www.blombank.com ANNUAL REPORT 2012 ANNUAL REPORT 2012 06 Chairman’s Letter 68 Consolidated Financial Statements
08 Key Figures 70 Consolidated Financial Statements 70 Auditors’ Report 71 Consolidated Income Statement for the 11 Organizational Chart year ended 31 December 2012 72 Consolidated Statement of Comprehensive Income for the year 12 Group Chart ended 31 December 2012
73 Consolidated Statement of Financial Position at 31 December 2012 Corporate Governance 16 74 Consolidated Statement of Changes in Equity for the year ended 31 December Code of Corporate Governance 2012 BLOM BANK S.A.L. Major Common Shareholders Consolidated Statement of Cash Flows Board of Directors 78 for the year ended 31 December 2012 List of Board Members Information about Board of Directors 79 Notes to the Consolidated Financial Statements Board Meetings held in 2012 Information on Key Members of BLOM BANK S.A.L. Management 160 Worldwide BLOM BANK S.A.L. Commercial Arrangements Correspondent Banks General Management of BLOM BANK S.A.L.
BLOM BANK Group 161 Management & Network
30 Management Discussion & 162 Banks & Financial Subsidiaries Analysis 2012 BLOM BANK S.A.L. BLOMINVEST Bank S.A.L. 31 Operating Environment BLOM Development Bank S.A.L. 36 Overview BLOM Bank France 37 Evolution of Total Assets BLOM Bank (Switzerland) S.A. 38 Sources of Funds Bank of Syria and Overseas S.A. 41 Uses of Funds Syria and Overseas For Financial 45 Liquidity Services Ltd 46 Profitability BLOM Bank Egypt 52 Dividend Distribution and Preferred Shares BLOM Egypt Securities Revenue BLOMINVEST Saudi Arabia 53 Interest Rate Risk BLOM Bank Qatar LLC 53 Risk Management and Basel III Preparations Experts Financial Services 57 Universal Banking Services 180 Insurance Subsidiaries 61 Information Systems and Technology AROPE Insurance 63 People Development AROPE Syria - Syria International 65 Bank’s Operational Efficiency Insurance AROPE Egypt Insurance AROPE Egypt Life Insurance Dr. Naaman AZHARI - Chairman of BLOM BANK Group Mr. Saad AZHARI - Chairman and General Manager of BLOM BANK S.A.L.
5 Chairman’s Letter
Chairman’s Letter
Driven by a conservative culture, a constructive vision, and a stable management team, BLOM BANK weathered the difficult year of 2012 with stride and strength. This has always been a trademark of its robust banking profile that enables it to navigate difficult operating conditions with success and growth. And as one of the leading banks in Lebanon, this also reflects the sound and sturdy nature of the Lebanese banking system and its enduring qualities in the face of economic hardships and political instability.
The numbers speak for themselves. True to its record, BLOM BANK achieved once again in 2012 the highest rate of profitability among listed banks with an ROAE of 17.78% and an ROAA of 1.39%. And despite the troubled conditions in Lebanon and in the region, BLOM BANK’s operations in all the countries in which it is present remained profitable: profits reached an all-time high of $335.5 million in 2012, an achievement that was extended to 1Q-2013 where profits stood at $87.2 million, the highest in the Lebanese banking system. Mr. Saad AZHARI The growth in profitability was also underlined by a growth in the Bank’s balance sheet. In 2012, assets stood at $25.02 billion, increasing by 7.99%; deposits reached $21.75 billion, rising by 7.14%; shareholders’ equity rose to $2.1 billion, increasing by 10%; and loans to customers stood at $6.03 billion, rising by 7.8%. What makes the growth of these aggregates noteworthy is that they were attained despite a drastic reduction in the balance sheet of the Bank’s Syrian unit, Bank of Syria and Overseas, with deposits in 2012 at 35.3% – and loans at 27.4% – of what they were in 2010 before the onset of the Syrian crisis.
What also makes these achievements even more noteworthy is that they were achieved while maintaining BLOM BANK’s traditional concern for controlling banking risks and expenses and its observance of sound financial indicators. In this context, the cost-to-income ratio stood at 38.25% in 2012 – the lowest among listed banks; the capital adequacy ratio according to Basel III at 13.7%; the primary liquidity ratio at 66.4%; and the non-performing loans coverage ratio at 140.3% including collective provisions and real guarantees.
