTOCI criteria as measured at FVTPL. All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial Financial assets at FVTPL asset is under contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and initially measured at fair value, plus transaction costs, except for those financial Financial assets at FVTPL are: assets classified as at FVTPL. Transaction costs directly attributable to the acquisition of financial assets • assets with contractual cash flows that are not SPPI, or/and classified as at FVTPL are recognised immediately in profit or loss. • assets that are held in a business model other than held to collect contractual cash flows or held to collect All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at and sell, or amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and • assets designated at FVTPL using the fair value option. the contractual cash flow characteristics of the financial assets. These assets are measured at fair value, with any gains/losses arising on remeasurement recognised in profit Specifically: or loss. Fair value is determined in the manner described below. • debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal Reclassifications amount outstanding (SPPI), are subsequently measured at amortised cost, If the business model under which the Group holds financial assets changes, the financial assets affected are • debt instruments that are held within a business model whose objective is both to collect the contractual cash reclassified. The classification and measurement requirements related to the new category apply prospectively flows and to sell the debt instruments, and that have contractual cash flows that are SPPI, are subsequently from the first day of the first reporting period following the change in business model that results in reclassifying measured at FVTOCI, the Group’s financial assets. • all other debt instruments (e.g. debt instruments managed on a fair value basis, or held for sale) and equity investments are subsequently measured at FVTPL. Impairment However, the Group may make the following irrevocable election / designation at initial recognition of a Policy applicable up to December 31, 2017: financial asset on an asset-by-asset basis: • the Group may irrevocably elect to present subsequent changes in fair value of an equity investment that is Financial assets that are measured at amortized cost are assessed for impairment at the end of each reporting neither held for trading nor contingent consideration recognised by an acquirer in a business combination to period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one which IFRS 3 applies, in OCI, or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows • the Group may irrevocably designate a debt instrument that meets the amortised cost or FVTOCI criteria as of the asset have been affected. measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch (referred to as the Objective evidence of impairment could include: fair value option). • significant financial difficulty of the issuer or counterparty, or • breach of contract, such as a default or delinquency in interest or principal payments, or • it becoming probable that the borrower will enter bankruptcy or financial re-organization, or • the disappearance of an active market for that financial asset because of financial difficulties, or • significant or prolonged decline in fair value beyond one business cycle that occurred after the initial recognition of the financial asset or group of financial assets which impacted the estimated future cash flows of the investment.
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For certain categories of financial asset, such as loans and advances, assets that are assessed not to be impaired The Group measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar individually are, in addition, assessed for impairment on a collective basis. This provision is estimated based on economic risk characteristics. The measurement of the loss allowance is based on the present value of the various factors including credit ratings allocated to a borrower or group of borrowers, the current economic asset’s expected cash flows using the asset’s original EIR, regardless of whether it is measured on an individual conditions, the experience the Group has had in dealing with a borrower or group of borrowers and available basis or a collective basis. historical default information, as well as observable changes in national or local economic conditions that correlate with default on loans and advances. Credit-impaired financial assets The amount of the impairment loss recognized is the difference between the asset’s carrying amount and the A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated present value of estimated future cash flows reflecting the amount of collateral and guarantee, discounted at future cash flows of the financial asset have occurred. Credit-impaired financial assets are referred to as Stage 3 the financial asset’s original effective interest rate. assets. Evidence of credit-impairment includes observable data about the following events: If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related • significant financial difficulty of the borrower or issuer, objectively to an event occurring after the impairment was recognized, the previously recognized impairment • a breach of contract such as a default or past due event, loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the • the lender of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, impairment is reversed does not exceed what the amortized cost would have been had the impairment not having granted to the borrower a concession that the lender would not otherwise consider, been recognized. • the disappearance of an active market for a security because of financial difficulties, or • the purchase of a financial asset at a deep discount that reflects the incurred credit losses. Policy applicable effective January 1, 2018: It may not be possible to identify a single discrete event instead, the combined effect of several events may The Group recognises loss allowances for ECLs on the following financial instruments that are not measured have caused financial assets to become credit-impaired. The Group assesses whether debt instruments that are at FVTPL: financial assets measured at amortised cost or FVTOCI are credit-impaired at each reporting date. To assess if • deposits at banks, sovereign and corporate debt instruments are credit impaired, the Group considers factors such as bond yields, • loans and advances to banks, credit ratings and the ability of the borrower to raise funding. • loans and advances to customers, • customers' liability under acceptances, Purchased or originated credit-impaired (POCI) financial assets • debt investment securities, • loan commitments issued, and POCI financial assets are treated differently because the asset is credit-impaired at initial recognition. For these • financial guarantee contracts issued. assets, the Group recognises all changes in lifetime ECL since initial recognition as a loss allowance with any No impairment loss is recognised on equity investments. changes recognised in profit or loss. A favourable change for such assets creates an impairment gain. With the exception of Purchased or Originated Credit Impaired (POCI) financial assets (which are considered Definition of default separately below), ECLs are required to be measured through a loss allowance at an amount equal to: Critical to the determination of ECL is the definition of default. The definition of default is used in measuring • 12-month ECL, i.e. lifetime ECL that result from those default events on the financial instrument that are the amount of ECL and in the determination of whether the loss allowance is based on 12-month or lifetime possible within 12 months after the reporting date, (referred to as Stage 1), or ECL, as default is a component of the probability of default (PD) which affects both the measurement of ECLs • full lifetime ECL, i.e. lifetime ECL that result from all possible default events over the life of the financial and the identification of a significant increase in credit risk. instrument, (referred to as Stage 2 and Stage 3). The Group considers the following as constituting an event of default: A loss allowance for full lifetime ECL is required for a financial instrument if the credit risk on that financial • the borrower is past due more than 90 days on any material credit obligation to the Group, or instrument has increased significantly since initial recognition. For all other financial instruments, ECLs are • the borrower is unlikely to pay its credit obligations to the Group in full. measured at an amount equal to the 12-month ECL. The definition of default is appropriately tailored to reflect different characteristics of different types of assets. ECLs are a probability-weighted estimate of the present value of credit losses. These are measured as the Overdrafts are considered as being past due once the customer has breached an advised limit or has been present value of the difference between the cash flows due to the Group under the contract and the cash flows advised of a limit smaller than the current amount outstanding. that the Group expects to receive arising from the weighting of multiple future economic scenarios, discounted When assessing if the borrower is unlikely to pay its credit obligation, the Group takes into account both at the asset’s EIR. qualitative and quantitative indicators. The information assessed depends on the type of the asset, for example • for undrawn loan commitments, the ECL is the difference between the present value of the difference between in corporate lending a qualitative indicator used is the breach of covenants, which is not relevant for retail the contractual cash flows that are due to the Group if the holder of the commitment draws down the loan lending. Quantitative indicators, such as overdue status and non-payment on another obligation of the same and the cash flows that the Group expects to receive if the loan is drawn down, and counterparty are key inputs in this analysis. The Group uses a variety of sources of information to assess default • for financial guarantee contracts, the ECL is the difference between the expected payments to reimburse the which are either developed internally or obtained from external sources. holder of the guaranteed debt instrument less any amounts that the Group expects to receive from the holder, the debtor or any other party. Significant increase in credit risk The Group monitors all financial assets, issued loan commitments and financial guarantee contracts that are subject to the impairment requirements to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Group will measure the loss allowance based on lifetime rather than 12-month ECL. In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date based
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on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the as the carrying amount is at fair value. However, the loss allowance is included as part of the revaluation remaining maturity at the current reporting date when the financial instrument was first recognised. In making amount in the investments revaluation reserve; this assessment, the Group considers both quantitative and qualitative information that is reasonable and • for loan commitments and financial guarantee contracts: as a provision, and supportable, including historical experience and forward-looking information that is available without undue • where a financial instrument includes both a drawn and an undrawn component, and the Group cannot cost or effort, based on the Group’s historical experience and expert credit assessment including forward- identify the ECL on the loan commitment component separately from those on the drawn component: the looking information. Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over Modification and derecognition of financial assets the gross amount of the drawn component is presented as a provision. A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A G. Financial liabilities and equity modification affects the amount and/or timing of the contractual cash flows either immediately or at a future Debt and equity instruments that are issued are classified as either financial liabilities or as equity in accordance date. In addition, the introduction or adjustment of existing covenants of an existing loan would constitute a with the substance of the contractual arrangement. modification even if these new or adjusted covenants do not yet affect the cash flows immediately but may affect the cash flows depending on whether the covenant is or is not met (e.g. a change to the increase in the A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial interest rate that arises when covenants are breached). assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Group or a contract that will or may be settled in the Group’s own equity instruments and is a non-derivative contract When a financial asset is modified the Group assesses whether this modification results in derecognition. In for which the Group is or may be obliged to deliver a variable number of its own equity instruments, or a accordance with the Group’s policy a modification results in derecognition when it gives rise to substantially derivative contract over own equity that will or may be settled other than by the exchange of a fixed amount different terms. of cash (or another financial asset) for a fixed number of the Group’s own equity instruments. The Group derecognises a financial asset only when the contractual rights to the asset’s cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and Equity instruments substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred issue costs. financial asset, the Group continues to recognise the financial asset and also recognises a collateralised Repurchase of the Group’s own equity instruments is recognised and deducted directly in equity. No gain/loss borrowing for the proceeds received. is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain/loss that had been recognised in OCI Financial liabilities and accumulated in equity is recognised in profit or loss, with the exception of equity investment designated Financial liabilities are classified as either financial liabilities ‘‘at FVTPL‘’ or ‘’Other financial liabilities‘’. as measured at FVTOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss. Financial liabilities at FVTPL On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading, or (ii) it is designated repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset as at FVTPL. between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the A financial liability is classified as held for trading if: carrying amount allocated to the part that is no longer recognised and the sum of the consideration received • it has been incurred principally for the purpose of repurchasing it in the near term, or for the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages is recognised in profit or loss. A cumulative gain/loss that had been recognised in OCI is allocated between the together and has a recent actual pattern of short-term profit-taking, or part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair • it is a derivative that is not designated and effective as a hedging instrument. values of those parts. This does not apply for equity investments designated as measured at FVTOCI, as the A financial liability other than a financial liability held for trading or contingent consideration that may be paid cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss. by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if: • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would Write-off otherwise arise, or • the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed Loans and debt securities are written off when the Group has no reasonable expectations of recovering and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk the financial asset (either in its entirety or a portion of it). This is the case when the Group determines that management or investment strategy, and information about the grouping is provided internally on that basis, the borrower does not have assets or sources of income that could generate sufficient cash flows to repay or the amounts subject to the write-off. A write-off constitutes a derecognition event. The Group may apply • it forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire hybrid enforcement activities to financial assets written off. Recoveries resulting from the Group’s enforcement (combined) contract to be designated as at FVTPL. activities will result in impairment gains. Financial liabilities at FVTPL are stated at fair value, with any gains/losses arising on remeasurement recognised in profit or loss to the extent that they are not part of a designated hedging relationship. The net gain/loss Presentation of allowance for ECL in the statement of financial position recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘‘net Loss allowances for ECL are presented in the statement of financial position as follows: income from other financial instruments at FVTPL‘’ line item in the profit or loss account. • for financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets, However, for non-derivative financial liabilities that are designated as at FVTPL, the amount of change in the • for debt instruments measured at FVTOCI: no loss allowance is recognised in the statement of financial position fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in OCI, unless the recognition of the effects of changes in the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. The remaining amount of change in the fair value of liability is recognised in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are recognised in
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OCI are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings upon Embedded derivatives derecognition of the financial liability. Derivatives embedded in financial liabilities or other non-financial asset host contracts are treated as For issued loan commitments and financial guarantee contracts that are designated as at FVTPL all gains and separate derivatives when their risks and characteristics are not closely related to those of the host contracts losses are recognised in profit or loss. and the host contracts are not measured at FVTPL In making the determination of whether recognising changes in the liability’s credit risk in OCI will create or enlarge an accounting mismatch in profit or loss, the Group assesses whether it expects that the effects of J. Financial guarantee contracts changes in the liability’s credit risk will be offset in profit or loss by a change in the fair value of another financial instrument measured at FVTPL. This determination is made at initial recognition. A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance Fair value is determined as described below. with the terms of a debt instrument. Other financial liabilities Financial guarantee contracts issued by a group entity are initially measured at their fair values and, if not designated as at FVTPL and not arising from a transfer of a financial asset, are subsequently measured at Other financial liabilities, including deposits and borrowings, are initially measured at fair value, net of the higher of: transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective • the amount of the loss allowance determined in accordance with IFRS 9, and interest method. • the amount initially recognised less, where appropriate, cumulative amount of income recognised in The effective interest method is a method of calculating the amortised cost of a financial liability and of accordance with the Group’s revenue recognition policies. allocating interest expense over the relevant period. The EIR is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to Financial guarantee contracts not designated at FVTPL are presented as provisions on the consolidated the net carrying amount on initial recognition. For details on EIR see the “net interest income section” above. statement of financial position and the remeasurement is presented in other revenue. The Group has not designated any financial guarantee contracts as at FVTPL. Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, K. Hedge accounting cancelled or have expired. The difference between the carrying amount of the financial liability derecognised The Group designates certain derivatives as hedging instruments in respect of foreign currency risk and and the consideration paid and payable is recognised in profit or loss. interest rate risk in fair value hedges, cash flow hedges, or hedges of net investments in foreign operations When the Group exchanges with the existing lender one debt instrument into another one with substantially as appropriate. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow different terms, such exchange is accounted for as an extinguishment of the original financial liability and the hedges. The Group does not apply fair value hedge accounting of portfolio hedges of interest rate risk. In recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of addition the Group does not use the exemption to continue using IAS 39 hedge accounting rules, i.e. the an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a Group applies IFRS 9 hedge accounting rules in full. new liability. It is assumed that the terms are substantially different if the discounted present value of the cash At the inception of the hedge relationship, the Group documents the relationship between the hedging flows under the new terms, including any fees paid net of any fees received and discounted using the original instrument and the hedged item, along with its risk management objectives and its strategy for undertaking effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows of various hedge transactions. the original financial liability. Policy applicable up to December 31, 2017: H. Offsetting Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair Financial assets and liabilities are set-off and the net amount is presented in the consolidated statement of values or cash flows of the hedged item. financial position when, and only when, the Group has a legal right to set-off the amounts or intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order to qualify for hedge accounting. A formal assessment is undertaken to ensure the hedging I. Derivative financial instruments instrument is expected to be highly effective in offsetting the designated risk in the hedged item, both at inception and at each quarter end on an ongoing basis. Derivatives, such as foreign exchange forward contracts, interest rate swaps, cross currency interest rate swaps A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the and credit default swaps, are initially recognised at fair value at the date a derivative contract is entered into and hedged risk during the period for which the hedge is designated are expected to offset in a range of 80% to are subsequently remeasured to their fair value at each statement of financial position date. The resulting gain/ 125% and are expected to achieve such offset in future periods. Hedge ineffectiveness is recognized in the loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging consolidated statement of profit or loss in “net results on financial instruments at fair value through profit instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge or loss”. For situations where that hedged item is a forecast transaction, the Group also assesses whether relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately liabilities or firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges affect the consolidated statement of profit or loss. of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations (net investment hedges). Policy applicable effective January 1, 2018: A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether value is recognised as a financial liability. the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
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• there is an economic relationship between the hedged item and the hedging instrument, Amounts previously recognised in OCI and accumulated in equity are reclassified to profit or loss in the periods • the effect of credit risk does not dominate the value changes that result from that economic relationship, and when the hedged item affects profit or loss, in the same line as the recognised hedged item. If the Group no • the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item longer expects the transaction to occur that amount is immediately reclassified to profit or loss. that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet hedge that quantity of hedged item. the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument The Group rebalances a hedging relationship in order to comply with the hedge ratio requirements when expires or is sold, terminated or exercised, or where the occurrence of the designated hedged forecast transaction necessary. In such cases discontinuation may apply to only part of the hedging relationship. For example, the is no longer considered to be highly probable. The discontinuation is accounted for prospectively. Any gain/loss hedge ratio might be adjusted in such a way that some of the volume of the hedged item is no longer part of recognised in OCI and accumulated in equity at that time remains in equity and is recognised when the forecast a hedging relationship, hence hedge accounting is discontinued only for the volume of the hedged item that transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, is no longer part of the hedging relationship. the gain/loss accumulated in equity is reclassified and recognised immediately in profit or loss. If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Group adjusts the Hedges of net investments in foreign operations hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again. Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain/loss In some hedge relationships the Group designates only the intrinsic value of options. In this case the fair value on the hedging instrument relating to the effective portion of the hedge is recognised in OCI and accumulated change of the time value component of the option contract is deferred in OCI, over the term of the hedge, to in the foreign currency translation reserve. the extent that it relates to the hedged item and is reclassified from equity to profit or loss when the hedged Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the item does not result in the recognition of a non-financial item. The Group’s risk management policy does not foreign currency translation reserve are reclassified to profit or loss in the same way as exchange differences include hedges of items that result in the recognition of non-financial items, because the Group’s risk exposures relating to the foreign operation. relate to financial items only. The hedged items designated by the Group are time-period related hedged items, which means that the amount of the original time value of the option that relates to the hedged item is amortised from equity to L. Investments in associates profit or loss on a rational basis (e.g. straight-line) over the term of the hedging relationship. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an In some hedge relationships the Group excludes from the designation the forward element of forward contracts interest in a joint venture. Significant influence is the power to participate in the financial and operating policy or the currency basis spread of cross currency hedging instruments. In this case a similar treatment is applied decisions of the investee but is not control or joint control over those policies. to the one applied for the time value of options. The treatment for the forward element of a forward and the The considerations made in determining significant influence are similar to those necessary to determine currency basis element is optional and the option is applied on a hedge by hedge basis, unlike the treatment control over subsidiaries. for the time value of the options which is mandatory. For hedge relationships with forwards or foreign currency derivatives such as cross currency interest rate swaps, where the forward element or the currency basis spread The results and assets and liabilities of associates are incorporated in these consolidated financial statements is excluded from the designation the Group generally recognises the excluded element in OCI. using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Fair value hedges Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group‘s share of the profit or loss and other The fair value change on qualifying hedging instruments is recognised in profit or loss except when the comprehensive income of the associate. When the Group‘s share of losses of an associate exceeds the Group‘s hedging instrument hedges an equity instrument designated at FVTOCI in which case it is recognised in OCI. interest in that associate, the Group discontinues recognizing its share of further losses. Additional losses are The carrying amount of a hedged item not already measured at fair value is adjusted for the fair value change recognized only to the extent that the Group has incurred legal or constructive obligations or made payments attributable to the hedged risk with a corresponding entry in profit or loss. For debt instruments measured at on behalf of the associate. FVTOCI, the carrying amount is not adjusted as it is already at fair value, but the part of the fair value gain or Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, loss on the hedged item associated with the hedged risk is recognised in profit or loss instead of OCI. When liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as the hedged item is an equity instrument designated at FVTOCI, the hedging gain/loss remains in OCI to match goodwill, which is included within the carrying amount of the investment. Any excess of the Group‘s share of that of the hedging instrument. the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after Where hedging gains/losses are recognised in profit or loss, they are recognised in the same line as the hedged item. reassessment, is recognized immediately in profit or loss. The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases The entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. The fair value less costs to sell) with its carrying amount, Any impairment loss recognized forms part of the carrying fair value adjustment to the carrying amount of hedged items for which the EIR method is used (i.e. debt amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the instruments measured at amortised cost or at FVTOCI) arising from the hedged risk is amortised to profit or extent that the recoverable amount of the investment subsequently increases. loss commencing no later than the date when hedge accounting is discontinued. The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or when the investment is classified as held for sale. When the Group retains an interest in the former Cash flow hedges associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition. The difference The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that between the carrying amount of the associate at the date the equity method was discontinued, and the fair are designated and qualify as cash flow hedges is recognised in the cash flow hedging reserve, a separate value of any retained interest and any proceeds from disposing of a part interest in the associate is included component of OCI, limited to the cumulative change in fair value of the hedged item from inception of the in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all hedge less any amounts recycled to profit or loss. amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain
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M. Property and equipment Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not Property and equipment are stated at historical cost, less accumulated depreciation and any impairment loss. exceed the carrying amount that would have been determined had no impairment loss been recognized for the Depreciation of property and equipment, other than land and advance payments on capital expenditures asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit is calculated using the straight-line method over the estimated useful lives of the related assets using the or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment following annual rates: loss is treated as a revaluation increase. The fair value of the Group’s owned properties and of properties acquired in satisfaction of loans is the estimated Buildings 2% - 5% market value as determined by real estate appraisers on the basis of market compatibility by comparing with Office improvements and installations 6% - 20% similar transactions in the same geographical area and on the basis of the expected value of a current sale Furniture, equipment and machines 8% - 20% between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale after adjustment Computer equipment 15% - 33% for an illiquidity factor and market constraints. Vehicles 12% - 20% The impairment loss is charged to the consolidated statement of profit or loss. The estimated useful lives and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Q. Provision for Employees’ End-of-service Indemnity / Staff retirement benefits The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Obligations for contributions to defined employees’ benefits are recognized as an expense on a current basis. Employees’ End-of-service Indemnities: (under the Lebanese Jurisdiction) The provision for employees’ termination indemnities is based on the liability that would arise if the employment N. Intangible assets other than goodwill of all the employees’ were voluntary terminated at the reporting date. This provision is calculated in accordance with the directives of the Lebanese Social Security Fund and Labor laws based on the number of years of service Intangible assets other than goodwill, are amortized on a straight-line basis at the rate of 20%. Intangible assets multiplied by the monthly average of the last 12 months’ remunerations and less contributions paid to the are subject to impairment testing. Subsequent expenditure on intangible assets is capitalized only when it Lebanese Social Security National Fund. increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred. Defined benefit plans: (under other jurisdictions) Obligations in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; O. Assets acquired in satisfaction of loans that benefit is discounted to determine its present value, and any unrecognized past service costs and the fair value of any plan assets are deducted. Policy applicable to Lebanese Group entities: Real estate properties acquired through the enforcement of collateral over loans and advances are stated at cost less any accumulated impairment losses. The acquisition of such assets is regulated by the local banking authorities who require the liquidation of these assets within 2 R. Provisions years from acquisition. In case of default of liquidation the regulatory authorities require an appropriation of a special reserve from the yearly profits reflected in equity. Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provision is measured at the best estimate of the Upon sale of repossessed assets, any gain or loss realized is recognized in the consolidated statement of consideration required to settle the obligation at the statement of financial position date. profit or loss under “Other operating income” or “Other operating expenses”. Gains resulting from the sale of repossessed assets are transferred to reserves to be used for capital increase starting in the following financial Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying year. amount is the present value of those cash flows determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the For assets which were not disposed of within the specified period of two tears, an amount computed as risks specific to the liability. percentage of their gross carrying value is transferred to “Reverses for assets acquired in satisfaction of loans” in the following financial year. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. P. Impairment of tangible and intangible assets (other than goodwill)
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible S. Net interest income assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the Policy applicable up to December 31, 2017: impairment loss (if any). Interest income and expense are recognized on an accrual basis, taking into account the amount of the principal Recoverable amount is defined as the higher of: outstanding and the rate applicable, except for non-performing loans and advances for which interest income • fair value that reflects market conditions at the statement of financial position date, less cost to sell, if any. is only recognized upon realization. Interest income and expense include discount and premium amortization. To determine fair value the Group adopts the market comparability approach using as indicators the current Interest income and expense presented in the statement of profit or loss include: prices for similar assets in the same location and condition, • interest on financial assets and liabilities at amortized cost, • value in use: the present value of estimated future cash flows expected to arise from the continuing use of • changes in fair value of qualifying derivatives, including hedge ineffectiveness, and related hedged items the asset and from its disposal at the end of its useful life, only applicable to assets with cash generation units. when interest rate risk is the hedged risk. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount Policy applicable effective January 1, 2018: of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or Interest income and expense for all financial instruments except for those classified as held for trading or those loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as measured or designated as at FVTPL are recognised in ‘‘Net interest income‘’ as ‘‘Interest income‘’ and ‘‘Interest a revaluation decrease.