Perhaps more important, these achievements are bound to grow and prosper given the Bank’s commitment to prudent horizontal and vertical expansion. They will also be underscored by the Bank’s excellent record of universal banking activities and products, made prominent by the following:
The Bank’s dominance in retail banking that saw its retail loans rise to $2.1 billion in 2012, increasing by a notable 14.1%, and constituting 34.8% of our loan portfolio. This was bolstered by agreements with the Association of
6 BLOM BANK s.a.l. Annual Report 2012 Chairman’s Letter
Lebanese Industrialists to provide easy and subsidized The Bank’s record of achievements is also a witness to loans and services to its members, and with the Beirut the success of its strategic vision and of its operational Traders’ Association to provide credit and loyalty efficiency, and the utmost regard that it gives to asset cards to the customers of its small-and medium-sized safety and risk management. This of course extends to members. Also, the Bank’s retail dominance in the its well-paced foreign expansion that sees the region Lebanese market is extending to neighboring markets, as a fruitful source of banking opportunities despite especially in Jordan and Egypt where it is enjoying the the current upheavals taking place. Not surprisingly, highest market growth in retail services. the Bank’s record has not gone un-noticed, for it was bestowed the most prestigious awards by leading The Bank’s pioneering activity in asset and wealth international and regional organizations, making BLOM management where it is considered the market leader Bank their unanimous choice as the Best Bank in in the mutual funds industry. The total value of its Lebanon in 2012. funds reached $538 million in 2012, having increased by 190.2% from $184.9 million in 2009. Two additional BLOM BANK’s commitment to the “Peace of Mind” of funds were added recently, BLOM-Quilvest Real Estate its clients has gone hand in hand with delivering the best Fund focusing on assets in the US market, and the Arab returns to its shareholders. Earnings per share stood at Market Fund comprising equity shares from leading $1.53 in 2012, 3.4% higher than 2011, and dividend Arab companies. per share was $0.45, amounting to a dividend yield of 5.41% and a payout ratio of 30%. And, as always, the The Bank’s strengthening of the activities of its Bank’s commitment of “Peace of Mind” to the larger overseas units, especially in the Gulf and in relation community through its Corporate Social Responsibility to our recently established entities in Qatar and Saudi (CSR) activities has gone farther with its sole funding Arabia where both have turned the corner and have of the “ProtectEd” program that aims at promulgating become highly profitable, not to mention the strong safety in all schools, and with its sponsorship of the improvement of our operations in the UAE. Our Saudi “Open Your Tomorrow” program that provides zero- unit, BLOMINVEST Saudi Arabia, is now among the interest funding for electronic tablets to all school leaders in real estate funds, the latest of which is the students – in addition to its unique BLOM shabab SR 250 million Amjal Real Estate Fund investing in the program and its world-renowned BLOM “Giving” card. development of luxurious villas north of Riyadh City. The same is true of BLOM BANK EGYPT where it had In closing, BLOM BANK’s success as a leading bank in a buoyant 2012 year and still represents a major part the Arab world and its consistent delivery of world-class of our Group with tremendous medium-term potential. financial services are a product of the trust that our clients In this respect, prudent overseas expansion will also has in the Bank and the dedication of our professional staff carry the Bank to a new promising country, Iraq, with and management team. These are assets that we dearly branches opening in Baghdad and Irbil in late 2013. cherish and deeply recognize as the crucial attributes that lift the Bank towards new heights of outreach, profitability, The Bank’s enhancing of its corporate banking and and success. project financing activities that put their share at 47.5% of our loan portfolio in 2012, and encompassed some of Thank you, the biggest companies and leading sectors in Lebanon and the region. This was coupled by our constant upgrading of our private banking services to serve the needs of our high net-worth clients, with assets under management reaching $5.3 billion in 2012 and Saad Azhari contributing handsomely to our fee income which stood Chairman and General Manager at $272 million, increasing by 32.7% and constituting 34.3% of operating income.
7 Key Figures
Key Figures
Consolidated Customers’ Deposits Evolution (in USD Million)
2012 21,791
20,296
19,606
18,024
2008 15,109
13,737
11,735
10,161
2004 8,992
7,686
6,215
5,525
2000 5,056 4,330
3,861
3,333
1996 2,686
1,805
1,259
871
1992 595
years 0 4,000 8,000 12,000 16,000 20,000 24,000
8 BLOM BANK s.a.l. Annual Report 2012 Key Figures
Strong and Continuous Growth
Total Assets (in USD Million)
2012 25,051 23,165
2010 22,344 20,702
2008 17,898 16,639
2006 14,212 11,918
2004 10,835 years 0 6,000 12,000 18,000 24,000 30,000
Net Profits (in USD Million)
2012 335.93 331.55
2010 330.60 293.02
2008 251.58 204.70
2006 180.30 136.85
2004 91.15 years 0 100 200 300 400
Total Capital Funds (in USD Million)
2012 2,182 1,983
2010 1,891 1,708
2008 1,459 1,388
2006 1,271 958
2004 791
years 0 400 800 1,200 1,600 2,000
9 Key Figures
Evolution of Main Indicators
(in USD Million or LL Billion) 2012 2011 Change 12/11 Total Assets LL 37,764.62 34,921.95 8.14% cv USD 25,051.16 23,165.47 8.14%
Total Net Loans And Advances LL 9,086.48 8,427.72 7.82% CV USD 6,027.52 5,590.53 7.82%
Total Customers’ Deposits LL 32,849.26 30,596.32 7.36% cv USD 21,790.55 20,296.07 7.36%
Tier 1 Equity LL 3,274.00 2,975.60 10.03% cv USD 2,171.81 1,973.87 10.03%
Total Capital Funds LL 3,289.01 2,989.38 10.02% cv USD 2,181.76 1,983.01 10.02%
Total Net Liquid Assets LL 21,251.15 19,825.80 7.19% cv USD 14,096.95 13,151.44 7.19%
Net Income After Tax LL 506.41 499.81 1.32% cv USD 335.93 331.55 1.32%
Consolidated Financial Ratios
(in % or USD) 2012 2011 Liquidity Ratios Net liquidity in LL 98.61% 99.07% Net immediate liquidity in foreign currency 52.53% 53.12% Liquid assets over total assets 57.99% 57.59%
Loans to Deposits Ratios LL 16.50% 16.00% F/C 31.99% 31.76% Total 27.66% 27.54%
Asset Quality Net Non-Performing Loans / Total Net Loans 2.18% 1.04% Gross Non-Performing Loans / Gross Loans 5.44% 3.20% Coverage of Non-Performing Loans (Monetary provisions) 61.62% 68.54% Coverage of Non-Performing Loans (Monetary provisions & Real 121% 142% guarantees)
Capital Adequacy Ratios After dividend distribution (Basel III) 13.65% 12.84%
Profitability Ratios Return on average equity 16.20% 17.49% Return on average equity (Common) 17.80% 19.20% Return on average assets 1.39% 1.46% Cost to income ratio 37.99% 36.21% Earnings per share USD 1.53 USD 1.48 Book value per common share USD 9.06 USD 8.08 Dividend per common share USD 0.45 USD 0.45 Dividend payout ratio 30.15% 30.99% Retention Ratio 69.85% 69.01%
10 BLOM BANK s.a.l. Annual Report 2012 Organizational Chart
External Auditors Shareholders Solicitors
Ernst & Young Me. Georges ABOU ZAMEL Semaan Gholam & Co. Board of Directors Me. Antoine MERHEB
Board Committees
Board Audit Committee | Board Risk Management Committee | Consulting, Strategy & Corporate Governance Committee Nomination & Remuneration Committee
Divisions/Depts./Units Committees
Administration Assets & Liabilities
Back Office Operations Compliance Central Fund Transfer Credit Committee 1 Communications
Compliance Credit Committee 2
Corporate Credit Relationship Executive Credit & Facilities Exceptional Credit Finance
Financial Institutions Follow-up Credit Risk Group Inspection Foreign Branches Hedging Advisory & Subsidiaries Human Resources Human Resources Information Systems
Interest Management Internal Audit
Internal Audit Information System Security Legal Affairs
Marketing Overseas Information Systems
Marketing Overseas - Gulf Region Investment & Treasury Procurement Legal Recovery
Retail Banking Marketing
Risk Management Operations & Internal SME Relationship Procedures
Strategic Planning & Organization Provisions
Syndications & Structured Finance Purchasing & Maintenance Syrian Desk Retail Credit Trade Finance
Treasury & Forex Succession Planning
Branch Managers
68 in Lebanon 1 in Cyprus 11 in Jordan 1 Representative office in Abu Dhabi
11 Group Chart
99.99% BLOM BANK FRANCE S.A.