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expense‘‘ in the profit or loss account using the effective interest method. Interest on financial instruments Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the measured as at FVTPL is included within the fair value movement during the period, see ‘‘Net (loss)/income consolidated statement of financial position and the corresponding tax base used in the computation of from financial assets at fair value through profit or loss‘’. taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and The effective interest rate (EIR) is the rate that exactly discounts estimated future cash flows of the financial deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against instrument through the expected life of the financial instrument or, where appropriate, a shorter period, to the which deductible temporary differences can be utilized net carrying amount of the financial asset or financial liability. The future cash flows are estimated taking into account all the contractual terms of the instrument. X. Fiduciary accounts The calculation of the EIR includes all fees paid or received between parties to the contract that are incremental and directly attributable to the specific lending arrangement, transaction costs, and all other premiums or Fiduciary assets held or invested on behalf of individuals and others are held on a non-discretionary basis discounts. For financial assets at FVTPL transaction costs are recognised in profit or loss at initial recognition. and related risks and rewards belong to the account holders. Accordingly, these deposits are reflected as off-balance sheet accounts. The interest income/ interest expense is calculated by applying the EIR to the gross carrying amount of non- credit impaired financial assets (i.e. at the amortised cost of the financial asset before adjusting for any expected credit loss allowance), or to the amortised cost of financial liabilities. For credit-impaired financial assets the Y. Operating lease agreements interest income is calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for expected credit losses (ECLs)). For financial assets purchased Lease agreements which do not transfer substantially all the risks and benefits incidental to ownership of the or originated credit-impaired (POCI) the EIR reflects the ECLs in determining the future cash flows expected to leased items are classified as operating leases. Operating lease payments are recorded in the consolidated be received from the financial asset. statement of profit or loss on a straight line basis over the lease term.
T. Net fee and commission income Z. Cash and cash equivalents Fee and commission income and expense that are integral to the effective interest rate on a financial asset or Cash and cash equivalents comprise balances with maturities of a period of three months including: cash and liability (e.g. commissions and fees earned on loans) are included under interest income and expense. balances with the central banks and deposits with banks and financial institutions. Other fee and commission income are recognized as the related services are performed. AA. Dividends on issued ordinary shares U. Net (loss)/income from financial assets at fair value through profit or loss Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved Net income from financial instruments financial instruments at FVTPL includes all gains and losses from changes by the General Assembly of the Bank’s shareholders. Interim dividends are deducted from equity when they in the fair value of financial assets and financial liabilities at FVTPL and related interest income, expense and are declared and no longer at the discretion of the Bank. dividends. BB. Deferred restricted contributions V. Dividend income Restricted contributions derived from special and non-conventional deals arrangement with the regulator Dividend income is recognized when the right to receive payment is established. Dividends on equity are deferred until designated conditions for recognition are met. At the time income is received, it is deferred instruments designated as at fair value through other comprehensive income are recognized in profit or loss, under “Regulatory deferred liability” and applied to the designated purpose according to the regulator’s unless the dividend clearly represents a recovery of part of the investment, in which case it is presented in other requirements. comprehensive income.
W. Income tax 4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY Income tax expense represents the sum of the tax currently payable and deferred tax. Income tax is recognized In the application of the Group’s accounting policies, which are described in (Note 3), the directors are required in the consolidated statement of profit or loss except to the extent that it relates to items recognized directly in to make judgments, estimates and assumptions about the carrying amounts of revenues, expenses, assets and other comprehensive income, in which case it is recognized in other comprehensive income. liabilities and the accompanying disclosures, and the disclosure of contingent liabilities that are not readily The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported apparent from other sources. The estimates and associated assumptions are based on historical experience in the consolidated statement of profit or loss because of the items that are never taxable or deductible. The and other factors that are considered to be relevant. Actual results may differ from these estimates. Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting by the end of the reporting period. estimates are recognized in the period in which the estimate is revised if the revision affects only that period Up to October 26, 2017, part of the debt securities invested by the Group is subject to withheld tax by the or in the period of the revision and future periods if the revision affects both current and future periods. issuer. This tax is deducted at year-end from the corporate tax liability not eligible for deferred tax benefit, and therefore, accounted for as prepayment on corporate income tax and reflected as a part of income tax A. Critical accounting judgments in applying the Group’s accounting policies provision. In the process of applying the Group’s accounting policies, management has made the following judgments, During 2017, Lebanese tax amendments and new taxes and duties were issued as per Law Nº 64 dated October apart from those involving estimations, which have the most significant effect in the amounts recognized in 26, 2017. These amendments include, but are not limited to, an increase in the Lebanese corporate income the financial statements. tax from 15% to 17% to be applied effective on October 27, 2017 onwards. In addition, the above mentioned withheld tax by the issuer is not allowed anymore to be deducted from the annual corporate income tax amount and is considered as a deductible expense for the purpose of calculating the corporate taxable income.
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Going concern Allowances for credit losses (applicable up to December 31, 2017) The Group’s management has made an assessment of the Group’s ability to continue as a going concern and Specific impairment for credit losses is determined by assessing each case individually. This method is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, applies to classified loans and advances and the factors taken into consideration when estimating the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability allowance for credit losses include the counterparty’s credit limit, the counterparty’s ability to generate to continue as a going concern. Therefore the consolidated financial statements continue to be prepared on cash flows sufficient to settle his advances and the value of collateral and potential repossession. the going concern basis. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with Business model assessment similar risk characteristics, to determine whether provision should be made due to incurred loss events Classification and measurement of financial assets depends on the results of the SPPI and the business model for which there is objective evidence but whose effects are not yet evident. test (Refer to the financial assets sections of 'Note 3'). The Group determines the business model at a level that The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of reflects how groups of financial assets are managed together to achieve a particular business objective. This arrears, credit utilization, loan to collateral ratios, etc.), concentrations of risks, economic data and the assessment includes judgement reflecting all relevant evidence including how the performance of the assets performance of different individual groups. is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed. The Group monitors financial assets measured at amortized cost or fair value through Establishing the number and relative weightings of forward-looking scenarios for each type of other comprehensive income that are derecognized prior to their maturity to understand the reason for their product/market and determining the forward looking information relevant to each scenario disposal and whether the reasons are consistent with the objective of the business for which the asset was When measuring ECL the Group uses reasonable and supportable forward looking information, which held. Monitoring is part of the Group’s continuous assessment of whether the business model for which the is based on assumptions for the future movement of different economic drivers and how these drivers remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has will affect each other. been a change in business model and so a prospective change to the classification of those assets. Probability of default Significant increase of credit risk PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood of default over a given As explained in (Note 3), ECL are measured as an allowance equal to 12-month ECL for stage 1 assets, or lifetime time horizon, the calculation of which includes historical data, assumptions and expectations of future ECL assets for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly conditions. since initial recognition. IFRS 9 does not define what constitutes a significant increase in credit risk. In assessing whether the credit risk of an asset has significantly increased the Group takes into account qualitative and Loss given default quantitative reasonable and supportable forward looking information. Refer to (Note 3) and (Note 41) for more details. LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from Establishing groups of assets with similar credit risk characteristics collateral and integral credit enhancements. When ECLs are measured on a collective basis, the financial instruments are grouped on the basis of shared risk Determining fair values characteristics. The Group monitors the appropriateness of the credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required in order to ensure that should credit risk characteristics The determination of fair value for financial assets for which there is no observable market price change there is appropriate re-segmentation of the assets. This may result in new portfolios being created or assets requires the use of valuation techniques as described in (Note 43). For financial instruments that are moving to an existing portfolio that better reflects the similar credit risk characteristics of that group of assets. Re- traded infrequently and have little price transparency, fair value is less objective, and requires varying segmentation of portfolios and movement between portfolios is more common when there is a significant increase degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing in credit risk (or when that significant increase reverses) and so assets move from 12-month to lifetime ECLs, or vice assumptions and other risks affecting the specific instrument. versa, but it can also occur within portfolios that continue to be measured on the same basis of 12-month or lifetime Unobservable inputs are used to measure fair value to the extent that observable inputs are not ECLs but the amount of ECL changes because the credit risk of the portfolios differ. available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective should remain Models and assumptions used the same; that is, an exit price from the perspective of market participants. Unobservable inputs are The Group uses various models and assumptions in estimating ECL. Judgement is applied in identifying the most developed based on the best information available in the circumstances, which may include the appropriate model for each type of asset, as well as for determining the assumptions used in these models, including reporting entity's own data. assumptions that relate to key drivers of credit risk. See (Note 3) and (Note 41) for more details on ECL.
B. Key Sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Group based their assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
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5. CASH AND DEPOSITS AT CENTRAL BANKS 7. DEPOSITS WITH BANKS AND FINANCIAL INSTITUTIONS
December 31, December 31, In thousands of LBP 2018 2017 In thousands of LBP 2018 2017
Cash on hand 63,580,429 57,794,891 Current accounts 493,275,777 526,626,762 Current accounts with central banks 343,711,256 244,659,960 Term placements 1,759,118,162 1,678,582,931 Term placements with Central Bank of Lebanon 5,449,230,101 4,478,498,600 Blocked deposits 20,239,305 20,812,325 Term placements with foreign central banks 11,610,000 - Accrued interest receivable 3,771,045 17,985 Compulsory reserves with Central Bank of Lebanon 170,632,285 174,300,737 Allowance for expected credit losses (ECL) (7,665,480) - Compulsory reserves with foreign central banks 10,398,773 8,144,187 Accrued interest receivable, net of tax 114,573,086 58,152,756 2,268,738,809 2,226,040,003 Allowance for expected credit losses (ECL) (19,735,611) - Blocked deposits are blocked against trade finance activity. 6,144,000,319 5,021,551,131
Compulsory reserves with the Central Bank of Lebanon are non-interest earning cash compulsory deposits in Lebanese Pounds computed on the basis of 25% and 15% of the average weekly sight and term customers’ 8. LOANS TO BANKS deposits in Lebanese Pounds subject to certain exemptions, in accordance with the Lebanese banking Loans to banks are reflected at amortized cost and consist of the following. regulations. Compulsory reserves with foreign central banks are interest-earning. December 31, Compulsory reserves with central banks are not available for use in the Group’s day to day operations. In thousands of LBP 2018 2017 Term placements with the Central Bank of Lebanon include as of December 31, 2018 the equivalent in foreign currencies of LBP 3,453 billion (LBP 2,804 billion as at December 31, 2017) deposited in accordance with local Loans to a resident housing bank (a) 21,500,000 27,500,000 banking regulations which require banks to maintain interest-earning placements in foreign currencies to the Loans to non-resident banks (b) 74,684,959 69,299,196 extent of 15% of customers’ deposits in foreign currencies, certificates of deposit and loans from non-resident Accrued interest receivable 3,426,222 2,617,564 financial institutions. Allowance for expected credit losses (ECL) 4,658,170 -
94,953,011 99,416,760 (a) Loans to a resident housing bank represent 12 year LBP loans. Interest is paid semi-annually and reset every 6. ASSETS UNDER LEVERAGE ARRANGEMENT WITH THE CENTRAL BANK OF LEBANON 3 years. The loans are payable after a grace period of 2 years from the withdrawal date in 10 annual equal installments. As a guarantee for these loans, the borrower has pledged, in favor of the Group, bills related to December 31, housing loans granted to its customers. In thousands of LBP 2018 2017 (b) Loans to non-resident banks as of December 31, 2018 and 2017 represent short term trade financing Term placements with Central Bank of Lebanon 1,627,520,435 222,026,800 denominated in foreign currencies provided by the Group to banks in Africa. Lebanese Treasury bills 477,649,370 343,285,700
2,105,169,805 565,312,500
A ssets under leverage arrangement consisting of term placements with the Central Bank of Lebanon and Lebanese Treasury bills in LBP (earning interest at a rate ranging between 7 and 10.5%) originated from and are pledged against the corresponding leverage arrangements with the Central Bank of Lebanon for the same amounts in LBP (bearing a 2% interest rate), purpose of which is to provide yield adjustment on certain transactions related to either fresh deposits in foreign currency or sale of foreign currency against LBP placed in term deposits at the Central Bank of Lebanon and/or Government securities in foreign currency. The leverage and related pledged assets mechanism resulted in a yield adjustment on the following financial assets:
December 31, In thousands of LBP 2018 2017
Term placements with Central Bank of Lebanon 1,055,250,000 452,250,000 Eurobonds at amortized cost 568,398,70 - Term placement with Central Bank of Lebanon in LBP originated from sale of foreign currency 57,511,125 -
1,681,159,826 452,250,000
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9. LOANS AND ADVANCES TO CUSTOMERS 10. INVESTMENT SECURITIES
Loans and advances to customers are reflected at amortized cost and consist of the following. December 31 2018 2017 December 31, 2018 December 31, 2017 In thousands of LBP LBP C/V of FCY Total LBP C/V of FCY Total Allowance Gross amount For Expected Carrying net of unrealized Impairment Carrying Financial assets at fair In thousands of LBP Gross amount Credit Losses amount interest allowance amount value through profit or loss (FVTPL) 276,412 119,014,454 119,290,866 39,267,191 283,276,607 322,543,798 Accrued interest receivable, net of tax - 2,133,408 2,133,408 545,873 3,523,442 4,069,315 Performing Loans - Retail: - Mortgage loans 886,897,644 2,006,914 884,890,730 812,080,552 - 812,080,552 - Personal loans 196,615,917 750,136 195,865,781 105,854,188 - 105,854,188 276,412 121,147,862 121,424,274 39,813,064 286,800,049 326,613,113 - Credit cards 19,594,661 50,939 19,543,722 19,306,945 - 19,306,945 Financial assets at fair value through - Overdrafts 54,818,955 14,959 54,803,996 169,583,734 - 169,583,734 other comprehensive income 15,372,386 154,453,589 169,825,975 9,570,567 31,530,514 41,101,081 - Other (Car-Student-Energy) 190,780,572 1,084,493 189,696,079 143,581,741 - 143,581,741 Accrued interest receivable, net of tax 22,118 1,691,077 1,713,195 - - -
Performing Loans - Corporate: 15,394,504 156,144,666 171,539,170 9,570,567 31,530,514 41,101,081 - Corporates 4,552,377,876 152,441,899 4,399,935,977 4,533,151,745 - 4,533,151,745 - Small and medium enterprises 477,790,999 3,196,093 474,594,906 505,398,799 - 505,398,799 Financial assets at amortized cost 1,755,526,219 2,293,996,600 4,049,522,819 2,528,042,056 2,346,745,890 4,874,787,946 - Accrued interest receivable 16,550,161 - 16,550,161 11,178,227 - 11,178,227 Accrued interest receivable, net of tax 47,949,884 32,815,192 80,765,076 54,813,420 35,805,823 90,619,243 Allowance for collectively assessed loans - - - - (14,993,725) (14,993,725) 1,803,476,103 2,326,811,792 4,130,287,895 2,582,855,476 2,382,551,713 4,965,407,189 Total performing loans 6,395,426,785 (159,545,433) 6,235,881,352 6,300,135,931 (14,993,725) 6,285,142,206
Credit impaired loans 664,907,968 (383,282,719) 281,625,249 581,969,176 (312,508,679) 269,460,497 A. Investment securities designated at fair value through profit or loss
7,060,334,753 (542,828,152) 6,517,506,601 6,882,105,107 (327,502,404) 6,554,602,703 December 31 The movement of the allowance for impairment of bad and doubtful debts during 2017 is summarized as 2018 2017 Foreign Foreign follows. In thousands of LBP LBP currencies Total LBP currencies Total
In thousands of LBP 2017 Equity securities 276,412 25,759 302,171 4,327,636 14,370,510 18,698,146 Balance January 1 251,130,267 Lebanese Treasury bills - - - 34,939,555 - 34,939,555 Additions 70,771,165 Lebanese Write-backs (8,716,037) Government Bonds - 27,380,440 27,380,440 - 111,941,144 111,941,144 Transfer to off-balance sheet (98,810) Certificates of deposit Write-offs (1,681,967) issued by Central bank Effect of deconsolidation of a subsidiary (3,651,490) of Lebanon - 1,507,500 1,507,500 - 22,820,535 22,820,535 Effect of exchange rates changes 4,755,551 Corporate bonds - 90,100,755 90,100,755 - 134,144,418 134,144,418 Balance December 31 312,508,679 276,412 119,014,454 119,290,866 39,267,191 283,276,607 322,543,798 The movement of the allowance for collectively assessed loans during 2017 is summarized as follows. Accrued interest receivable - 2,133,408 2,133,408 545,873 3,523,442 4,069,315 In thousands of LBP 2017 276,412 121,147,862 121,424,274 39,813,064 286,800,049 326,613,113 Balance January 1 15,816,262 Effect of deconsolidation of a subsidiary (901,683) Net interest income, gains and losses on financial assets at FVTPL are detailed under (Note 32). Effect of exchange rates changes 79,146
Balance December 31 14,993,725
Information regarding allowance for excepted credit losses for the year 2018 is included under (Note 41).
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B. Financial assets at amortized cost December 31, In thousands of LBP 2018 2017 December 31, 2018 LBP base accounts Lebanese government bonds (69,800) 3,810,780 Allowance Accrued Allowance Corporate bonds 503,016 - for expected interest for expected Net Certificates of deposit issued by Central Bank of Lebanon (703,796) - Financial Amortized Credit losses Net carrying Fair receivable, Amortized Credit losses carrying Lebanese Treasury bills (668,937) - cost (ECL) amount value net of tax cost (ECL) amount Sinkable fund - 71,838 In thousands of LBP (939,517) 3,882,618 Lebanese The Group entered into the above transactions in 2018 and 2017 for the purpose of liquidity, maturity gap and treasury bills 542,696,263 (5,616,318) 537,079,945 536,306,494 14,424,024 - - - Lebanese yield management. government bonds - - - - - 1,391,590 ,536 (15,381,623) 1,376,208,913 As of December 31, 2018, investments at amortized cost include certificates of deposit issued by Central Bank Certificates of deposit of Lebanon with an aggregate carrying value of LBP 70.4 billion (LBP 69.97 billion in 2017) pledged against issued by Central long term borrowings from the Central Bank of Lebanon in the amount of LBP 416.27 billion (LBP 355.64 billion Bank of Lebanon 1,218,446,274 - 1,218,446,274 1,162,615,866 33,525,860 848,342,191 (4,709,655) 843,632,536 in 2017) (Note 18). Corporate bonds - - - - - 74,208,314 (53,163) 74,155,151
1,761,142,537 5,616,318 1,755,526,219 1,698,922,360 47,949,884 2,314,141,041 (20,144,441) 2,293,996,600 C. Investment Securities Designated at Fair Value Through Other Comprehensive Income December 31, 2017 LBP base accounts F/Cy base accounts December 31, 2018 December 31, 2017 Accrued Accrued Foreign Foreign Amortized Fair interest Amortized Fair interest In thousands of LBP LBP currencies Total LBP currencies Total In thousands of LBP cost value receivable cost value receivable Unquoted equities 9,947,313 32,603,744 42,551,057 9,570,567 31,530,514 41,101,081 Lebanese Treasury bills 1,211,458,713 1,225,037,588 19,714,632 - - - Quoted equities 3,752,129 15,277,059 19,029,188 - - - Lebanese Government bonds - - - 1,023,033,264 975,618,380 14,090,915 Quoted corporate bonds - 20,017,281 20,017,281 - - - Certificates of deposit issued by Lebanese government bonds - 63,943,005 63,943,005 - - - Central Bank of Lebanon 1,316,583,343 1,350,377,746 35,098,788 1,296,600,552 1,327,683,214 21,450,210 Certificates of deposit issued by Corporate bonds - - - 27,112,074 28,113,742 264,698 Central Bank of Lebanon - 22,612,500 22,612,500 - - - Lebanese treasury bills 1,672,944 - 1,672,944 - - - 2,528,042,056 2,575,415,334 54,813,420 2,346,745,890 2,331,415,336 35,805,823 15,372,386 154,453,589 169,825,975 9,570,567 31,530,514 41,101,081
During 2018, the Group entered into an exchange transaction with Central Bank of Lebanon whereby the Group Accrued interest receivable, exchanged Lebanese Treasury bills and certificates of deposit issued by Central Bank of Lebanon of aggregate net of tax 22,118 1,691,077 1,713,195 - - - nominal value of LBP 142.5 billion and LBP 95 billion, respectively, classified at amortized cost and Lebanese Treasury bills of aggregate nominal value of LBP 33 billion classified at fair value through other comprehensive 15,394,504 156,144,666 171,539,1705 9,570,567 31,530,514 41,101,081 income against term placements with Central Bank of Lebanon in the amount of LBP 275.4 billion. This transaction resulted in loss in the amount of LBP 1.1 billion recorded under (loss)/gain for derecognition of Unquoted equity securities include an amount of LBP 5.67 billion (LBP 6.3 billion in 2017) representing the Group’s financial assets at amortized cost. share in Lebanese startups established based on co-sharing agreements with the regulator. During 2018, the Group sold Lebanese Government bonds and certificates of deposit issued by Central Bank of Lebanon with an aggregate nominal value of LBP 85.2 billion and LBP 45 billion respectively, (Lebanese Government bonds aggregate nominal value of LBP 380 billion in 2017) classified at amortized cost which resulted in losses of LBP 70 million, LBP 271 million respectively (gain of LBP 3.8 billion in 2017) recorded under “(Loss)/gain from de-recognition of financial assets measured at amortized cost” in the consolidated statement of profit or loss.
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11. CUSTOMERS’ LIABILITY UNDER ACCEPTANCES 13. ASSETS ACQUIRED IN SATISFACTION OF LOANS A cceptances represent documentary credits which the Group has committed to settle on behalf of its customers Assets acquired in satisfaction of loans have been acquired through enforcement of security over loans and against commitments by those customers (acceptances). The commitments resulting from these acceptances advances. The acquisition of these assets is approved by local banking authorities. are stated as a liability in the statement of financial position for the same amount. The movement of assets acquired in satisfaction of loans during 2018 and 2017 was as follows.
Real Equity In thousands of LBP estate interest Total 12. INVESTMENTS IN ASSOCIATES
Cost Interest held Carrying value Balance January 1, 2017 43,966,340 64,262,068 108,228,408 Country of December 31, December 31, Foreclosures 24,359,082 - 24,359,082 In thousands of LBP incorporation 2018 2017 2018 2017 Disposals (49,895) (16,916,973) (16,966,868) Adjustments (9,951) - (9,951) Bancassurance S.A.L. Lebanon 40 40 39,660,872 37,465,110 Balance December 31, 2017 68,265,576 47,345,095 115,610,671 Centre de Traitement Monetique S.A.L. Lebanon 50 50 2,185,237 1,995,714 Foreclosures 129,992 109,905,801 110,035,793 Disposals (205,998) - (205,998) 41,846,109 39,460,824 Balance December 31, 2018 68,189,570 157,250,896 225,440,466 T he summarized financial information of the associates is provided below. The acquisition of assets in settlement of loans in Lebanon requires the approval of the banking regulatory December 31, 2018 authorities and these should be liquidated within 2 years. Up to July 20, 2018, in case of default of liquidation Total Total Net Net Group’s share Group’s share within the 2 years period, a regulatory reserve should be appropriated from the yearly net profits over a period In thousands of LBP assets liabilities assets profit of net assets in profit/(loss) of 5 years or 20 years when certain conditions linked to the restructuring of non-performing loans’ portfolio are met and subject to the approval of the Central Bank of Lebanon. Effective July 20, 2018, the regulatory reserve Bancassurance S.A.L. 666,352,361 573,031,958 93,320,403 31,005,993 37,328,161 11,161,451 on all assets acquired in satisfaction of loans where the 2 years grace period for disposal elapses on or after July Centre de Traitement Monetique S.A.L. 5,505,935 1,331,946 4,173,989 379,048 2,086,994 189,524 20, 2018 should be appropriated from profits over a period of 20 years. This regulatory reserve is reflected under equity. In this respect, an amount of LBP 4.9 billion was appropriated in 2018 (LBP 6.6 billion in 2017). December 31, 2017 During 2018, the Group sold assets acquired in satisfaction of loans which resulted in a gain in the amount of LBP 42 million (LBP 7.2 billion in 2017) recorded in the consolidated statement of profit or loss under “Other Total Total Net Net Group’s share Group’s share operating income” (Note 33). An amount of LBP 205 million was transferred during 2018 from the regulatory In thousands of LBP assets liabilities assets profit of net assets in profit/(loss) reserve to retained earnings as result of the sale of the related foreclosed assets (LBP 17 billion in 2017).
Bancassurance S.A.L. 617,176,220 530,568,393 86,607,827 29,402,003 34,643,131 10,621,450 During the year 2018, the Group acquired 100% equity stake in a special purpose vehicle owning real estate in a foreign country valued at LBP 110 billion against a non-performing loan having a net exposure of Centre de Traitement Monetique S.A.L. 4,846,975 993,388 3,853,587 353,041 1,926,794 158,869 LBP 89 billion. The excess of the fair value of the acquired assets over the net credit exposure of the debtor is recorded as “Deferred income” under “Other liabilities” in the consolidated statement of financial position as at The movement of investments in associates during 2018 and 2017 is as follows. December 31, 2018 (Note 19). The approval of the Banking Control Commission is still pending. In thousands of LBP 2018 2017
Balance January 1 39,460,824 33,191,601 Effect of application of IFRS 9 (Note 2) (2,614,858) - 14. TANGIBLE AND INTANGIBLE ASSETS Prior period adjustments - 6,350 Dividents received (6,350,832) (4,480,717) Tangible Intangible Share of profit of associates net of distribution tax (Note 33) 11,350,975 10,743,590 Land, buildings Equipment, Advances and construction furnitures, on capital Intangible Balance December 31 41,846,109 39,460,824 In thousands of LBP in progress and fixtures Instalments Vehicles expenditures assets Total
Cost Balance January 1, 2017 141,882,426 118,709,670 78,465,759 2,733,870 15,199,456 4,390,245 361,381,426 Additions 12,075,536 4,652,254 2,478,851 402,458 9,849,594 2,375,374 31,834,067 Retirement - (485,459) (5,663) (412,292) - - (903,414) Effect of deconsolidation of a subsidiary (4,728,280) (3,278,000) - - - - (8,006,280) Currency translation adjustment 288,193 1,418,868 - 7,598 - - 1,714,659 Balance December 31, 2017 149,517,875 121,017,333 80,938,947 2,731,634 25,049,050 6,765,619 386,020,458 Additions 350,897 5,874,448 334,078 496,557 26,928,280 3,086,615 37,070,875 Other (1,124,051) (441,028) 45,286 - - 366,287 (1,153,506) Retirements - (85,464) - (187,357) - - (272,821) Transfers 5,228,002 - 2,673,584 - (7,901,586) - - Currency translation adjustment 57,205 212,055 83,487 2,958 - (173,457) (529,162)
Balance December 31, 2018 153,915,518 126,153,234 83,908,408 3,037,876 44,075,744 10,045,064 421,135,844
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Depreciation 17. CUSTOMERS’ DEPOSITS AT AMORTIZED COST Balance January 1, 2017 16,463,027 95,411,889 68,532,556 1,796,837 - 1,564,255 183,768,564 Additions 1,548,496 7,095,753 3,376,709 317,492 - 806,279 13,145,179 December 31, Retirement - (266,459) - (412,292) - - (678,751) In thousands of LBP 2018 2017 Effect of deconsolidation of a subsidiary (483,881) (1,312,285) - - - - (1,796,166)
Currency translation adjustment 88,666 775,860 - (7,598) - - 872,124 Deposits Balance December 31, 2017 17,616,308 101,704,758 71,909,265 1,709,635 - 2,370,984 195,310,950 Current/demand deposits 2,468,741,511 2,477,826,525 Additions 1,592,837 6,455,928 3,556,112 371,264 - 1,393,350 13,369,491 Term deposits 12,618,188,033 12,208,955,559 Retirement - (75,798) - (187,357) - - (263,155) Collateral against loans and advances 1,758,930,712 1,598,698,740 Currency translation adjustment 32,824 (168,473) 82,155 (2,958) - (144,404) (430,814)
16,845,860,256 16,285,480,824 Balance December 31, 2018 19,176,321 107,916,415 75,383,222 1,890,584 - 3,619,930 207,986,472
Net book value Margins and other accounts Margins on letters of credit and letters of guarantee 70,692,912 78,599,405 December 31, 2018 134,739,197 18,236,819 8,525,186 1,147,292 44,075,744 6,425,134 213,149,372 Margins on securities trading 4,761,580 5,130,260 Other margins and other blocked accounts 36,886,681 36,029,657 December 31, 2017 131,901,567 19,312,575 9,029,682 1,021,999 25,049,050 4,394,635 190,709,508 112,341,173 119,759,322 Additions during 2018 and 2017 to land, buildings and construction in progress include costs related to the Accrued interest payable 98,844,006 79,658,577 construction of the Group’s new head office. Intangible assets mainly represents the net carrying amount of software acquired by the Group. 17,057,045,435 16,484,898,723
15. OTHER ASSETS Deposits from customers at amortized cost are allocated by brackets of deposits between LBP and foreign currencies as follows. December 31, In thousands of LBP 2018 2017 December 31, 2018 LBP Foreign currencies Investment properties 355,464 318,464 Total % to total Number of Total % to total Number of Deferred interest on deposit instruments with guaranteed capital 155,831 339,178 deposits deposits counterparties deposits deposits counterparties Due from National Social Security Fund 8,185,648 9,234,639 Millions of LBP % Millions of LBP % Prepayments 4,535,143 4,386,674 Deferred tax assets 1,630,860 3,793,660 • Less than LBP 200 million 1,352,319 33 87,179 1,283,578 10 91,377 Checks for collection 41,518,299 58,543,872 • From LBP 200 million to LBP 1 billion 1,411,785 34 3,700 2,414,419 19 5,487 Sundry accounts receivable 20,858,657 14,578,065 • From LBP 1 billion to LBP 5 billion 689,181 17 390 2,845,502 22 1,396 • More than LBP 5 billion 661,613 16 42 6,299,804 49 294 Loss allowance for doubtful sundry accounts receivable (10,164,252) (10,164,252)
4,114,898 100 91,311 12,843,303 100 98,554 67,075,650 81,030,300 Amounts due from the National Social Security Fund represent hospitalization charges paid by the Group on behalf of its employees subject to recuperation from the National Social Security Fund. December 31, 2017 LBP Foreign currencies Total % to total Number of Total % to total Number of deposits deposits counterparties deposits deposits counterparties 16. DEPOSITS FROM BANKS AND FINANCIAL INSTITUTIONS Millions of LBP % Millions of LBP %
December 31, • Less than LBP 20 0million 1,407,277 30 81,460 1,227,411 10 89,068 In thousands of LBP 2018 2017 • From LBP 200 million to LBP 1 billion 1,452,286 32 3,712 2,272,802 20 4,473 • From LBP 1 billion to LBP 5 billion 838,728 18 558 2,603,782 22 1,399 Current deposits with foreign central banks 2,439,694 4,596,425 • More than LBP 5 billion 917,930 20 49 5,685,024 48 296 Current deposits of banks and financial institutions 109,344,719 108,608,785 Pledged deposits of banks and financial institutions 3,389,297 3,435,333 4,616,221 100 85,779 11,789,019 100 95,236 Short term borrowings 30,006,572 26,445,209 Accrued interest payable 455,947 335,345 Deposits from customers include as at December 31, 2018 coded deposit accounts in the aggregate of LBP 118.62 billion (LBP 119 billion as at December 31, 2017). These accounts are subject to the provisions of 145,636,229 143,421,097 Article 3 of the Banking Secrecy Law dated September 3, 1956 which provides that the Bank’s management, in the normal course of business, cannot reveal the identities of these depositors to third parties, including its independent public accountants. Deposits from customers at amortized cost include as at December 31, 2018 fiduciary deposits received from non-resident banks and financial institutions for a total amount of LBP 377 billion (LBP 406 billion as of December 31, 2017).
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The average balance of deposits at amortized cost and related cost of funds over the last 3 years were as follows. D. Agence Française de Développement During 2007, the Group signed a loan agreement with “Agence Française de Développement” in order to obtain a LBP base accounts Foreign currencies base accounts concessional loan for the financing or refinancing of loans made by the Group to its customers of small and medium Average balance Average Average balance Average enterprises who encountered economic and financial difficulties following the military conflict in Lebanon in summer Year of deposits interest rate of deposits interest rate 2006. The maximum amount of this credit is EUR 15,000,000 to be disbursed in a minimum of two and a maximum of LBP’000 % LBP’000 % three tranches with a minimum amount of EUR 2,000,000 for each tranche. This loan was fully withdrawn in previous years. A fixed rate is determined for each tranche by the lender settled semi-annually. 2018 4,359,120,721 7.25 11,713,857,263 4.17 2017 4,582,893,807 5.91 11,076,373,453 3.54 2016 4,523,277,647 5.76 10,444,570,428 3.22 E. European Investment Bank During 2007, the Group signed a loan agreement with the “European Investment Bank” to obtain a loan in the amount of EUR 20,000,000 for the financing of private sector projects to small and medium sized enterprises located in Lebanon. This loan falls under the Framework Agreement signed between the Republic of Lebanon and the lender. The loan 18. BORROWINGS contract gives the Group the choice between a fixed and a floating rate for each tranche. The Group has selected a fixed Borrowings are reflected at amortized cost and consist of the following. rate for all tranches, settled semi-annually.