Head Office: Paris Branches: London - Dubai - Sharjah - Jabal Ali Romania (4 Branches)
49.00% BANK OF SYRIA & OVERSEAS S.A.
Head Office: Damascus Branches: Syria - 27 Branches
99.93% BLOMINVEST BANK S.A.L.
Head Office: Beirut
10% BLOMINVEST SAUDI ARABIA 50% Head Office: Riyadh esentative Office) S.A.L. 33.31% BLOM DEVELOPMENT BANK S.A.L. 66.64%
Head Office: Beirut Branches: Lebanon - 2 Branches
88.94% AROPE INSURANCE S.A.L.
BLOM BANK Head Office: Beirut Branches: Lebanon - 8 Branches
99.42% BLOM BANK EGYPT S.A.E.
Head Office: Cairo Branches: Egypt - 27 Branches Beirut Lebanon - 68 Branches (11 Branches) - Abu Dhabi (Repr Cyprus - Jordan
99.75% BLOM BANK QATAR L.L.C Head Office: Doha
10% AROPE SYRIA S.A. (Syria International Insurance)
: Damascus Head Office Syria - 6 Branches 34%
Branches: : Representative Offices: 14 5%
99.00% EXPERTS FINANCIAL SERVICES Head Office : Branches Head Office: Amman
12 BLOM BANK s.a.l. Annual Report 2012 Group Chart
100% BLOM BANK (SWITZERLAND) S.A.
Head Office: Geneva
52% SYRIA & OVERSEAS FOR FINANCIAL SERVICES
23.5% Head Office: Damascus
51%
BLOM EGYPT SECURITIES S.A.E.
Head Office: Cairo
0.25%
AROPE INSURANCE OF PROPERTIES & RESPONSIBILITIES - Egypt S.A.E. 60% Head Office: Cairo Branches: Egypt - 14 Branches
48.97% 39.75% 19.75%
80%
0.25% AROPE LIFE INSURANCE - EGYPT S.A.E. Head Office: Cairo Branches: Egypt - 14 Branches
* as at March 2013
13 14 BLOM BANK s.a.l. Annual Report 2012 15 Corporate Governance
1. Code of Corporate Governance
The Code of Corporate Governance was approved at the end of 2007 by the Board of Directors at BLOM BANK and most recently updated in November 2011. It sets out the structure that identifies the rights and responsibilities of each of the Board members, general management, employees and external stakeholders. It complies with all local laws and regulations to which the Bank is subject, as well as the Basel Committee’s principles on Corporate Governance and outlines the expected conduct of all parties in order to achieve the objectives set for the Bank.
The Bank recognizes the paramount importance of Corporate Governance for its proper functioning and for the creation of an optimal operational environment. To that end, the Board and management deployed all means for the proper implementation of the Code in 2008. The Board itself partly exercises its duties and authorities through four Board Committees (the Audit Committee, the Risk Management Committee, the Consulting Strategy and Corporate Governance Committee in addition to the Nomination and Remuneration Committee) and is the body ultimately responsible for ensuring the best possible practice of Corporate Governance at BLOM BANK.
Awareness sessions for all BLOM employees on Corporate Governance were organized and are planned for new employees in order to introduce the Code and related principles, while enhancements will be communicated to all personnel.
The Code is also published on the Bank’s Website. Relevant information on the Board charter and shareholders rights were made available to the public in compliance with the disclosure requirements of the Code.
In light of the current global financial situation, the Bank’s Board of Directors view the ongoing development of Corporate Governance as a matter of even greater importance and necessity in enhancing its competitive position by continuing to further raise its standards vis-à-vis internal organization and services to clients.