December 31, F. Standard Chartered Bank In thousands of LBP 2018 2017 During 2017, the Group signed loan a agreement with “Standard Chartered Bank” in the amount of USD 80,386,917 at a rate of 3 months LIBOR plus of 1.4738%. During 2018, the Group signed another loan agreement with the same bank European Investment Bank (a) 2,998,290 4,842,643 in the amount of USD 66,775,402 at a rate of 3 months LIBOR plus 1.8%. Govco Inc. (b) 6,783,750 8,721,964 Arab Trade Financing Program (c) 7,537,500 6,767,174 Agence Française de Développement (d) 4,937,005 6,464,160 G. Banca UBAE – Rome European Investment Bank (e) 6,176,102 10,722,919 Standard Chartered Bank (f) 73,312,631 90,509,211 During 2017, the Group signed a loan agreement with the “Banca UBAE S.P.A. in the amount of USD 23,450,000 at an Banca UBAE-Rome (g) - 35,350,875 interest rate of 6 months LIBOR plus a fixed rate of 1.8%. Sumitomo Mitsui Banking Corporation Dubai (h) - 40,551,750 OPEC Fund For International Development (OFID) (i) 30,150,000 - H. Sumitomo Mitsui Banking Corporation – Dubai Caixa Bank-Barcelona (j) 36,180,000 87,111,641 Central Bank of Lebanon-Circular 313 (k) 416,269,716 355,639,505 During 2016, the Group signed a loan agreement with “Sumitomo Mitsui Banking Corporation – Dubai” to obtain a short Accrued interest payable 1,187,333 2,886,420 term loan to refinance trade transactions in the amount of USD 23,900,000 maturing in May 2017. The annual interest rate charged on this loan was 1.7% over 6 months USD Libor. 585,532,327 649,568,262 During 2017, the Group signed two loans agreement with the same bank, for the same purpose mentioned above, in the amounts of USD 5,000,000 and USD 21,800,000 maturing in 2018. The annual interest rate charged on these loans A. European Investment Bank is 1.6% over 6 months USD LIBOR. Borrowings from European Investment Bank through the Central Bank of Lebanon are used to finance loans extended to the Group’s customers engaged in tourism, manufacturing and technology. I. OPEC Fund For International Development (OFID) During 2018, the Group signed loan agreement with “OPEC Fund For International Development (OFID)” to obtain a loan B. Govco Inc. maturing on May 20, 2020 in the amount of USD 20million. The annual interest charged on this loan is 6 months LIBOR During 2007, the Group signed a contract with Govco Inc. to obtain a long term loan in the amount of plus a fixed rate of 2.5%. USD 20 million (c/v LBP 30 billion) fully withdrawn. During 2007, the Group signed a loan agreement with Govco Inc. to obtain a long term loan maturing in the year 2022 J. Caixa Bank – Barcelona in the amount of USD 20 million (c/v LBP 30 billion) fully withdrawn. The loan is settled through equal semi-annual During 2017, the Group signed a loan agreement with “Caixa Bank SA – Barcelona” to obtain short term loans maturing payments. The interest charged on the above loan is 3 months LIBOR plus 1%. in 2018 in the amounts of USD 15,000,000, USD 8,036,837, USD 19,655,668 and USD 15,092,995 bearing an interest rate of 12 month LIBOR plus a 0.35% per annum. C. Arab Trade Financing Program During 2018, the Group signed a new loan agreement with the same bank to obtain a short term loan maturing on June The Arab Trade Financing Program consists of a confirmed line of credit to the extent of USD 15,000,000. The purpose 10, 2019 bearing an annual interest rate of 6 months LIBOR plus 0.4% per annum. of this line of credit is to promote trade activities between Arab countries and between Arab and non-Arab countries by financing up to 100% of the value of eligible transactions. The interest charged on each withdrawal is 6 months LIBOR plus a variable margin which depends on the duration of the withdrawal. Each withdrawal should be settled in equal semi-annual installments starting six months after the withdrawal date not to exceed ten installments.
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The movement of these borrowings during 2018 and 2017 is as follows. 19. OTHER LIABILITIES
December 31, In thousands of LBP 2018 2017 In thousands of LBP 2018 2017
Balance January 1 291,042,337 210,400,410 Regulatory deferred liability (a) - 311,372,211 Withdrawals 179,787,746 295,020,977 Checks and incoming payment orders in course of settlement 23,155,993 36,646,781 Settlements (302,159,532) (216,517,659) Customers' checks under collection 30,625,117 47,792,776 Difference in exchange (595,273) 2,138,609 Accrued expenses 12,782,195 15,357,735 Current income tax liability (b) 35,213,500 3,635,855 Balance December 31 168,075,278 291,042,337 Deferred tax liability on cumulative change in fair value of investment securities (Note 25) 2,016,030 1,230,266 Deferred tax liability on future dividends distribution by subsidiaries 8,044,382 7,469,171 Deferred income (Note 13) 21,349,113 - Contractual maturities as at December 31, 2018. Withheld taxes and other taxes payable 8,252,727 7,462,723 Contributions due to the National Social Security Fund 1,068,807 1,069,962 In thousands of LBP 2018 Blocked capital subscriptions for companies under incorporation 431,652 466,652 Regularization account on foreign currency forward contracts 861,260 1,398,731 2019 125,718,592 Financial guarantee contracts issued 702,756 517,441 2020 36,980,861 Payables to personnel and directors 3,886,396 3,998,640 Thereafter 5,375,825 Accrued interest payable on shareholders’ cash contribution to capital (c) (Note 23) 3,492,275 3,345,746 Sundry accounts payable 31,741,093 16,738,081 168,075,278 183,623,296 458,502,771 Contractual maturities as at December 31, 2017. (a) In accordance with the Central Bank of Lebanon Intermediary Circular N° 446 dated December 30, 2016, banks In thousands of LBP 2017 should record the surplus derived from sale of treasury bills in Lebanese Pounds against investments in medium and long term certificates of deposit issued by the Central Bank of Lebanon and Lebanese Government bonds 2018 269,711,287 in foreign currency under deferred liability which is regulated in nature, and shall be appropriated, among other 2019 8,847,832 things, after deducting the relevant tax liability, to collective provision for credit risks associated with the loan Thereafter 12,483,218 book at a minimum of 2% of the weighted credit risks, and that in anticipation of implementation of IFRS 9 for Impairment, as and when quantified effective on January 1, 2018. By virtue of this Circular, 70% of the remaining 291,042,337 residual surplus once recognized over time shall be treated as non-distributable income designated and restricted only for appropriation to capital increase. Interest expense on the above borrowings for the year ended December 31, 2018 amounted to LBP 6.55 billion (LBP 6.45 billion in 2017) recorded under “Interest expense on borrowings” (Note 29). During the year 2016, as a result of several transactions derived from the special and non-conventional deals arrangement with the Central Bank of Lebanon, the Group received a surplus of LBP 377.69 billion, net of tax in the amount of LBP 66.65 billion, which was credited to “Regulatory deferred liability” under other liabilities and deferred as restricted K. Central Bank of Lebanon – Circular 313 contribution in anticipation of expected loss provisions that would be deemed to be necessary along with the application During 2018 and 2017, the Central Bank of Lebanon granted the Group facilities in Lebanese Pounds pursuant of IFRS 9 in accordance with the Central Bank of Lebanon requirements as indicated above. During 2017 the Group to circular 313 to be granted to its customers subject to certain conditions, rules and mechanism. These facilities settled the tax amounting to LBP 66.65 billion. bear interest at the rate of 1% computed annually and paid monthly. These facilities have maturities beyond 5 During 2018, the Group allocated an amount of LBP 308.5 billion out this designated regulatory deferred liability to years and their repayment depends on the underlying assets settlement. Interest expense for the year ended retained earnings to offset the allowance for expected credit loss resulting from the application of IFRS 9, in accordance December 31, 2018 amounted to LBP 4.39 billion (LBP 3.02 billion in 2017) recorded under “Interest expense on with the Central Bank of Lebanon designation. Furthermore, an amount of LBP 2.91 billion was recognized under borrowings” (Note 29). “Other income” in the consolidated statement of profit or loss for the year ended December 31, 2018 (LBP 78.02 billion in 2017) (Note 33). (b) The regrouping of reconciliations between the average effective tax rate and the enacted tax rates is summarized as follows.
In thousands of LBP 2018 2017
Profit before tax 220,541,773 212,860,460 Income tax at the national enacted tax rates 35,927,129 28,675,502 Tax effect of non-deductible expenses and non-taxable income (375,719) 2,746,601
Income tax expense 36,896,184 31,422,103 Less: tax paid during the year (including the effect of difference in exchange) (1,682,684) (27,786,248)
Income tax payable as at December 31 35,213,500 3,635,855
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The Bank’s tax returns for the years 2015 to 2018 remain subject to review by tax authorities. Any additional tax 21. SHARE CAPITAL liability depends on the outcome of these reviews. At December 31, 2018 and 2017, the authorized, issued and fully paid ordinary share capital of the Bank consists of On October 26, 2017, tax amendments and new taxes and duties were issued as per Law N° 64. These amendments 23,500,000 nominal shares having a par value of LBP 10,000 each. include, but are not limited to, an increase in the corporate income tax rate from 15% to 17% and an increase in withholding tax rate on credit interest earned on bank deposits with the Central Bank of Lebanon and securities from 5% to 7% to be applied effective October 27, 2017 onwards. This withholding tax which was considered up to October 26, 2017 as a prepayment on the account of year end corporate income tax, is considered, by virtue 22. PREFERRED SHARES of the tax law amendments as a deductible overhead for tax purposes. The Group has the right, at its sole discretion, to redeem on each redemption date all or part of the Series 4 and 5 preferred shares (b). Listed Non-cumulative on Beirut 20. PROVISIONS perpetual redeemable Number of Share’s Stock preferred shares shares issue price Benefits Exchange December 31, In thousands of LBP 2018 2017 Series 4 - Issued in 2015 1,500,000 USD 100 7% per year No Series 5 - Issued in 2016 1,500,000 USD 100 6,625% per year No Provision for staff termination indemnity (a) 17,750,741 16,570,065 Provision for contingencies (b) 2,243,316 2,460,449 Provision for losses (c) 19,502,743 - The Group has the right, at its sole discretion, to redeem on each redemption date all or part of the Series 4 Provision for foreign currency fluctuation 762,578 695,949 and 5 preferred shares (but not less than 20%). Redemption date means for the first time the financial year during which falls the 5th anniversary of the Extraordinary General Meeting of the Group’s shareholders which 40,259,378 19,726,463 ascertains the validity and payment of the capital increase by virtue of which the Preferred Shares are issued; and every year thereafter. (a) The movement of the provision for staff termination indemnity is as follows. In the event of liquidation of the Bank, holders of preferred shares Series 4 and 5 rank senior to the holders of common and priority shares. In thousands of LBP 2018 2017
Balance at January 1 16,570,065 15,001,536 Additions (Note 34) 3,282,972 3,263,985 23. SHAREHOLDERS’ CASH CONTRIBUTION TO CAPITAL Write-backs (Note 34) (733,918) (813,451) Settlements (1,321,735) (1,034,794) The shareholders’ cash contribution to capital amounting to USD 40 million as of December 31, 2018 and 2017 Effect of exchange rates changes (46,643) 152,789 is subject to an annual interest rate equal to 90% of the yield related to last issue of previous year Lebanese Eurobonds with maturity beyond 5 years. This rate was set at 6.435% in 2018 and 6.165% in 2017 payable from Balance at December 31 17,750,741 16,570,065 unrestricted profits and after securing the approval of the Banking Control Commission of Lebanon. Related interest expense for the year ended December 31, 2018 amounted to LBP 3.89 billion (LBP 3.73 billion (b) The movement of the provision for contingencies is as follows. for 2017) and recorded under “Interest expense” in the consolidated statement of profit or loss (Note 29) of which accrued interest payables in the amount of LBP 3.49 billion as at December 31, 2018, (LBP 3.35 billion as In thousands of LBP 2018 2017 at December 31, 2017), recorded under “Other liabilities” (Note 19). Balance at January 1 2,460,449 6,848,990 This type of financial instrument is accounted for in foreign currency (USD) and therefore allows for hedging Additions 120,905 167,375 against the national currency exchange fluctuation (LBP). According to the Lebanese banking regulations, cash Write-backs (20,000) (4,292,302) contribution to capital is considered as Tier I capital. Settlements (292,012) (453,752) Effect of deconsolidation of a subsidiary - (7,275) Effect of exchange rates changes (26,026) 197,413 24. RESERVES Balance at December 31 2,243,316 2,460,449 December 31, In thousands of LBP 2018 2017 (c) The movement of the provision for contingencies is as follows. In thousands of LBP 2018 Legal reserve (a) 181,279,595 165,683,256 Reserve for general banking risks (b) - 268,250,000 Balance at January 1 - General reserve for performing loans (c) - 35,150,000 Effect of IFRS 9 adoption (Note 2) 20,026,162 Reserve for capital increase (d) 74,740,933 11,339,137 Write-backs (523,419) Special reserve (e) 135,000,000 135,000,000 General reserve (f) 337,247,649 - Balance at December 31 19,502,743 728,268,177 615,422,393
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(a) The legal reserve is constituted in conformity with the requirements of the Lebanese Money and Credit Law 27. PROFIT FOR THE YEAR AND DIVIDENDS PAID on the basis of 10% of net profit of the Bank and its Lebanese subsidiaries. This reserve is not available for distribution. Accordingly, an amount of LBP 15.56 billion was appropriated to legal reserve during the year The consolidated profit for the year attributable to equity holders is allocated as follows. 2018 (LBP 14.63 billion during 2017). Year-ended December 31, 2018 (b) The reserve for general banking risks was constituted according to Lebanese banking regulations, from net Profit Current and Net profit profit, on the basis of a minimum of 2 per mil and a maximum of 3 per mil of the total risk weighted assets, In thousands of LBP before tax deferred tax for the year off-balance sheet risk and global exchange position as defined for the computation of the solvency ratio at year-end. This reserve was constituted in Lebanese Pounds and in foreign currencies in proportion to the Profit of the Bank 210,298,963 (35,150,020) 175,148,943 composition of the Bank’s total risk weighted assets and off-balance sheet items. This reserve is not available Profit/(loss) of subsidiaries: for distribution. During 2018, an additional amount of LBP 31.8 billion was appropriated from 2017 profits Banque SBA S.A. 8,674,011 (1,681,136) 6,992,875 and the outstanding balance of this reserve was transferred to general reserves. (Refer to (f) below). Société de Construction et de Commerce S.A.L. (Sodeco) 1,502,261 - 1,502,261 Libano-Française Finance S.A.L. 32,889 (29,390) 3,499 (c) In compliance with the basic circular no. 81 issued by the Central Bank of Lebanon, the Bank is required to Compagnie Libanaise pour l'informatique S.A.L. 209,633 (35,638) 173,995 transfer from net profit to general reserve for performing loans the equivalent of: LF Funds (2,593,880) - (2,593,880) - 0.5% of retail loans that are less than 30 days past due (subject to deductions of some guarantees received) to Lebanon Income Fund (2,956,427) - (2,956,427) general reserve for the year 2014 in addition to a percentage of 0.5% yearly over a six year period starting 2015. - 0.25% of performing corporate loans to general reserve as of end of 2014. This reserve should increase to 0.5% 215,167,450 (36,896,184) 178,271,266 as of end of 2015, 1% as of end of 2016 and 1.5% as of end of 2017. The Bank is exempted from this general reserve if the balance of collective provision exceeds 0.25% of the performing corporate loans portfolio as of Deferred tax on reported profits of consolidated subsidiaries - (575,211) (575,211) Eliminations 9,084,199 - 9,084,199 end of 2014, 0.5% as of end of 2015, 1% as of end of 2016 and 1.5% as of end of 2017. Accordingly, an amount of LBP 17.9 billion was appropriated to this reserve during the year 2017. During 2018, 224,251,649 (34,471,395) 186,780,254 the balance of the reserves was transferred to general reserves. (Refer to (f) below). (d) During 2018, an amount of LBP 63 billion was appropriated to reserve for capital increase (LBP 201 million Year-ended December 31, 2017 during 2017) as per local regulations. Profit Current and Net profit In thousands of LBP before tax deferred tax for the year (e) Special reserves represent reserve for risks that may arise in the course of business. This reserve is constituted in Lebanese Pounds and is not available for distribution. Accordingly, an amount of LBP 1.55 billion was Profit of the Bank 185,303,651 (29,209,834) 156,093,817 appropriated for special reserves during the year 2017. Profit/(loss) of subsidiaires: Banque SBA S.A. 7,823,238 (1,946,140) 5,877,098 (f) In compliance with article 16 of the basic circular no. 143 issued by the Central Bank of Lebanon, the Bank is SODECO S.A.L. 269,343 - 269,343 required to transfer reserve for general banking risks and the general reserve for performing loans to a non- Libano-Française Finance S.A.L. (1,642,230) - (1,642,230) distributable general reserve. As at January 1, 2018, balances under “Reserve for general banking risks” and Compagnie Libanaise pour l'informatique S.A.L. 296,775 (45,589) 251,186 “General reserve for performing loans” amounting to LBP 299.8 billion and LBP 35 billion respectively, were Bank Al-Sharq S.A.S. - (Note 39) 441,211 (220,540) 220,671 transferred to “General reserve” (Refer to (b) and (c) above). LF Funds 5,150,713 - 5,150,713 Lebanon Income Fund 1,344,538 - 1,344,538
25. CUMULATIVE CHANGE IN FAIR VALUE OF INVESTMENT SECURITIES DESIGNATED AT FAIR VALUE 198,987,239 (31,422,103) 167,565,136 THROUGH OTHER COMPREHENSIVE INCOME Deferred tax on reported profits of consolidated subsidiaries - (420,030) (420,030) December 31, Eliminations 8,705,805 - 8,705,805 In thousands of LBP 2018 2017 207,693,044 (31,842,133) 175,850,911 Unrealized gain on equity securities (Note 10 'B') (4,028,455) 7,236,862 Expected credit loss allowance 846,497 - The following dividends were declared and paid by the Group during 2018 and 2017. Deferred tax liability (Note 19) (2,016,030) (1,230,266)
Net (5,197,988) 6,006,596 In thousands of LBP 2018 2017
LBP 2,500 per common share (LBP 1,915 per common share in 2017) 58,750,000 45,002,500 USD 6,625 per preferred share Series (5) (USD 6,625 per preferred share Series (5) in 2017) 14,980,781 14,980,781 26. NON-CONTROLLING INTERESTS USD 7 per preferred share Series (4) (USD 7 per preferred share Series (4) in 2017) 15,828,750 15,828,750
December 31, 89,559,531 75,812,031 In thousands of LBP 2018 2017 Subsequent to the statement of financial position date, the following dividends were proposed by the Board of Capital 119,035,718 113,344,442 Directors of the Bank for the year ended 2018 which still are pending the ratification of the General Assembly of Reserves and retained earnings 5,310,995 4,550,556 Shareholders. Effect of deconsolidation of a subsidiary - (112,542) Profit for the year (net of deferred tax) (3,709,876) 5,167,416
120,636,837 122,949,872
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In thousands of LBP 30. FEE AND COMMISSION INCOME
LBP 2,500 per common share 58,750,000 In thousands of LBP 2018 2017 USD 7 per preferred share Series (4) 15,828,750 USD 6,625 per preferred share Series (5) 14,980,781 Commission on documentary credits 9,144,718 8,287,540 Commission on letters of guarantee 12,562,749 13,782,282 89,559,531 Commission on debit/credit cards 40,719,908 33,484,587 Service fees on customers' transactions 28,827,106 28,011,714 Brokerage fees 6,606,096 6,563,012 Asset Management fees 2,208,632 1,876,942 28. INTEREST INCOME Other 2,251,222 540,084
2018 102,320,431 92,546,161 Interest Tax Net interest In thousands of LBP income on interest income
Interest income on: 31. FEE AND COMMISSION EXPENSE • Deposits with Central Bank of Lebanon 441,628,821 (36,447,971) 405,180,850 • Deposits with banks and financial institutions 39,078,886 (370,423) 38,708,463 In thousands of LBP 2018 2017 • Investment securities at amortized cost 335,262,031 (22,740,947) 312,521,084 • Investments securities at fair value through other comprehensive income 6,700,042 (212,473) 6,487,569 Commissions on transactions with banks 3,964,551 2,909,690 • Loans to banks 5,766,432 - 5,766,432 Commissions on credit cards 33,444,752 27,224,269 • Loans and advances to customers 415,754,359 - 415,754,359 Other 8,726,142 4,742,878
1,244,190,571 (59,771,814) 1,184,418,757 46,135,445 34,876,837 2017 Interest Tax Net interest In thousands of LBP income on interest income 32. NET RESULTS ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Interest income on: In thousands of LBP 2018 2017 • Deposits with Central Bank of Lebanon 215,873,178 (631,882) 215,241,296 • Deposits with banks and financial institutions 17,111,460 (89,186) 17,022,274 Interest income on financial assets at fair value through profit or loss 8,243,907 14,501,150 • Investment securities at amortized cost 371,018,415 (1,669,250) 369,349,165 Dividend income 139,120 777,480 • Loans to banks 5,480,060 - 5,480,060 Net unrealized gain/(loss) from change in fair value (11,886,944) (2,074,687) • Loans and advances to customers 381,086,974 - 381,086,974 Net realized gain upon disposals 34,404 5,599,220 • Interest realized on impaired loans and advances to customers 6,273,272 - 6,273,272 3,469,513 22,952,537 996,843,359 (2,390,318) 994,453,041
Interest realized on impaired loans and advances to customers during 2017 represent recoveries of interest. Up to December 31, 2017, accrued interest on impaired loans and advances was not recognized until recovery or 33. OTHER OPERATING INCOME until rescheduling agreement is signed with the customer. Interest income on financial assets at fair value through profit or loss is included under net results on financial In thousands of LBP 2018 2017 instruments designated at fair value through profit or loss (Note 32). Share of profit of associates net of distribution tax (Note 12) 11,350,975 10,743,590 Net foreign exchange gain 10,536,689 9,857,182 Net realized gain on sale of debt securities at fair value through other comprehensive income 3,579,883 - 29. INTEREST EXPENSE Dividend income on equity securities at fair value through other comprehensive income 800,033 349,404 Gain on disposal of assets acquired in settlement of loans (Note 13) 42,439 7,238,246 In thousands of LBP 2018 2017 Transfer from regulatory deferred liabilities (Note 19) 2,908,345 78,021,557 Foreign currency translation losses resultant from deconsolidation of subsidiary (Note 39) - (10,154,773)
Interest expense on: Other 1,805,664 1,159,306 • Deposits from banks and financial institutions 7,673,246 9,472,649 • Customers’ deposits at amortized cost 813,470,076 673,087,584 31,024,028 97,214,512 • Borrowings (Note 18) 10,921,078 9,464,895 • Shareholders’ cash contribution to capital (Note 23) 3,892,531 3,728,592
835,956,931 695,753,720
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34. STAFF COSTS 37. BALANCES/TRANSACTIONS WITH RELATED PARTIES In the ordinary course of its activities, the Group conducts transactions with related parties including In thousands of LBP 2018 2017 shareholders, directors, and associates. Balances with related parties consist of the following as at December 31.
Salaries 75,430,027 73,516,146 Other benefits 33,700,177 33,396,386 In thousands of LBP 2018 2017 Social Security contributions 14,917,225 14,247,569 Provision for employees’ end-of-service indemnities (net) (Note 20) 2,549,054 2,450,534 Shareholders, directors and other key management personnel and close family members Provident fund 730,433 599,633 Direct facilities and credit balances: Loans and advances 6,444,870 9,411,923 127,326,916 124,210,268 Deposits 129,383,021 208,335,571 Letters of guarantee 740,038 1,769,781
Associated companies 35. GENERAL AND ADMINISTRATIVE EXPENSES Loans and advances 29,438,998 31,299,008 Customers’ liability under acceptances - 11,270 In thousands of LBP 2018 2017 Customer's Deposits 183,693,563 81,556,650 Letters of credit 77,492,324 13,415,708 Board of Directions remuneration 2,570,628 2,571,888 Letters of guarantee 3,040,431 3,784,799 Telephone, mail and other communication expenses 3,862,307 2,958,335 Office supplies 1,545,101 1,656,472 The Group deals with related party banks in the normal course of business. Advertising and marketing expenses 4,987,861 5,898,940 Electricity and fuel 3,819,692 3,534,264 The remuneration of executive management, including incentives, during 2018 amounted to LBP 21.8 billion Maintenance and repair fees 12,186,591 11,241,902 (LBP 21.9 billion in 2017). Professional and regulatory fees 11,363,974 10,569,861 Interest income includes approximately LBP 4.4 billion for the year ended December 31, 2018 (LBP 3.3 billion for Rent expense under operating leases 8,187,208 7,570,240 the year ended December 31, 2017) representing interest recognized by the Group from related parties. Insurance expenses 1,355,189 1,308,951 Interest expense includes approximately LBP 13 billion for the year ended December 31, 2018 (LBP 12.7 billion Travel and entertainment 6,099,136 6,203,264 for the year ended December 31, 2017) representing interest incurred by the Group to related parties. Miscellaneous expenses 10,712,518 11,237,129 Net commission income includes approximately LBP 393 billion for the year ended December 31, 2018 66,690,205 64,751,246 (LBP 398 million for the year ended December 31, 2017) representing commissions earned for services rendered by the Group to related parties. General and administrative expenses include rent fees in the amount of LBP 381 million for the year ended December 31, 2018 and 2017 charged by a related party company. 36. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS The guarantees and standby letters of credit and the documentary and commercial letters of credit represent financial instruments with contractual amounts representing credit risk. The guarantees and standby letters of credit represent irrevocable assurances that the Group will make payments in the event that a customer cannot 38. CASH AND CASH EQUIVALENTS meet its obligations to third parties and are not different from loans and advances on the statement of financial position. However, documentary and commercial letters of credit, which represent written undertakings by the December 31, Group on behalf of a customer authorizing a third party to draw drafts on the Group up to a stipulated amount In thousands of LBP 2018 2017 under specific terms and conditions, are collateralized by the underlying shipments documents of goods to Cash on hand 63,580,429 57,794,891 which they relate and, therefore, have significantly less risks. Current accounts with central banks 343,711,256 97,468,544 Forward exchange contracts outstanding as of December 31, 2018 and 2017 represent positions held for Term placements with central banks (original maturity of less than 3 months) - 74,120,000 customers’ accounts and at their risk. The Group entered into such instruments to serve the needs of customers, Current accounts with banks and financial institutions 493,275,777 526,626,762 and these contracts are fully hedged by the Group. Term placements with banks and financial institutions (original maturity of less than 3 months) 1,340,667,705 1,026,448,070
2,241,235,167 1,782,458,267
The following investing and financing activities that represent non-cash items were excluded from the statement of cash flows.
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2018 2017 Liabilities Current year Current year Deposits from banks and financial institutions 21,158,022 change in Allowance change in Customers' deposits at amortized cost 47,002,169 fair value of Foreclosure for credit fair value of Foreclosure Other liabilities 2,743,074 In thousands of LBP investments of assets losses investments of assets Provisions 14,399
Investments designated at FVTOCI (Note 10) 10,610,234 - - (4,354,472) - 70,917,664 Loans and advances to customers - 110,035,793 - - (24,359,082) Investment in associates - - (2,614,858) - - Net assets deconsolidated 41,994,568 Other liabilities - - (308,463,867) - - Assets acquired in satisfaction of loans (Note 13) - (110,035,793) - - (24,359,082) The results of Bank Al-Sharq S.A. for the 5 month period ended May 31, 2017 (deconsolidation date) are as follows. (10,610,234) - (311,078,725) (4,354,472) - Five month period ended In thousands of LBP May 31, 2017 Deferred tax liability on cumulative change in fair value of investment securities (785,764) - - 508,434 - Retained earnings - 205,800 311,078,725 - 16,961,809 Net interest income 1,207,691 Regulatory reserve for assets acquired Net fee and commission income 608,050 in satisfaction of loans - (205,800) - - (16,961,809) Net results on financial instruments at fair value through profit or loss 196,160 Reserves - - - - - Other operating income 9,428 Cumulative change in fair value of investments (equity) 11,395,998 - - 3,846,038 - Net allowance for the impairment of loans and advances to customers (292,705) Capital - - - - - Reserves - - - - - Staff costs (324,835) General and administrative expenses (454,984) 10,610,234 - 311,078,725 4,354,472 - Depreciation and amortization (178,080) Other expenses (net) (329,514) The effect of the deconsolidation of a subsidiary as described under (Note 39). 441,211 Income tax expense (220,540)
39. DECONSOLIDATION OF A SUBSIDIARY Profit for the period - (Note 27) 220,671 Since the outbreak of the civil war in Syria in March 2011, persisting negative macroeconomic conditions and strict limitations on banking activities were preventing the Group from managing Syrian operations and implementing decisions at operational and financial levels. 40. CAPITAL MANAGEMENT C onsequently, the BLF Board of Directors took the decision to completely review the relationship with Bank Al-Sharq, Syria, which is 49.00% owned by the Group. Two members of the Board, who represented the Group, The Group manages its capital to comply with the capital adequacy requirements set by Central Bank of Lebanon, have submitted their resignation from the Board of Directors of Bank Al-Sharq. Hence, conditions for exercising the Group’s lead regulator. The subsidiaries of the Group operating abroad are also required to respect particular control as set in IFRS 10 are no longer met, and accordingly the Group has deconsolidated the subsidiary’s ratios according to the competent authorities of supervisions. account effective June 1, 2017. Furthermore, the Central Bank of Lebanon requires each bank or banking group to hold a minimum level of T he deconsolidation of Bank Al-Sharq S.A. resulted in the recognition of losses of LBP 10.15 billion derived from regulatory capital of LBP 10 billion for the head office and LBP 500 million for each branch in Lebanon and the currency translation into Lebanese Pounds of the financial statements of Bank Al-Sharq S.A., previously LBP 1.5 billion for each branch outside Lebanon in addition to the minimum regulatory capital required by the recognised under foreign currency translation reserve in equity and recycled to the statement of profit or loss host country. upon deconsolidation. Pursuant to the modification of Central Bank decision Nº 6939 dated March 25, 1998 through the intermediary T he Group has determined the fair value of its investment retained in the former subsidiary at LBP 20.6 billion circular Nº 12348 dated September 30, 2016, all banks operating in Lebanon must gradually reach the following that was classified as an investment at fair value through other comprehensive income as of June 1, 2017. capital ratios. C ash and cash equivalents of the subsidiary Bank Al-Sharq S.A. upon deconsolidation was LBP 30.6 billion. December 31, T he Group will reassess its position in case there are significant future changes in the circumstances calling for 2016 2017 2018 deconsolidation. Ratio % % % Below is an analysis of the assets and liabilities over which control was lost. Common Equity Tier 1 ratio 8.50 9.00 10.00 Tier 1 ratio 11.00 12.00 13.00 In thousands of LBP May 31, 2017 Total Capital ratio 14.00 14.50 15.00
Assets Cash and deposits at Central Bank 32,196,546 Deposits with banks and financial institutions 28,258,603 Financial assets at fair value through profit or loss 14,591,904 Loans and advances to customers 30,854,873 Property and equipment and intangible assets 6,235,021 Other assets 775,285
112,912,232
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The Group’s capital is split as follows. This Committee assists the Board in discharging its risk related responsibilities; where particularly it authorizes and submits to the Board the Group risk policies, reviews the Internal Capital Adequacy Assessment Process and T ier I Capital: comprises mainly share capital, shareholders’ cash contribution to capital, non-cumulative the results of the capital adequacy ratio (QIS), monitors the Group’s risk profile for all types of risks, oversees the perpetual preferred shares, share premium, reserves from appropriation of profits, retained earnings (inclusive risk management framework and assesses its effectiveness at the level of the Group (mainly for Banking and of current year’s net profit after deduction of proposed dividends, minority interest and intangible assets). financial institution subsidiaries). C umulative unfavorable change in fair value of assets designated at fair value through other comprehensive income are deducted from Tier I Capital. B- Credit Risk Management T ier II Capital: comprises 50% of cumulative favorable change in fair value of assets at fair value through other Credit risk is the risk of financial loss to the Group if counterparty to a financial instrument fails to discharge an comprehensive income, regulatory deferred liability less 2% of the weighted credit risks, and other regulatory reserves. obligation. Financial assets that are mainly exposed to credit risk are exposure to sovereign at amortized cost, Investments in associates are deducted from Tier I and Tier II Capital. deposits with banks, loans and advances to customers and other banks and investment securities. Credit risk F urthermore, various limits are applied to the elements of capital base: qualifying Tier II capital cannot exceed also arises from off-balance sheet financial instruments such as letters of credit and letters of guarantee. Tier I capital and qualifying short term subordinated loan capital may not exceed 50% of Tier I capital. Concentration of customers’ credit risk arises from uneven distribution of bank loans to individual borrowers T he Group’s capital adequacy ratio according to Central Bank of Lebanon directives and Basel III as of December or connected group of borrowers (directly or indirectly per facilities granted or per guarantee provided), 31, 2018 and 2017 was as follows. concentration of loans in industry sectors and geographical regions. The Group operates within a clear risk appetite statement set by the executive management and approved by December 31, the Board Risk Committee and the Board. It is periodically reviewed in line with the Group’s strategy, the new regulations as well as the market outlook and the economic environment. In millions of LBP 2018 2017 The risk appetite is interpreted into risk tolerances and risk limits formulated in the various risk policies. Common equity Tier I (net) 1,216,493 1,143,504 The Group’s credit risk policy defines the framework for the Group’s lending activity, and it mainly covers: Additional Tier I Capital (net) 512,805 512,807 • an adequate credit administration, measurement, monitoring and control of credit risk, • a proper diversification of the lending portfolio by setting internal limits at the level of individual borrower, 1,729,298 1,656,311 group of connected borrowers, region and industry, Net Tier II Capital 139,077 203,755 • an appropriate governance and clear process for approving and renewing commercial and retail credits by establishing different Credit Committees according to the nature and the amount of the loan, Total regulatory capital (including remaining net profit after distribution of dividends) 1,868,375 1,860,066 • a sound and compliant IFRS 9 methodology that comprises assets staging based on the Bank’s internal risk grading models, ECL parameters and calculation, data and tools accessibilities, business units permanent Credit risk 10,942,384 10,382,110 awareness and support. Market risk 214,522 389,430 Operational risk 827,134 748,751 The internal audit performs regular audit missions making sure that the controls and procedures adopted are Risk-weighted assets and risk-weighted off-balance sheet items 11,984,040 11,520,291 adequately designed and implemented.