2. BLOM BANK S.A.L. Major Common Shareholders
NAME Address Common Shares in Capital * Bank of New York** United States 34.37 % Banorabe S.A., SPF*** Luxembourg 13.75 % AZA Holding Lebanon 9.33 % Actionnaires Unis Lebanon 1.83% Azhari Family Lebanon 2.86 % Chaker Family Lebanon 5.39 % Mrs. Nada Aoueini Lebanon 5.00 % Jaroudi Family Lebanon 3.46 % Saade Family Lebanon 2.37 % Khoury Family Lebanon 1.95 % Rest of Shareholders 19.69 % Total 100.00%
* As at 31st March, 2013. ** Starting 1998, and after the issuance of Global Depositary Receipts (GDR) by BLOM BANK Shareholders, the Bank of New York as Depositary, became shareholder on the Bank’s register. ***The major shareholders of Banorabe S.A. SPF (formerly Banorabe Holding S.A.) are the same as in BLOM BANK (except Bank of New York and AZA Holding).
16 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
3. Board of Directors
Dr. Naaman W. AZHARI Chairman of BLOM BANK GROUP
Sheikh Salim B. EL-KHOURY Honorary Board Member
3.1 List of Board Members
Background / Number of directorship NAME Position Competencies years with the Bank
Director since 1996 Chairman & General Master in Engineering & Mr. Saad N. AZHARI Chairman and General Manager MBA Manager since 2007
H.E. Sheikh Ghassan I. SHAKER Director B.A in Finance Director since 1964 Grand Officier de la Légion d’Honneur
Director since 1997 Director & Secretary General Master in Civil Engineering Secretary General of Mr. Samer N. AZHARI of BLOM BANK Group & MBA BLOM BANK Group since 2007
H.E. Me Youssef S. TAKLA Director Diploma in Law Director since 2006
Director since 2008 B.A. in Accounting Mr. Habib L. RAHAL Director & General Manager General Manager since Economics 1992
MBA in Finance & B.A. in Mr. Nicolas N. SAADE Director Director since 1990 Economics
Dr. Fadi T. OSSEIRAN Director Ph.D. in Economics Director since 2008
Mr. Joseph E. KHARRAT Director B.A. in Ecomomics Director since 1984
Mr. Marwan T. JAROUDI Director MBA in Ecomomics Director since 2008
17 Corporate Governance
Dr. Naaman W. AZHARI Chairman of BLOM BANK Group
• Born in 1928 • Head of the Nomination and Remuneration Committee at BLOM BANK S.A.L.
Dr. Naaman AZHARI started his banking experience in From 1971 until 2007, he occupied the position of Chairman 1951. He worked in a French bank in Paris (which became and General Manager of BLOM BANK S.A.L. Société Générale). In 2007, he was appointed Chairman of BLOM BANK At the end of the 1950s, he established one of the largest Group. banks in Syria, “Banque de l’Orient Arabe” and was appointed Chairman of the Bank. Dr. Naaman AZHARI holds a State Degree Ph.D. in Economics from the University of Paris, a Diploma in Law From 1961 to 1962, he occupied the position of Minister of and a Diploma in Political Sciences from the “Institut des Finance, Economy and Planning in Syria. Sciences Politiques” (Sc.Po.) in Paris.
In 1962, he was appointed General Manager of BLOM BANK S.A.L.
Sheikh Salim B. EL-KHOURY Honorary Board Member of BLOM BANK S.A.L.
• Born in 1931 • Honorary Board Member of BLOM BANK S.A.L.
Sheikh Salim EL KHOURY has been a Member of the Board of Directors of BLOM BANK S.A.L. since 1987.
He holds a degree in French law from the University of Lyon in France, a degree in Lebanese Law from Saint – Joseph University’s “Ecole de Droit de Beyrouth” and has completed an Advanced Management Program at Harvard Business School.
18 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
3.2 Information about Board of Directors
Mr. Saad N. AZHARI Chairman of the Board and General Manager of BLOM BANK S.A.L.