Common equity Tier I ratio 10.15% 9.93% 1- Credit Risk Classification Tier I capital ratio 14.43% 14.38% • Sovereign and Banks exposure Risk based capital ratio – Tier I and Tier II Capital 15.59% 16.15% For sovereign and banks’ exposure, the Group relies on the external rating provided by the three main rating agencies. A mapping to the Central Bank of Lebanon regulatory rating and IFRS 9 stages is then applied. The Group’s capital strategy is based on the following constraints: • comply with regulatory ratios, on individual and consolidated basis, primarily in respect of the Capital Adequacy S&P or equivalent rating Credit quality description IFRS 9 stages Ratio under Basel III, • ensure a high return on equity for the common shareholders, AAA Low risk Stage 1 • dividends payout policy is consistent to provide shareholders with acceptable dividend yield. AA+ to AA Low risk Stage 1 A+ to A Low to fair risk Stage 1 The Group’s strategy is to maintain a satisfactory economic capital beyond the regulatory threshold. BBB+ to BBB- Monitoring Stage 1 BB+ to BB Monitoring Stage 2 B+ to B Monitoring Stage 2 CCC+ to CCC- Weak Stage 3 41. RISK MANAGEMENT CC+ to CC- Substandard Stage 3 C, D Doubtful Stage 3 I- CREDIT RISK D Loss Stage 3
A- Board Risk Committee • Commercial lending The Group has acquired since 2011 Moody’s Risk Analyst software for internal rating models, implemented in all In order to ensure sound corporate governance practices and comply with basic circular Nº 118, the Group has its subsidiaries. The models include two customized rating models for Corporate and SMEs and three scorecards broadened the role of the Board Credit Risk Committee. for SMEs without financials, Project Finance and High Networth Individual. The rating models generate a T he Board Risk Committee is headed by a Non-Executive Board Member and has five members of which two of borrower rating based on financial criteria as well as qualitative and subjective assessment. them are Non-Executive Board members. To ensure a reliable rating, the file is prepared by the business units, than reviewed by the Credit Risk Analysts who provide an independent credit opinion before submission to credit committee. The final rating approved by the Committee is archived by the Risk Management Department and used in all internal reports. The Risk Management Department is the only entity who can validates any override on the rating authorized by the
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Credit Committee. Furthermore, the Risk Management is responsible for the annual update of the industry 2- Credit risk parameters for expected credit loss assessment. a) Probability of default The internal rating scale comprises 7 performing grades and 3 non-performing grades that are designed and PD is an estimate of the likelihood of default over a given time horizon. calibrated to reflect the risk of default of the borrower. Those grades are mapped to the regulatory classification as set by the Central Bank circulars, as well as IFRS9 stages. • Sovereign and Banks exposure The ECL calculation on sovereign and banks’ exposure is based on the Probability of default (PD) allocated by rating as displayed by the external rating agencies. S&P or equivalent rating Credit quality description IFRS 9 stages • Commercial lending Performing The Group uses credit risk grades as a primary input into the determination of the term structure of the PD for 1 Excellent Stage 1 exposures. The PD allocated to each grade of the internal rating models is historically generated based on the 2 Strong Stage 1 default history observed at the bank over the past 7 years horizon. 3 Good Stage 1 This through the Cycle PD is annually updated and converted to point in time and lifetime PD based on a 4 Acceptable Stage 1 macroeconomic indicator chosen by the bank. 5 Adequate Stage 1 6 Marginal Stage 2 For assets in stage 3, the ECL is based on an individual assessment performed by the Recovery Department, 7 Vulnerable Stage 2 taking into consideration the expected cash flow to recover from the client - whether from the client’s capacity or through the sale of a collateral. The future cash flow is discounted based on an agreed - and periodically Non-performing reviewed -interest rate. The shortage between the discounted cash flow and the actual account balance due from the client is booked as a specific provision, after approval from the Credit Committee. 8 Substandard Stage 3 9 Doubtful Stage 3 • Rental lending 10 Loss Stage 3 The ECL is measured on a collective basis: the loans are grouped on the basis of homogenous risk characteristics, such as the nature of the product (Housing, car loans and consumers’ loans). A loss rate approach is used, derived from historical observation and allocated by product and by number of • Significant increase in credit risk definition days past due. A further forward looking adjustment is to be introduced. The Group has implemented a system for scoring of consumer loans and has customized for each product type a scoring application with the relevant eligible criteria, parameters and workflow. Each credit application is The number of days past due is the determinant criteria for Retail product, in compliance with regulatory assigned a score that is taken into consideration in the decision making. guidelines and the IFRS 9 standards. ervisory risk • Commercial lending b) Exposure at default (EAD) The Group has clearly formulated within its credit risk policy the definition of the significant increase in credit EAD is an estimate of the exposure at a future default date, taking into account expected changes in the risk, thus the move to stage 2 as per IFRS 9 standards. The checklist comprises a combination of quantitative and exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on qualitative criteria that may affect the borrower’s capacity to meet its obligation, such as but not limited to: committed facilities. It includes both on-balance sheet exposure and off balance sheet items: - downgrade of the borrower internal rating below the backstop set by the bank, - The on balance sheet exposure is determined on the net present value of the term loans and the gross carrying - significant increase in debt, activity slowdown, deterioration of financial ratios or in cash flow or in profits, amount of revolving facilities. - bad account movement: past due, hardcore, etc. - T he exposure on off balance sheet items – including undrawn committed contracts – takes into consideration - rescheduling of loans, significant change in the quality or value of the collateral or requirement of additional the conversion factor set by Basel rules if the guarantee becomes payable. collateral or covenant, - serious discords among shareholders, legal actions, non-performing at other bank, bad information, c) Loss given default - significant adverse change in economic sector of the borrower of the country of risk. LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows The assessment is performed based on reasonable and supportable information available without undue cost due and those that the lender would expect to receive, taking into account cash flows from any collateral. and effort, taking into consideration expert credit judgment and forward looking information. The Group has defined its LGD based on historical recovery information, allocated by type of collateral, with a The decision for stage movement has to be approved by the adequate Credit Risk Committee. benchmark to Basel Rules and the industry best practices to cover any lack of data. • Default definition The Group considers an asset to be defaulted when one or more of the below conditions are met, and may affect d) Lifetime the client’s capacity to meet its obligation: The Group is exposed to credit risk on the entire contractual life on an asset. - past due above 90 days on rescheduled loans, For revolving facilities that do not have a fixed term or repayment structure and have a short contractual cancellation - persistent regression in current and future cash flows that become insufficient to settle customer commitments, period, the Group has determined an average lifetime based on historical behavior and expert judgment. so that the refund will be linked to the liquidation of the guarantee, - possible bankruptcy, e) Forward looking Information - contractual ’’Events of default’’, The Group uses forward-looking information in its assessment of significant increase of credit risk as well as in - severe financial difficulties and client non-performing with other banks. its measurement of ECL. The asset is then impaired and moved to stage 3. The decision for stage movement has to be approved by the The Group has adopted the real GDP growth as main macroeconomic indicator that impact the PD term adequate Credit Risk Committee. structure, as published by the International Monetary Fund. The Group has chosen three scenarios: a baseline and most likely median scenario as estimated by IMF, a pessimistic and optimistic scenarios set as an equal standard deviation from baseline. A weight is allocated to each scenario with more likelihood for the baseline. The severity of the scenarios as well as their respective weights are reviewed every year upon update of the IMF estimation and forecasts.
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3- Credit risk monitoring and review 2- Credit risk concentration T he Group has put in place a sound monitoring and review process as well as robust Management Information a) Concentration by sector Systems in order to early detect any sign of increase in credit risk and assess any eventual stage movement. The necessary measures will be taken accordingly to reduce or mitigate the risks, such as a decrease in exposure or the call for additional collaterals. Therefore, periodic reports are generated and examined covering – but not limited December 31, 2018 to - the main following areas: Loans • payment record and past due, including payment ratios and ageing analysis, advances to Debt Debt • extent of utilization of granted limit, hardcore, breach on limits, customers investment investmant Financial • changes in business, financial and economic conditions, including securities at securities Loans guarantee • collect and analysis of recent financials, In thousands of LBP acceptances* amortized cost at FVTTOCI commitments contracts • evolution of the borrower’s positions with other banks as per CDR (Centrale des Risques) • follow-up on data provided by Information Bureau: seizures, lawsuits… Sovereign - 4,055,541,733 109,958,925 - - Banking - 20,744,450 - - - Moreover, the Credit Risk Management Division ensures a monthly review for stage 2 files. Corporate and SME T he Loan Remedial Division ensures the follow-up of substandard, doubtful and non-recoverable loans with a Agriculture 44,321,020 - - 2,431,082 5,532,532 prime objective of proposing loan restructurings or arrangements with the clients. Manufacturing 828,074,149 - - 86,469,282 98,334,020 Real Estate 1,321,084,765 - - 74,917,845 16,488,866 A quarterly review for non-performing loans is also performed in coordination with the Loan Remedial Division Contracting 840,830,300 - - 45,023,766 565,160,051 and the Legal Division. Trading 1,651,706,479 54,001,712 - 252,554,400 410,349,817 M onitoring reports are then submitted to specialized committees on monthly, quarterly and semi-annual basis. Services 646,821,279 - - 46,362,524 59,115,579 Financial intermediaries 526,989,801 - - 42,776,724 139,603,956 C- Credit quality Other 137,180,819 - - 7,157,873 5,269,542 Individuals 358,081,494 - - 33,368,093 12,335,237 1- Maximum exposure to credit risk Retail Mortgages 1,067,091,805 - - - - Personal and car loans 249,979,319 - - - - December 31, 2018 Credit cards 28,662,549 - - - - Loans Debt Balances and advances investment Debt 7,700,823,779 4,130,287,895 109,958,925 591,061,589 1,312,189,600 with banks to customers securities investment Financial Concentration Balances with and financial Loans to including at amortized securities Loans guarantee December 31, 2017 by region central banks institutions banks acceptances* cost at FVTOCI commitments contracts Loans In thousands of LBP advances to Debt customers investment Financial Lebanon 5,790,180,680 245,065,981 21,224,711 6,105,609,224 4,055,473,243 109,958,925 459,857,531 643,611,494 including securities at Loans guarantee Middle East 53,056,047 141,788,379 - 632,582,216 - - 55,682,882 514,151,436 In thousands of LBP acceptances* amortized cost commitments contracts Europe 300,763,592 1,395,566,766 - 244,697,693 74,814,652 - 16,348,010 52,510,173 Other - 486,317,683 73,728,300 717,934,646 - - 59,173,166 101,916,497 Sovereign - 4,938,030,417 - - 6,144,000,319 2,268,738,809 94,953,011 7,700,823,779 4,130,287,895 109,958,925 591,061,589 1,312,189,600 Banking - - - - Corporate and SME Agriculture 48,479,124 - 849,445 2,133,915 December 31, 2017 Manufacturing 757,891,569 - 106,684,292 157,847,658 Loans Debt Real Estate 1,423,286,499 - 56,468,466 11,753,297 Balances and advances investment Contracting 847,818,916 - 60,414,399 607,088,494 with banks to customers securities Financial Trading 1,175,946,102 27,376,772 207,486,577 319,726,626 Concentration Balances with and financial Loans to including at amortized Loans guarantee Services 583,869,783 - 35,684,992 52,413,129 by region central banks institutions banks acceptances* cost commitments contracts Financial intermediaries 580,864,263 - 17,527,717 175,321,371 Other 106,349,117 - 8,123,611 51,928,967 In thousands of LBP Individuals 318,879,326 - 21,463,263 7,427,373 Retail Lebanon 4,800,604,177 223,004,374 27,637,419 5,664,591,664 4,945,639,481 330,019,535 524,843,440 Mortgages 1,087,877,513 - - - Middle East 65,610,926 259,485,320 - 627,742,133 - 110,818,652 576,882,557 Personal and car loans 225,770,686 - - - Europe 155,336,028 1,418,366,754 - 224,139,315 19,767,708 16,960,145 42,625,912 Credit cards 28,135,667 - - - Other - 325,183,555 71,779,341 668,695,453 - 56,949,430 241,288,921 5,021,551,131 2,226,040,003 99,416,760 7,185,168,565 4,965,407,189 514,747,762 1,385,640,830 7,185,168,565 4,965,407,189 514,747,762 1,385,640,830
Loans and advances to customers including acceptances as at december 31, 2018 and 2017 do not include Loans and advances to customers including acceptances as at December 31, 2018 and 2017 do not include expected credit loss. expected credit loss.
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b) Credit risk exposure per class of financial assets, internal rating and stage
= December 31, 2018 Balances Balances Loans and advances Debt investment Debt investment with Central with banks Loans to customers including securities at securities at banks and financial institutions to banks customers’ acceptance liability amortized cost FVTOCI Loans commitments Financial guarantee contracts Stage 1 12- Stage 1 12- Stage 2 Stage 1 12- Stage 2 Stage 1 12- Stage 2 Stage 3 Stage 1 12- Stage 1 12- Stage 1-12 Stage 2 Stage 1-12 Stage 2 Stage 3 month month lifetime month lifetime month lifetime lifetime month month month lifetime month lifetime lifetime ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL ECL In thousands of LBP
Grades 1 to 4-: Low to fair risk 6,163,735,930 1,921,454,580 - - - 5,013,815,339 - - 4,108,465,735 109,958,925 491,342,797 - 921,811,132 - - Grades 5+ to 6: Monitoring - 217,760,694 88,253,293 21,597,924 1,666,972 1,609,083,577 - - 47,582,919 - 96,620,798 - 355,182,686 - - Grades 6- to 7-: Watch List - - 48,935,721 - 76,346,285 - 422,950,611 - - - - 3,097,996 - 15,064,125 - Grades 8: Substandard ------69,523,909 ------728,368 Grades 9: Doubtful ------423,496,551 ------15,777,853 Grades 10: Impaired ------161,192,457 ------3,625,436 Total gross carrying amount 6,163,735,930 2,139,215,274 137,189,014 21,597,924 78,013,257 6,622,898,916 422,950,611 654,212,917 4,156,048,654 109,958,925 587,963,595 3,097,996 1,276,993,818 15,064,125 20,131,657 Loss allowance (19,735,611) (2,379,481) (5,285,999) (373,212) (4,284,958) (69,724,055) (90,689,234) (382,821,593) (25,760,759) - (246,528) (135,469) (16,686,618) (2,307,845) (126,283) Carrying Amount 6,144,000,319 2,136,835,793 131,903,015 21,224,712 73,728,299 6,553,174,861 332,261,377 271,391,324 4,130,287,895 109,958,925 587,717,067 2,962,527 1,260,307,200 12,756,280 20,005,374
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3- Movement of loss allowance e) Investment securities a) Balances with central banks The movement of loss allowance on investment securities during 2018 is detailed as follows.
Balances with central banks are classified under stage 1 and there were no transfers between stages during 2018. Stage 1-12 month ECL The movement of loss allowance on balances with central banks during 2018 is detailed as follows. At amortized At fair value through In thousands of LBP cost other comprehensive income Stage 1 In thousands of LBP 12-month ECL Loss allowance as at January 1, 2018 28,987,514 1,064,104 Net change in loss allowance (3,226,755) 217,607 Loss allowance as at January 1, 2018 19,524,156 New financial assets originated 656,895 25,760,759 846,497 Financial assets that have been derecognised (445,440) Loss allowance as at December 31, 2018 19,735,611 f) Financial guarantees contracts The movement of loss allowance on financial guarantees during 2018 is detailed as follows. b) Deposits with banks and financial institutions D eposits with banks and financial institutions are classified under stages 1 & 2 and there no transfers between Stage 1 Stage 2 Stage 3 stages during 2018. In thousands of LBP 12-month ECL Lifetime ECL Lifetime ECL Total T he movement of loss allowance on deposits with banks and financial institutions during 2018 is detailed as Loss allowance as at January 1, 2018 17,306,810 2,341,101 126,283 19,774,194 follows. Changes in the loss allowance: - Transfers between stages 280,587 (279,407) - 1,180 Stage 1 Stage 2 - Net write-backs (900,779) 246,151 - (654,628) In thousands of LBP 12-month ECL Lifetime ECL Total Loss allowance as at December 31, 2018 16,686,618 2,307,845 126,283 19,120,746 Loss allowance as at January 1, 2018 4,186,932 4,476,437 8,663,369 Net change in loss allowance (1,807,451) 809,562 (997,889) g) Loan commitments Loss allowance as at December 31, 2018 2,379,481 5,285,999 7,665,480 The movement of loss allowance on loan commitments during 2018 is detailed as follows.
c) Loans to banks Stage 1 Stage 2 In thousands of LBP 12-month ECL Lifetime ECL Total The movement of loss allowance on loans to banks during 2018 is detailed as follows. Loss allowance as at January 1, 2018 125,915 126,053 251,968 Stage 1 Stage 2 Changes in the loss allowance: In thousands of LBP 12-month ECL Lifetime ECL Total - Transfers between stages (12,340) 2,211 (10,129) - Changes in models/risk parameters 132,953 7,205 140,158 Loss allowance as at January 1, 2018 477,575 2,476,512 2,954,087 Loss allowance as at December 31, 2018 246,528 135,469 381,997 Net change in loss allowance (104,363) 1,808,446 1,704,083 Loss allowance as at December 31, 2018 373,212 4,284,958 4,658,170
d) Loans and advances to customers including customer’s liability under acceptances II- CREDIT RISK The movement of loss allowance on loans and advances to customers during 2018 in detailed as follows. Credit Liquidity risk is the risk that the Group will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry Stage 1 Stage 2 Stage 3 up immediately. In thousands of LBP 12-month ECL Lifetime ECL Lifetime ECL Total
Loss allowance as at January 1, 2018 62,557,307 92,411,719 399,777,853 554,746,879 A- Management of liquidity risk Changes in the loss allowance: Liquidity Risk Management is part of the Assets and Liabilities Management Policy and falls under the - Transfers between stages (525,707) 889,899 2,442,095 2,806,287 responsibility of the Assets and Liabilities Committee (ALCO) as assigned by the Board of Directors. - Write-offs - - (19,179,080) (19,179,080) - Net additions 7,692,455 (2,612,384) (219,275) 4,860,796 To address this risk, the Group diversifies its funding resources, maintains sufficient liquidity and subscribes in Loss allowance as at December 31, 2018 69,724,055 90,689,234 382,821,593 543,234,882 relatively convertible securities to face an exceptional increase in liquidity needs in the case of liquidity crises. The objectives of the Group’s liquidity policy consist of ensuring a well-balanced financing in a way that the Group is capable at any time to honor its obligations towards its customers, to satisfy the standards imposed by the local banking regulator and to maintain the lowest possible level of refinancing cost. In line with the liquidity policy set by the ALCO, the Treasury Department manages the investment in sovereign and/or Central Bank papers; while the Fixed Income division is in charge of actively managing the fixed income instruments by maintaining a low duration, high yield, well diversified portfolio. The International Division is responsible for the management of the interbank borrowings/placements based on a thorough analysis for each correspondent bank.
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The Risk Management division role is to ensure that the Group exposure always satisfies the internal limits, A close monitoring of the interest rate risk of the Group is guaranteed through periodic reports and stress tests. as well as the regulatory requirements. The Risk Management actively monitors the Group exposure through Sensitivity analyses are regularly conducted on the global exposure as well as on specific portfolios like the periodic reviews, and upholds various stress scenarios when necessary, presenting the results to the Board Risk medium and long term loans per currency. Committee. The following table deposits the Groups’ exposure to Interest rate risk. During the past years and due to the incentives of the Central Bank, the Group has witnessed a important increase in the Medium and Long Term loans granted to different industries. This increase has required a close December 31, 2017 follow up by the risk management. Not subject Up to 3 months 1 to 3 3 to 5 Over 5 Customers’ deposits represent the main source of funding of the Group. In millions of LBP to interest 3 months to 1 year years years years Total
B- Residual contractual maturities of financial liabilities Financial assets Cash and deposits at central banks 382,905 2,072,899 161,612 177,881 615,588 2,733,115 6,144,000 The table below shows the allocation of financial liabilities based on the earliest possible contractual maturity. Deposits with banks and financial institutions 396,914 1,827,677 40,959 3,189 - - 2,268,739 The expected maturity varies significantly from the contractual maturities, namely with regard to customers’ Loans to banks 37,554 35,396 405 5,531 16,067 - 94,953 deposits. Loans and advances to customers 298,175 3,118,603 2,727,620 326,223 38,958 7,928 6,517,424 Financial assets at fair value through profit or loss 4,509 - 3,403 7,033 25,665 80,814 121,424 Investment securities 118,146 105,657 269,908 917,268 539,482 2,351,366 4,301,827 December 31, 2018 1,238,203 7,160,232 3,203,907 1,437,125 1,235,760 5,173,223 19,448,450 Up to 3 months 1 to 3 3 to 5 Over 5 In millions of LBP 3 months to 1 year years years years Total Financial liabilities Financial liabilities Deposits from banks and financial institutions 456 68,507 76,673 - - - 145,636 Banks and financial institutions 68,963 76,673 - - - 145,636 Customers’ deposits at amortized cost 98,844 9,166,935 6,211,005 1,410,195 158,912 11,154 17,057,045 Customers’ deposits at amortized cost 9,265,779 6,211,005 1,410,195 158,912 11,154 17,057,045 Borrowings 1,187 40,594 85,125 41,122 1,234 416,270 585,532 Borrowings 41,781 85,125 41,122 1,234 416,270 585,532 Other liabilities 40,664 - - - - - 40,664 Other liabilities 1,564 - - - - 1,564 141,151 9,276,036 6,372,803 1,451,317 160,146 427,424 17,828,877 Total financial liabilities 9,378,087 6,372,803 1,451,317 160,146 427,424 17,789,777
December 31, 2017 Not subject Up to 3 months 1 to 3 3 to 5 Over 5 December 31, 2017 In millions of LBP to interest 3 months to 1 year years years years Total Up to 3 months 1 to 3 3 to 5 Over 5 In millions of LBP 3 months to 1 year years years years Total Financial assets Cash and deposits at central banks 542,359 2,066,514 693 167,523 706,888 1,537,574 5,021,551 Financial liabilities Deposits with banks and financial institutions 547,440 1,618,340 60,260 - - - 2,226,040 Banks and financial institutions 88,950 54,471 - - - 143,421 Financial assets at fair value through profit or loss 23,207 2,286 7,120 15,799 21,318 256,883 326,613 Customers’ deposits at amortized cost 9,195,120 6,108,208 1,068,514 94,605 18,452 16,484,899 Loans to banks 18,650 41,631 11,636 - 27,500 - 99,417 Borrowings 141,974 486,263 15,838 5,493 - 649,568 Loans and advances to customers 261,865 4,195,601 1,891,564 165,885 33,576 6,111 6,554,602 Other liabilities 1,916 - - - - 1,916 Investment securities 162,538 429,750 207,706 759,016 664,851 2,782,647 5,006,508
Total financial liabilities 9,427,960 6,648,942 1,084,352 100,098 18,452 17,279,804 1,556,059 8,354,122 2,178,979 1,108,223 1,454,133 4,583,215 19,234,731 Financial liabilities III- MARKET RISKS Deposits from banks and financial institutions 63,754 25,196 54,471 - - - 143,421 Customers’ deposits at amortized cost 209,017 8,986,103 6,108,208 1,068,514 94,605 18,452 16,484,899 The market risk is the risk that the fair value or future cash flows of a financial instrument will be affected because Customer deposits at FVTPL ------of changes in market prices such as interest rate, equity prices, foreign exchange and credit spreads. Borrowings 2,886 139,088 486,263 15,838 5,493 - 649,568 The Risk Management Department, in collaboration with the different entities involved, monitors all the market risks Other liabilities 1,916 - - - - - 1,916 that arise from both banks’ and clients’ activities. A periodic control is performed on the Group Foreign exchange 277,573 9,150,387 6,648,942 1,084,352 100,098 18,452 17,279,804 position (structural and operational), the clients derivatives contracts, leveraging and margin calls. Relevant reporting and stress tests are periodically conducted and presented to the Board and the Board Risk Committee. The Risk Management also guarantees the compliance with internal policies and regulatory requirements.
A- Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect negatively future earnings or the fair values of the Group’s interest-earning assets and interest-bearing liabilities. The Group is exposed to interest rate risk as a result of mismatches in interest rate re-pricing of assets and liabilities and off-balance sheet items that mature or re-price in a given period. Interest Rate Risk Management is part of the Assets and Liabilities Management Policy and falls under the responsibility of the Assets and Liabilities Committee (ALCO) as assigned by the Board of Directors. The Group’s interest rate risk is framed within specific limits defined pertaining to each authorized currency and approved by the ALCO.
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B- Foreign exchange risk Liabilities Deposits from banks T he current foreign exchange position is always kept below the regulatory limit of 1% of Tier 1 Capital. The Group’s and financial institutions 854,085 78,300,886 60,413,690 2,327,074 1,525,362 143,421,097 equity in Lebanon is hedged against fluctuations of the Lebanese Pound by shareholders’ cash contribution to Customers deposits at amortized cost 4,648,820,924 10,229,047,459 1,379,438,023 104,595,865 122,996,452 16,484,898,723 capital of USD 40 million and by a fixed foreign exchange position of USD 207 million as at December 31, 2018 Liability under acceptances - 283,644,175 11,211,125 893,516 7,314,642 303,063,458 (USD 207 million as at December 31, 2017). Borrowings 355,639,505 280,673,851 13,254,905 - - 649,568,261 Other liabilities 370,517,100 108,307,275 (32,134,896) 7,583,908 4,229,385 458,502,772 B elow is the carrying value of assets and liabilities segregated by major currencies to reflect the Group’s exposure Provisions 16,244,124 1,538,004 1,695,885 - 248,450 19,726,463 to foreign currency exchange risk at year end. Total liabilities 5,392,075,738 10,981,511,650 1,433,878,732 115,400,363 136,314,291 18,059,180,774 December 31, 2018 Net assets 623,654,034 1,187,828,269 86,645,846 8,243,859 (946,041) 1,905,425,967 In thousands of LBP LBP USD EUR GBP Other Total Assets Cash and central banks 2,263,559,467 3,293,236,312 557,031,543 429,416 29,743,581 6,144,000,319 Deposits with banks 42. MATERIAL PARTLY - OWNED SUBSIDIARY and financial institutions 68,160,929 1,835,904,071 220,005,207 65,511,857 82,156,745 2,268,738,809 Financial assets at FVTPL 276,412 109,357,410 530,628 11,259,824 - 121,424,274 The table below shows details of partly owned subsidiaries of the Group that have material non-controlling Loans to banks 21,224,712 32,704,160 41,024,139 - - 94,953,011 interests. Loans and advances to customers 1,005,629,100 4,806,857,796 602,582,531 8,253,878 94,183,296 6,517,506,601 Investment securities at amortized cost 1,803,422,600 2,258,800,576 64,812,853 - 3,251,866 4,130,287,895 Place of Incorporation Investment securities at FVTOCI 15,394,403 146,924,561 8,195,890 - 1,024,316 171,539,170 Customers’ liability under acceptances (406,731) 621,087,386 13,014,847 447,990 5,177,469 639,320,961 and principal Ownership of Profit allocated to Accumulated Investments in associates 10,813,846 31,032,263 - - - 41,846,109 place non-controlling non-controlling non-controlling Assets acquired in satisfaction of loans 110,650 225,329,816 - - - 225,440,466 business interests interests interests Tangible and intangible assets 210,274,018 - 2,168,027 - 707,327 213,149,372 In thousands of LBP 2018 2017 2018 2017 2018 2017 Other assets 335,881,424 (316,265,085) 121,472,874 3,121,436 (77,134,999) 67,075,650 LF Funds Luxembourg 77.65% 78.01% (2.106.807) 4,018,313 87,409,808 84,643,950 Total assets 5,734,340,830 13,044,969,266 1,630,838,539 86,024,401 139,109,601 20,635,282,637 Lebanon Income Fund Cayman Islands 66.32% 69.09% (1,960,702) 923,294 28,254,961 33,590,454 Individually immaterial subsidiaries Liabilities with non-controlling interests 4,972,068 4,715,468 Deposits from banks and financial institutions 1,389,726 57,391,349 80,112,281 1,871,840 4,871,033 145,636,229 120,636,837 122,949,872 Customers' deposits at amortized cost 4,141,052,110 11,294,221,085 1,423,712,945 72,120,294 125,939,001 17,057,045,435 Liability under acceptances - 621,848,720 13,014,847 447,990 5,177,469 640,489,026 Borrowings 402,515,759 173,753,744 9,262,824 - - 585,532,327 Summarized financial information in respect of each of the Group’s subsidiaries that has material non-controlling Other liabilities 83,652,356 83,129,403 15,048,204 391,839 1,401,494 183,623,296 interests is set out below. The summarized financial information below represents amounts before intragroup Provisions 32,216,849 6,402,153 1,394,403 - 245,973 40,259,378 eliminations. Total liabilities 4,660,826,800 12,236,746,454 1,542,545,504 74,831,963 137,634,970 18,652,585,691 Statement of financial position. LF Funds Lebanon Income Fund Net assets 1,073,514,030 808,222,812 88,293,035 11,192,438 1,474,631 1,982,696,946 In thousands of LBP 2018 2017 2018 2017
December 31, 2017 Assets 110,920,746 108,938,333 42,747,460 49,139,001 In thousands of LBP LBP USD EUR GBP Other Total Liabilities 144,565 440,899 143,478 223,237 Equity 110,776,181 108,497,434 42,603,982 48,915,764 Assets Cash and central banks 1,906,560,866 2,649,481,714 435,898,532 3,166,372 26,443,647 5,021,551,131 Deposits with banks Statement of profit or loss. and financial institutions 4,039,758 1,756,951,684 314,514,335 82,793,487 67,740,739 2,226,040,003 LF Funds Lebanon Income Fund Financial assets at FVTPL 39,813,064 256,781,045 21,952,708 8,062,051 4,245 326,613,113 Year Ended Year Ended Loans to banks 27,637,419 15,025,776 56,753,565 - - 99,416,760 December 31 December 31 Loans and advances to customers 1,216,837,437 4,698,473,998 526,583,161 29,074,851 83,633,256 6,554,602,703 Investment securities at amortized cost 2,582,855,475 2,287,941,693 89,752,306 - 4,857,715 4,965,407,189 In thousands of LBP 2018 2017 2018 2017 Investment securities at FVTOCI 9,570,567 31,430,284 100,230 - - 41,101,081 Customers’ liability under acceptances - 283,644,175 11,211,125 893,516 7,314,642 303,063,458 Net financial (expense)/income (1,374,207) 6,377,862 (2,351,690) 1,914,886 Investments in associates 14,695,172 24,765,652 - - - 39,460,824 Operating (expense)/income (net) (1,219,673) (1,227,149) (604,737) (570,348) Assets acquired in satisfaction of loans 229,855 115,380,816 - - - 115,610,671 Tangible and intangible assets 186,881,434 31,437 2,885,488 - 911,149 190,709,508 Profit for the year (2,593,880) 5,150,713 (2,956,427) 1,344,538 Other assets 26,608,725 49,431,645 60,873,128 (346,055) (55,537,143) 81,030,300 Total assets 6,015,729,772 12,169,339,919 1,520,524,578 123,644,222 135,368,250 19,964,606,741
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43. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Amortized cost Investment securities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction Lebanese treasury bills 537,079,945 - 536,306,494 - 536,306,494 between market participants at the measurement date. The fair value measurement is based on the presumption Lebanese government bonds 1,376,208,913 - 1,135,451,635 - 1,135,451,635 that the transaction to sell the asset or transfer the liability takes place either: Certificates of deposit issued by the • In the principal market for the asset or liability; or Central Bank of Lebanon 2,062,078,810 - 2,010,433,866 - 2,010,433,866 • In the absence of a principal market, in the most advantageous market for the asset or liability. Corporate bonds 74,155,151 73,585,778 - - 73,585,778 The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, 4,049,522,819 73,585,778 3,682,191,995 - 3,755,777,773 assuming that market participants act in their economic best interest. Loans and advances to customers 6,517,506,601 - 5,597,023,473 - 5,597,023,473 A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant 10,567,029,420 73,585,778 9,279,215,468 - 9,352,801,246 that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data Financial liabilities are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of Amortized cost unobservable inputs. Long term borrowings 585,532,327 - 581,984,359 - 581,984,359 All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair December 31, 2017 measurement as a whole: Carrying • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities, In thousands of LBP amount Level 1 Level 2 Level 3 Total • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable, Financial assets • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement At fair value through profit or loss is unobservable. Lebanese treasury bills 34,939,555 - 34,939,555 - 34,939,555 For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines Lebanese government bonds 111,941,144 - 111,941,144 - 111,941,144 whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the Certificates of deposit issued by lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Central Bank of Lebanon 22,820,535 - 22,820,535 - 22,820,535 Quoted corporate bonds 134,144,418 134,144,418 - - 134,144,418 For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the Shares (quoted equities) 18,698,146 18,698,146 - - 18,698,146 nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. The directors consider that the carrying amounts of deposits with central banks, deposits with banks and 322,543,798 152,842,564 169,701,234 322,543,798 financial institutions, loans to banks, loans and advances to related parties, customers’ acceptance liability, other assets, related parties’ deposits at amortized cost, acceptance payable and other liabilities approximate their fair Fair value through other comprehensive income values due to the short-term maturities of these instruments or short-term repricing periods. Unquoted equities 41,101,081 - - 41,101,081 41,101,081
December 31, 2018 41,101,081 - - 41,101,081 41,101,081 Carrying Amortized cost In thousands of LBP amount Level 1 Level 2 Level 3 Total Investment securities: - Lebanese treasury bills 1,211,458,713 - 873,660,671 - 873,660,671 Financial assets - Lebanese government bonds 1,023,033,264 - 975,618,380 - 975,618,380 At fair value through profit or loss - Certificates of deposit issued by the Lebanese treasury bills ------Central Bank of Lebanon 2,613,183,895 - 2,678,060,960 - 2,678,060,960 Lebanese government bonds 27,380,440 - 27,380,440 - 27,380,440 - Corporate bonds 27,112,074 28,113,742 - - 28,113,742 Certificates of deposit issued by Central Bank of Lebanon 1,507,500 - 1,507,500 - 1,507,500 4,874,787,946 28,113,742 4,527,340,011 - 4,555,453,753 Quoted corporate bonds 90,100,755 90,100,755 - - 90,100,755 Shares (quoted equities) 302,171 302,171 - - 302,171 Loans and advances to customers 6,554,602,703 - 6,522,887,630 - 6,522,887,630
119,290,866 90,402,926 28,887,940 - 119,290,866 11,429,390,649 28,113,742 11,050,227,641 - 11,078,341,383 Fair value through other comprehensive income Financial liabilities Unquoted equities securities 42,551,057 - - 42,551,057 42,551,057 Amortized cost Lebanese treasury bills 1,672,944 - - 1,672,944 1,672,944 Long term borrowings 649,568,262 - 648,677,688 - 648,677,688 Lebanese government bonds 63,943,005 - - 63,943,005 63,943,005 Certificates of deposit issued by Central Bank of Lebanon 22,612,500 - - 22,612,500 22,612,500 Quoted corporate bonds 20,017,281 - - 20,017,281 20,017,281 Quoted equity securities 19,029,188 - - 19,029,188 19,029,188
169,825,975 - - 169,825,975 169,825,975
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The following table gives information about how the fair values of financial assets and financial 44. SUBSEQUENT EVENT liabilities, are determined (Level 2 and Level 3 fair values) and significant unobservable inputs used: The Bank, amongst 10 other banks in the country, is defendant in a civil action brought on January 1, 2019 under the Anti-Terrorism Act (ATA) at United States District Court, Eastern District of New York, December 31, 20018/2017 by a group of plaintiffs claiming to have suffered losses by reason of acts of international terrorism Financial assets Date of valuation Valuation technique and key inputs occurring between 2004 and 2011. The Bank’s Management states that the Bank has not been at fair value through involved in any wrong doing and has appointed lawyers to defend its case. Management is of the opinion that the risk derived from the outcome of the lawsuit is relatively low and will not result in profit or loss an adverse impact on the Bank’s financial statements. Lebanese treasury bills December 31, 2018/2017 DCF at a discount rate determined based on the yield curve applicable to Lebanese treasury bonds. 45. APPROVAL OF FINANCIAL STATEMENTS Lebanese government bonds December 31, 2018/2017 Fair value determined by market makers in inactive market. The consolidated financial statements for the year ended December 31, 2017 were approved for issue by the Board of Directors on April 6, 2018. Certificates of deposit issued by December 31, 2018/2017 DCF at a discount rate determined based on Central Bank of Lebanon the yield curve applicable to Lebanese treasury bonds.
Funds December 31, 2018/2017 Reported Net Asset Value (NAV) of the related funds.
At fair value through other comprehensive income Unquoted equities December 31, 2018/2017 Management estimates based on unobservable input related to market volatility and liquidity. At amortized cost Loans and advances December 31, 2018/2017 DCF at a discount rate extrapolated across to customers the maturity spectrum and in line with average market rates.
Lebanese treasury bills December 31, 2018/2017 DCF at a discount rate determined based on the yield curve applicable to Lebanese treasury bonds.
Lebanese Government bonds December 31, 2018/2017 Fair value determined by market makers in inactive market.
Certificates of deposit issued by December 31, 2018/2017 DCF at a discount rate determined based Central Bank of Lebanon on the yield curve applicable to Lebanese treasury bonds.
Financial liabilities at amortized cost Borrowings December 31, 2018/2017 DCF at a discount rate determined at the rate of 12 month Euribor.
There have been no transfers between Level 1, Level 2 and level 3 during the year.
150 151 Back to Table of Contents Annual Report 2018 MAP OF ATM LOCATIONS
15 I Map of Branch Locations 16 I Map of ATM Locations
GREATER BEIRUT OUTSIDE GREATER BEIRUT GREATER BEIRUT OUTSIDE GREATER BEIRUT 1. Achrafieh - Accaoui 33. Bar Elias 1. Accaoui 32. Hazmieh / Sacré-Cœur 60. Aintoura Saint Joseph 91. Nabatieh 2. Achrafieh - Geitawi 34. Batroun 2. Achrafieh / ABC Hospital School 92. Nacoura / Campus FINUL 3. Achrafieh - Sassine 35. Dahr El-Ain 3. Achrafieh / Grand Lycée 33. Jal El-Dib 61. Aley / Medco 93. Nacoura / Green Hill 4. Achrafieh - Sioufi 36. Halba 29 2 4. Achrafieh / Monot 34. Jal El-Dib Centre 62. Anfeh / Las Salinas FINUL 1 5. Bechara El-Khoury 37. Jbeil 13 5. Achrafieh / Total 35. Jdeideh 63. Baabdat / Baabdat 94. Nahr Ibrahim 16 23 6. Bir Hassan 38. Jdita-Chtaura 15 3 6. A dliyeh / Auto Mall (drive 36. Jdeideh / A.N. Boukhater Municipality 95. Rabieh through) 37. Kantari 64. Bar Elias 96. Rahbeh 7. Chyah 39. Jounieh 27 4 7. Adliyeh / Lawyers House 38. Khaldeh 65. Batroun 97. Reyfoun 8. Dbayeh 40. Kaslik 32 26 30 5 8. Bechara El-Khoury 39. Koraitem / Collège 66. Beit El Dine / Total 98. Reyfoun Neighborhood 9. Dekwaneh 41. Kfarhbab 12 7 9. Bir Hassan Protestant 67. Bikfaya / Total 99. Sahel El Alma / Sakr Real 10. Dora 42. Kousba 17 28 11. Dora Bourj-Hammoud 43. Lebaa 10. Choueifat / SpotMall 40. Naccache / Advanced eye 68. Bouar / Wardieh Station Estate 12. Galaxy 44. Mizyara 36 11. Chyah care 69. Dahr El-Ain 100. Saida 13. Gefinor 45. Mazraat Yachouh 51 54 12. Dbayeh 41. Mansourieh 70. Damour / Total 101. Saida Boulevard 14. Hadat 46. Nabatieh 53 52 13. Dbayeh / ABC 42. Mar Elias 71. Dlebta 102. Saida / Municipality 59 15. Hamra 47. Rabieh 35 14. Dbayeh / Le Mall 43. Mar Takla 72. Ehden garden 44 16. Hamra Maamari 48. Reyfoun 42 15. Dekwaneh 44. Mar Mikhaël 73. Feytroun / Bou Khalil 103. Taanayel 17. Haret-Hreik 49. Saida 34 16. Dora 45. Mathaf / USJ 74. Ghazir / Total 104. Tripoli El-Mina 18. Hazmieh 50. Saida Boulevard 37 17. Dora Bourj-Hammoud 46. Mazraa 75. Halat / Indevco 105. Tripoli Tebbaneh 41 19. Hazmieh - Mar Takla 51. Tripoli - El-Mina 39 18. Dora / City Mall 47. Mreijeh 76. Halba 106. Tripoli Tell 20. Jal El-Dib 52. Tripoli - Tebbaneh 40 48 19. Dora / Medco 48. Saifi 77. Hasroun 107. Tripoli Zehrieh 60 21. Jal El-Dib Centre 53. Tripoli - Tell 8 20. Fanar 49. Saifi / Medco 78. Jamhour / Total 108. Tyre 20 22. Jdeideh 54. Tripoli - Zehrieh 10 21 45 21. Furn El-Chebbak / 50. Sami El-Solh 79. Jbeil 109. Tyre-Hoche 11 22 47 23. Kantari 55. Tyre 31 9 25 58 Sagesse University 51. Sassine 80. Jdita-Chtaura 110. Zahleh 24. Khaldeh 56. Tyre-Hoche 18 14 57 22. Galaxy 52. Sassine ATM 81. Jounieh 111. Zahleh Boulevard 19 25. Mansourieh 57. Zahleh 38 23. Gefinor 53. Sin El-Fil 82. Kab Elias 112. Zghorta 26. Mar Elias 58. Zahleh Boulevard 24 6 33 24. Geitawi 54. Sioufi 83. Kaslik 113. Zghorta / Bnachii lake 27. Mazraa 59. Zghorta 25. Hadat 55. Sodeco 84. Kawachra 114. Zouk / MBC 28. Mreijeh 60. Zouk Mosbeh 26. Hamra 56. Tayouneh / Beirut Mall 85. Kfardebian Total 115. Zouk Mosbeh 29. Saifi 27. Hamra Maamari 57. UNESCO / Phoenicia 86. Kfarhbab 116. Zouk Mosbeh / Geha 30. Sami El-Solh 28. Haret-Hreik 58. Verdun / ABC 87. Kousba petrol Station 31. Sin El-Fil 49 43 29. Hazmieh 59. Zeitouna Bay 88. Lebaa 50 32. Sodeco 46 30. Hazmieh / Backyard 89. Mazraat Yachouh 31. Hazmieh / Beirut City 90. Mizyara 55 Center 56
Scan the QR code to locate BLF branches and ATM.
152 153 Back to Table of Contents Annual Report 2018 DIRECTORY
17 I Directory
1. HEADQUARTERS 2. BRANCH NETWORK Bechara El-Khoury Dora Hamra Jal El-Dib Mar Elias Sodeco Béchara El-Khoury Tower, Awada Center, Dora Beirut Liberty Plaza, Rome Street William Zard Building, Hamoud Center, Mar Elias Alieh Building, Main Road In alphabetical order Béchara El-Khoury Road Roundabout Phone +961 (1) or (3) 79 13 32 Jal El-Dib Highway Main Road Phone +961 (1) or (3) 79 13 32 Banque Libano-Française Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 ext. 1211 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 ext. 5511 S.A.L. ext. 2711 ext. 2411 Fax +961 (1) 44 01 18 ext. 4211 ext. 4611 Fax +961 (1) 44 01 41 Member of the Association Beirut and suburbs Fax +961 (1) 44 01 05 Fax +961 (1) 44 01 13 Branch Manager: Fax +961 (1) 44 01 22 Fax +961 (1) 44 01 28 Branch Manager: of Banks in Lebanon Branch Manager: Branch Manager: Mr. Marwan El-Khalil Branch Manager: Branch Manager: Ms. Carine Chiniara Ms. Hussein Mehdi Ms. Rita Darwiche Mr. Fouad Bartelmaos Mr. Ramy Fayad Capital: LBP 265,000,000,000 Achrafieh - Accaoui Shareholders’ Equity: Dr. Saliby Building, Hamra - Maamari Sami El-Solh LBP 1,905,396,000,000 Michel Boustros Street (as at June 30th, 2018) Bir Hassan Dora - Bourj-Hammoud Idriss Building, Maamari Street Jal El-Dib Centre Mansourieh Helene Abou Sleiman Building, Phone +961 (1) or (3) 79 13 32 Jnah, Kuwait Embassy Moucarri Center, Phone +961 (1) or (3) 79 13 32 Al Moudir Center, Main inside Gerges Building, Main Road Sami El-Solh Boulevard C.R. 19618 Beirut ext. 2111 List of Banks Nº 10 Roundabout Dora Highway ext. 1511 Road Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Fax +961 (1) 44 01 02 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Fax +961 (1) 44 01 26 Phone +961 (1) or (3) 79 13 32 ext. 4311 ext. 1811 Branch Manager: 5, Rome Street ext. 7511 ext. 2311 Branch Manager: ext. 5640 Fax +961 (1) 44 01 27 Fax +961 (1) 44 01 39 Ms. Kareen Karam Beirut Liberty Plaza Fax +961 (1) 44 01 06 Fax +961 (1) 44 01 07 Ms. Nisrine Hajj-Chahine Fax +961 (1) 44 01 51 Branch Manager: Branch Manager: Hamra, Beirut, Lebanon Branch Manager: Branch Manager: Branch Manager: Mr. Charbel Karaa Ms. Carine Abboud P.O. Box 11-0808 Ms. Chaza Diab Ms. Rita Avedikian Ms. Nathalie El-Beri Achrafieh - Sassine Haret-Hreik Postal Address Riad El-Solh, Khourafi Building, Sassine Camelia Center, Roueiss Street Mazraa Sin El-Fil Beirut, 1107 2060 Square Chyah Galaxy Phone +961 (1) or (3) 79 13 32 Jdeideh Tarraf Kojok Building, Unesco Rizkallah & Ibrahim Building, Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Awada Center, Mar Mikhael Galaxy Center, Camille ext. 1711 Jdeideh Tower, Mar Sarkis street Crossroad Sin El-Fil Roundabout Fax +961 (1) 75 34 61 ext. 2211 Roundabout Chamoun Boulevard Fax +961 (1) 44 01 20 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Swift BLFSLBBX Fax +961 (1) 44 01 40 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Branch Manager: ext. 5011 ext. 1611 ext. 1911 E-mail [email protected] Branch Manager: ext. 2811 ext. 2611 Ms. Rana Farhat Fax +961 (1) 44 01 97 Fax +961 (1) 44 01 29 Fax +961 (1) 44 01 42 www.eblf.com Mr. Walid Gebran Fax +961 (1) 44 01 08 Fax +961 (1) 44 01 15 Branch Manager: Branch Manager: Branch Manager: Branch Manager: Branch Manager: Mr. Elie Bakhos Ms. Dalal Ramadan Ms. Tania Rached Ms. Hala Hachem Ms. Bouchra Farhat Hazmieh Achrafieh - Geitawi Tabet Center, Damascus Banque Libano-Française International Road Kantari Mreijeh Mount Lebanon Building, Saint Louis Street Dbayeh Gefinor Phone +961 (1) or (3) 79 13 32 Commerce et Finance Haidar Mrad Building, Hadi Phone +961 (1) or (3) 79 13 32 591 Building, Dbayeh Highway Géfinor Center, Clémenceau ext. 5111 Building, Kantari Nasrallah Boulevard ext. 3111 Phone +961 (1) or (3) 79 13 32 Street Fax +961 (1) 44 01 21 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Jbeil Fax +961 (1) 44 01 17 ext. 4711 Phone +961 (1) or (3) 79 13 32 Branch Manager: ext. 7811 ext. 4411 Waqf Mar Yaacoub Building, Branch Manager: Fax +961 (1) 44 01 11 ext. 1111 Ms. Corinne Harmouche Fax +961 (1) 44 01 53 Fax +961 (1) 44 01 32 Main Road Ms. Lama Abi-Raad Branch Manager: Fax +961 (1) 44 01 16 Branch Manager: Branch Manager: Phone +961 (1) or (3) 79 13 32 Ms. Souad Haddad Branch Manager: Ms. Lara Moukarzel Ms. Souad Hamdane ext. 6511 Mr. Hilal Daouk Hazmieh - Mar Takla Fax +961 (1) 44 01 23 Achrafieh - Sioufi Les Oliviers Building, Said Branch Manager: 5133 Building, Amine Gemayel Dekwaneh Freiha / Military School Roads Khaldeh Saifi Ms. Josiane Chahine Street Housing Building, Main Road Hadat Intersection Fawaz Abbas Building, Andraos Building, Arz Street. Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Jean Mikhael Building, Hamra Phone +961 (1) or (3) 79 13 32 Khaldeh - Shoueifat Main Road Phone +961 (1) or (3) 79 13 32 ext. 5211 ext. 4811 Street intersection, Main Road ext. 4011 Phone +961 (1) or (3) 79 13 32 ext. 2911 Jounieh Fax +961 (1) 44 01 38 Fax +961 (1) 44 01 12 Phone +961 (1) or (3) 79 13 32 Fax +961 (1) 44 01 94 ext. 7411 Fax +961 (1) 44 01 37 La Joconde Center, Fouad Branch Manager: Branch Manager: ext. 2011 Branch Manager: Fax +961 (1) 44 01 25 Branch Manager: Chehab Boulevard Ms. Muriel Sayegh Mr. Antoine Ficani Fax +961 (1) 44 01 52 Ms. Carole Bou Saba Branch Manager: Ms. Rita Bechara Phone +961 (1) or (3) 79 13 32 Branch Manager: Mr. Talal Saab ext. 9111 Ms. Sarah Haykal Fax +961 (1) 44 01 24 Branch Manager: Mr. Karim Chaptini
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Kaslik North Tripoli - Tebbaneh Jdita - Chtaura Saida Boulevard 3. REPRESENTATIVE Etoile Center, Kaslik Street Syria Street Akel Center, Damascus Adel Osseiran Street, OFFICES Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 International Road Elia Intersection France ext. 8911 Batroun ext. 6311 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Sodeco S.A.L. Fax +961 (1) 44 01 68 Michel Najm Building, Dora Fax +961 (1) 44 01 43 ext. 8411 ext. 7611 4th Building, First Floor, Sodeco Area, Batroun Main Entrance Banque SBA S.A. Branch Manager: Branch Manager: Fax +961 (1) 44 01 09 Fax +961 (1) 44 01 35 Abu Dhabi Representative Office Street, Beirut - Lebanon Phone +961 (1) or (3) 79 13 32 Ms. Roula Ghalieh Mr. Mohammad Rachid Branch Manager: Branch Manager: Paris P.O. Box 4777 Beirut - Lebanon ext. 6411 United Arab Emirates El-Zahab Ms. Zeina Bechaalany Mr. Marwan Osta 68, Avenue des Champs - Phone +961 (1) 61 42 05 Fax +961 (1) 44 01 04 Elysées - 75008 Paris, France Fax +961 (1) 61 41 92 Kfarhbab Branch Manager: Abu Dhabi Representative Phone +33 (1) 53 93 25 00 Ms. Christelle Bassil Office Menassah Center, Jounieh- Tripoli - Tell Zahleh Tyre Fax +33 (1) 56 88 51 00 Al-Shaheen Tower, Jbeil Highway, Ghazir Entrance Harba Building, Abdel Hamid Abou Sleiman Building, Sainte Wagih Farhat Building, SWIFT SBAA FR PP Al-Salam Street, Abu Dhabi Phone +961 (1) or (3) 79 13 32 Karamé Boulevard Barbe Area Beirut Boulevard Email [email protected] Dahr El-Aïn P.O. Box 130828, Abu Dhabi - ext. 8960 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 www.banque-sba.com Ras Maska, Main Road United Arab Emirates Centre de Traitement Fax +961 (1) 44 01 72 ext. 6111 ext. 8111 ext. 7211 General Manager: Branch Manager: Phone +961 (1) or (3) 79 13 32 Phone +971 (2) 643 2028 Monetique (CTM) S.A.L. Fax +961 (1) 44 01 44 Fax +961 (1) 44 01 47 Fax +961 (1) 44 01 45 Mr. Nagi Letayf Ms. Carinne-Pascale Salloum ext. 5911 Fax +971 (2) 643 2038 Banque Libano-Française Branch Manager: Branch Manager: Branch Manager: st Fax +961 (1) 44 01 10 Email [email protected] Building, 1 Floor, Saint Louis Mr. Ghassan Zeini Ms. Lara Haiby Mr. Fadel Bourgi Branch Manager: Chief Representative: Cyprus Street, Beirut - Lebanon Mazraat Yachouh Mr. Wajih Alameddine Mr. Fadi Traboulsi P.O. Box 15 - 5083 Beirut - Kharma Building, Bickfaya Lebanon Tripoli - Zehrieh Zahleh Boulevard Limassol Main Road Phone +961 (1) 57 76 12 - 3 - 4 Fattal Building, Mohamad Georges Makhoul Center, Tyre-Hoche Kanika Enaerios Complex - Phone +961 (1) or (3) 79 13 32 Kousba Fax +961 (1) 57 76 11 Karame Street El-Boulevard Borj Center, Main Road Tyre- Block 1, Iris House 8C, John ext. 4911 Sainte Marie Center, Main Road Hoche, Tyre Gemmayzat Nigeria - Lagos Representative Office Kennedy Street Fax +961 (1) 44 01 30 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 Branch Manager: ext. 6911 ext. 6211 ext. 8311 Nigeria 3724 Limassol - Cyprus ext. 6960 Ms. Aline Assaf Fax +961 (1) 44 01 10 Fax +961 (1) 44 01 48 Fax +961 (1) 44 01 46 Phone +357 (25) 27 00 00 Branch Manager: Branch Manager: Branch Manager: Fax +961 (1) 44 01 79 Fax +357 (25) 58 16 43 Mr. Camille Khneisser Branch Manager: Nigeria Representative Office SWIFT SBAA CY 21 Mr. Toufic Abed Mr. Omar Tabbal Bancassurance S.A.L. Mr. Hassan Alawieh Mabadeje Plaza, 49, Email [email protected] Rabieh Semiramis Building, 4th floor, Bourdillon Road, Ikoyi www.sbacyprus.com Abi Karam Building, Bickfaya Weygand Street, Halba Zghorta South Lagos, Nigeria Manager: Main Road Beirut Central District Fakhoury Center, Main Road Near Chmor palace, Kferhata Nabatieh Phone +234 (803) 45 88 888 Mr. Adnan Nuwayhed Phone +961 (1) or (3) 79 13 32 P.O. Box 116729 Phone +961 (1) or (3) 79 13 32 Main Street Email [email protected] ext. 4111 Beirut - Lebanon Fax +961 (1) 44 01 34 ext. 6611 Phone +961 (1) or (3) 79 13 32 Lebaa Chief Representative: Phone / Fax +961 (1) 96 01 00 Branch Manager: Fax +961 (1) 44 01 19 ext. 6811 Facing the Municipality, Nabatieh Mr. Samir Maalouf Email bancassurance@ Ms. Rouba Hajal Branch Manager: Fax +961 (1) 44 01 49 Main Street Banque Libano-Française ebancassurance.com Ms. Salma Ghosn Branch Manager: Phone +961 (1) or (3) 79 13 32 Building, Al Jazayer Street Mr. Théodore Koussa ext. 7711 Phone +961 (1) or (3) 79 13 32 Switzerland Reyfoun Fax +961 (1) 44 01 54 ext. 7311 4. SUBSIDIARIES Branch Manager: Fax +961 (1) 44 01 33 Hachem Supermarket Mizyara LF Finance (Suisse) S.A. Mr. Paul Nehmé Branch Manager: Building, Main Road Gilbert Chaghouri Building, Bekaa 86, Rue du Rhône - 1211 Mr. Ali Al-Rodi Phone +961 (1) or (3) 79 13 32 Mizyara Square Geneva - Switzerland ext. 9011 Phone +961 (1) or (3) 79 13 32 Phone +41 (22) 319 72 00 Fax +961 (1) 44 01 98 ext. 5711 Bar Elias Saida Libano-Française Finance Fax +41 (22) 319 72 27 Branch Manager: Fax +961 (1) 44 01 31 Al-Meiss Building, Damascus Saida Center, Riad El-Solh S.A.L. Email [email protected] Ms. Cynthia Atallah Branch Manager: International Road Street Commerce & Finance Building www.lffinance.com Mr. Spiridon Smayra Phone +961 (1) or (3) 79 13 32 Phone +961 (1) or (3) 79 13 32 ext. 8211 ext. 7111 Iraq Kantari, Beirut - Lebanon General Manager: Zouk Mosbeh Fax +961 (1) 44 01 03 Fax +961 (1) 44 01 36 P.O. Box 113 - 6243 Beirut - Mr. Dory Hage Sainte Lourdes Center, Tripoli - El-Mina Branch Manager: Branch Manager: Baghdad Branch Lebanon o Main Road Mina 351 Center, Rafic Hariri Mr. Malek Abou Ajwi Mr. Hussein Ramadan Building 89, Street. N 18 Phone +961 (1) 36 44 43 Phone +961 (1) or (3) 79 13 32 Square Karada Kharej, Zone 905 Fax +961 (1) 36 44 48 ext. 9311 Phone +961 (1) or (3) 79 13 32 Baghdad, Iraq Email [email protected] Fax +961 (1) 44 01 50 ext. 6711 Phone +964 (7802) 27 34 10 General Manager: Branch Manager: Fax +961 (1) 44 01 14 SWIFT BLF SIQ BA Mr. Imtanios Wazzan Ms. Joyce Khalil Branch Manager: Email [email protected] Ms. Lama Haddad Branch Manager: Mr. Marwan Kandar
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18 I Main Correspondent Banks
Euro zone Country City Bank name Nostro
Country City Bank name Nostro Japan Tokyo Sumitomo Mitsui Banking Corporation JPY Bank of Tokyo-Mitsubishi UFJ JPY Austria Vienna UniCredit Bank Austria Eur Mizuho Bank Belgium Brussels KBC Bank Eur Jordan Amman Arab Bank JOD Cyprus Limassol Banque SBA-Cyprus Kingdom of Saudi Arabia Riyadh Banque Saudi Fransi SAR Finland Helsinki Nordea Bank Finland Eur Riyad Bank SAR Skandinaviska Enskilda Banken Saudi Investment Bank SwedBank Jeddah National Commercial Bank SAR France Paris Banque SBA Eur Kuwait Kuwait City Commercial Bank of Kuwait KWD Credit Agricole Eur Al Ahli Bank of Kuwait KWD Natixis National Bank of Kuwait Germany Frankfurt Commerzbank Eur Norway Oslo DNB Bank NOK Deutsche Bank Eur Nordea Bank Norge ABC International Bank Omman Muscat Bank Muscat OMR Italy Milan Intesa SanPaolo Eur Philippines Manila Philippine National Bank Unicredit Qatar Doha Qatar National Bank QAR Netherlands Amsterdam ABN AMRO Bank Commercial Bank QAR Utrecht Rabobank Nederland Alkhaliji Commercial Bank Spain Sabadell Banco de Sabadell Eur Sri Lanka Colombo Hatton National Bank Barcelona Caixa Bank Sweden Stockholm Skandinaviska Enskilda Banken SEK Portugal Porto Banco Commercial Portugues (Millennium bcp) Nordea Bank Swedbank Other countries Switzerland Zurich Credit Suisse CHF UBS Country City Bank name Nostro Turkey Istanbul Yapi ve Kredi Bankasi TRY Akbank Australia Sydney Standard Chartered Bank AUD Finansbank Bahrein Manama Ahli United Bank BHD Turkiye Garanti Bankasi Bank Muscat Turkiye Is Bankasi Canada Montreal National Bank of Canada CAD United Arab Emirates Abu Dhabi Abu Dhabi Islamic Bank AED Bank of Montreal Abu Dhabi First Abu Dhabi Bank China Beijing Bank of China limited CNY Dubai City Commercial Bank of Dubai AED Agricultural Bank of China Dubai City Mashreqbank AED China Construction Bank Sharjah Bank of Sharjah Industrial and Commercial Bank of China Sharjah Invest Bank Denmark Copenhagen Danske Bank DKK United Kingdom London Barclays Bank GBP Nordea Bank Danmark Standard Chartered Bank GBP Skandinaviska Enskilda Banken United States of America New York Citibank USD Egypt Cairo National Bank of Egypt JP Morgan chase USD Standard Chartered Bank USD Bank of New York Mellon USD
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