• Born in 1961 • Board Member of BLOM DEVELOPMENT • Chairman and General Manager of BANK S.A.L. BLOMINVEST BANK S.A.L. • Member of the Board Risk Management • Chairman of BLOM BANK (SWITZERLAND) Committee at BLOM BANK S.A.L. • Chairman of BLOM BANK EGYPT • Member of the Consulting, Strategy and • Chairman of BLOM BANK QATAR L.L.C. Corporate Governance Committee at BLOM • Board Member of BLOMINVEST SAUDI BANK S.A.L. ARABIA
Mr. Saad AZHARi is the Chairman of BLOM BANK since He worked from 1986 to 1991 in PBZ Privatbank, an 2008, and prior to that, between 2001 and 2007, he was affiliate of UBS Group, in Zurich-Switzerland where he was the Vice-Chairman and General Manager of BLOM BANK. promoted to run, from Zurich, the Bank’s operations in the Mr. Saad AZHARI also assumes several functions on the Middle East and in its Hong Kong office. Board of Directors of BLOM BANK Group’s entities. He is, in addition, the Vice President of the Association of Banks Mr. Saad AZHARI obtained a Master Degree in Computer in Lebanon since 2001. Engineering, and afterwards a Master Degree in Business Administration (MBA), from the University of Michigan-Ann He joined BLOM BANK (SWITZERLAND) in 1991, was Arbor in the United States of America. appointed its General Manager in 1997 and its Chairman in 2001.
H.E. Sheikh Ghassan I. SHAKER Grand Officier de la Légion d’Honneur Non-Executive Director of BLOM BANK S.A.L.
• Born in 1937 • Director of BLOM BANK FRANCE
Businessman, banker, industrialist and diplomat, Paris and Plenipotentiary Minister at the Embassy of the H.E. Ghassan SHAKER, is among the most highly Sultanate of Oman at The Court of St. James, United decorated personalities from the Arab World, including Kingdom, Economic Counselor at the Oman Embassy in being a Grand Officier de la Legion D’Honneur-France. Rome and Egypt. Sheikh SHAKER is a founder and patron of academic and charity organizations in the Middle East He was educated at Victoria College Alexandria Egypt and Turkey. (1944-1956) and at St. John’s College Cambridge University England (1956-1959). Member of the Board of trustees and Patron at Georgetown University Washington DC, a Patron of Kings Academy H.E. Sheikh Ghassan SHAKER has been a Member of in Jordan, University of Virginia USA, the Lebanese BLOM BANK S.A.L. Board since 1964, is also a Board American University Beirut and the Royal Textile Academy Member of BLOM BANK FRANCE and a Board Member in of Bhutan, Fellow of the Chancellor’s Court of Benefactors Banorabe S.A, SIF. Oxford University and an Honorary Fellow of St. Anthony’s Personal Advisor to His Majesty The Sultan of Oman, College Oxford University. Ambassador of the Omani Mission at the United Nations in Geneva, Dean of Unesco Goodwill Ambassadors in
19 Corporate Governance
Mr. Samer N. AZHARI Director of BLOM BANK S.A.L.
• Born in 1958 • Secretary General of BLOM BANK GROUP • Chairman and General Manager of BLOM BANK FRANCE • Board Member of BLOMINVEST BANK S.A.L. • Board Member of BANK OF SYRIA AND OVERSEAS • Board Member of Banorabe SA, SPF • Board Member of AROPE Insurance S.A.L. • Board Member of AROPE Syria
Mr. Samer AZHARI joined Banque Banorabe, affiliated From 1999 until 2001, he occupied the position of Vice– bank of BLOM BANK S.A.L., in Paris in 1985 and became President of the Association of Banks in Lebanon. its General Manager in 1994. Mr. Samer AZHARI has been BLOM BANK Group’s In 1997, he was appointed as General Manager of BLOM Secretary General since 2007. BANK S.A.L. and occupied this position until 2001. Mr. Samer AZHARI holds a Master of Science degree in Since 2001, Mr. Samer AZHARI has been Chairman & Civil Engineering from the University of Illinois, USA and General Manager of BLOM BANK FRANCE (formerly an MBA from INSEAD, France. BANQUE BANORABE).
He was Chairman and General Manager of AROPE INSURANCE, an affiliated insurance company of BLOM BANK S.A.L. from 1998 until 2008.
H.E. Me. Youssef S. TAKLA Independent Director of BLOM BANK S.A.L.
• Born in 1937 • Member of The Nomination and Remuneration Committee at BLOM BANK S.A.L. • Member of The Board Risk Management Committee at BLOM BANK S.A.L.
H.E. Me. Youssef TAKLA has been a Board Member of Justice and a Member of the Committee of Modernization BLOM BANK S.A.L. since 2006. and Coordination of Banking Laws at the Central Bank of Lebanon since 1993. He was a member of the Beirut Bar Association since 1961 and a Member of the Paris Bar Association since 1983. H.E. Me. TAKLA was nominated Minister of State in Between 1993 and 1999, Me. TAKLA was also member of Lebanon from 2008 till 2009. the International Court of Arbitration of the International Chamber of Commerce. He holds a diploma in law from the Saint-Joseph University in Beirut. He has been additionally, since 1992, a Member of the Legislative Commission in the Lebanese Ministry of
20 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
Mr. Habib L. RAHAL Director and General Manager of BLOM BANK S.A.L.
• Born in 1944 • Board Member of AROPE EGYPT • Director and General Manager of BLOM PROPERTIES INSURANCE BANK S.A.L. • Board Member of Société Foncière du Liban et • Chairman & General Manager of AROPE d’Outre-Mer S.A.L. INSURANCE S.A.L. • Member of the Board Risk Management • Chairman of Société des Services Committee at BLOM BANK S.A.L. d’Assurances et de Marketing S.A.L. • Member of the Consulting, Strategy and • Board Member of BLOMINVEST BANK S.A.L. Corporate Governance Committee at BLOM • Board Member of AROPE EGYPT LIFE BANK S.A.L. INSURANCE
Mr. Habib RAHAL started his banking experience at Société He is also the Chairman of Société des Services Centrale de Banques and occupied several managerial d’Assurances et de Marketing since 2003. positions at Moscow Narodny Bank and Royal Bank of Canada before joining Banque du Crédit Populaire where he In 2008, he became Board Member of AROPE EGYPT was appointed General Manager from 1974 to 1990. LIFE INSURANCE and a Board Member of AROPE EGYPT PROPERTIES INSURANCE. In 1990, he joined BLOM BANK S.A.L. as Chairman’s Advisor and was appointed in 1992 as the Bank’s General Manager. Mr. RAHAL represents BLOM BANK S.A.L. and sits as Director on the following Boards of Directors: Banque de Mr. Habib RAHAL has been a Member of the Board of L’Habitat and Société Financière du Liban. Directors of AROPE INSURANCE since 2004 and was elected its Chairman and General Manager in 2007. Mr. Habib RAHAL is holder of a Bachelor Degree in Accounting & Economics from ESEC. Mr. RAHAL has been a Board Member of BLOM BANK S.A.L. since 2008 and a Board Member of BLOMINVEST BANK S.A.L. since 2001.
Mr. Nicolas N. SAADE Independent Director of BLOM BANK S.A.L.
• Born in 1950 • Head of the Consulting, Strategy and • Board Member of BLOM DEVELOPMENT Corporate Governance Committee of BLOM BANK BANK S.A.L. • Board Member of BLOM BANK QATAR • Head of the Board Audit Committee of • Board Member of BLOMINVEST BANK S.A.L. BLOMINVEST BANK S.A.L. • Head of the Board Audit Committee at BLOM • Head of the Board Audit Committee of BLOM BANK S.A.L. BANK QATAR • Head of the Board Risk Management • Head of the Board Audit Committee of BLOM Committee of BLOM BANK QATAR. DEVELOPMENT BANK
Mr. Nicolas SAADE has been a Board Director of BLOM Mr. Nicolas SAADE is the owner and Managing Director BANK S.A.L. since 1990. of the Nicolas SAADE Est. in Dubai, which is a banking, investment and financial consulting firm. He is also the From April 1985 to July 1987, he was Regional Manager of Managing Director of Elite Consultants International, Inc. BLOM BANK S.A.L. in Dubai, UAE. in Delaware, USA, an SEC registered investment advisory firm, and owner of Pioneer Auditing in Dubai. Previously, he Between 1980 and 1985, he was Deputy General Manager was Fund Manager at Royal Life International and Friends of Union de Banques en Côte d’Ivoire (BANAFRIQUE). Provident International Elite Fund in the Isle of Man.
In 1975, he joined the Toronto Dominion Bank in which Mr. Nicolas SAADE is holder of an Honors BA in Economics he stayed until July 1980, occupying various managerial from McMaster University in Canada and has an MBA in positions. Banking and Financial Management from Wharton School, University of Pennsylvania, USA.
21 Corporate Governance
Dr. Fadi T. OSSEIRAN Director of BLOM BANK S.A.L.
• Born in 1956 • General Manager of BLOMINVEST BANK S.A.L. • Board Member of BLOM BANK EGYPT • Board Member of BLOMINVEST SAUDI ARABIA • Board Member of SYRIA AND OVERSEAS For Financial Services LTD • Board Member of BLOMINVEST SAUDI ARABIA
Dr. Fadi OSSEIRAN started his banking career at BLOM has been a Director of BLOMINVEST BANK SAUDI ARABIA BANK S.A.L. as Assistant Dealer from 1981 to 1982. From since 2008. 1990 until1993, he was Manager of Corporate Planning and Human Resources Development at Méditerranée Group Dr. OSSEIRAN has held the position of President of the Services. Association of Stock Brokers in Beirut since 2004 and has been a Member of the Lebanese Economic Association From 1985 to 1987, he moved to teach in the Economics since 2004. He was also Member of the Research Committee Department at the American University of Beirut and became (1992-2006) and Member of the Training Committee (1994- Assistant Professor at the Institute of Money and Banking of 1996) of the Association of Banks in Lebanon. AUB from 1988 to 1993. He was Board Member of the Lebanese Management Since 1994, he has been General Manager of BLOMINVEST Association from 1992 to 1996 and has many publications in BANK S.A.L. and Advisor to the Chairman – General Manager the Banking and Economics Fields. of BLOM BANK S.A.L. Dr. Osseiran became a Member of the Board of Directors of BLOM BANK S.A.L. in 2008, and Dr. OSSEIRAN is holder of a Ph.D. in Economics from New a Member of the Board of BLOM BANK EGYPT in 2005. He York University (NYU) in the United States.
Mr. Joseph E. KHARRAT Independent Director of BLOM BANK S.A.L.
• Born in 1941 • Board Member of BLOMINVEST BANK S.A.L. • Member of the Board Audit Committee at BLOM BANK S.A.L. • Member of the Nomination and Remuneration Committee at BLOM BANK S.A.L. • Member of the Consulting, Strategy and Corporate Governance Committee at BLOM BANK S.A.L.
Mr. Joseph KHARRAT has been a non-Executive Director of Mr. Joseph KHARRAT is holder of a Bachelor degree in BLOM BANK S.A.L. since 1984 to date. He has been a Board Economics from Reading University in the U.K. Member of BLOMINVEST BANK S.A.L. since 1994 to date.
He is Chairman and General Manager of several textile and real estate companies of which: Kamaco S.A.L., Satexi (Abidjian) and Kharrat Immobilière (Abidjian).
22 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
Mr. Marwan T. JAROUDI Independent Director of BLOM BANK S.A.L.
• Born in 1959 • Head of the Board Risk Management • Board Member of BLOM BANK FRANCE Committee at BLOM BANK S.A.L. • Board Member of BLOMINVEST BANK S.A.L. • Member of the Consulting, Strategy and • Board Member of BLOMINVEST SAUDI Corporate Governance Committee at BLOM ARABIA BANK S.A.L. • Board Member and Vice Chairman of BLOM • Member of the Nomination and Remuneration BANK QATAR since 2008 Committee at BLOM BANK S.A.L. • Board Member of AROPE INSURANCE SAL • Member of the Board Audit Committee at • Board Member of AROPE SYRIA BLOM BANK S.A.L. • Board Member of Banorabe S.A., SPF • Member of the Board Audit Committee at • Board Member of BLOM DEVELOPMENT BLOM BANK FRANCE BANK
Mr. Marwan JAROUDI currently sits on the Board of Directors From 1996 until 1999, he was Co-Founder, Managing Director of the following Companies: Industry Intelligence Inc., of Pulptrade - Choueifat, Lebanon. Los Angeles - USA, Forestweb, Inc., Los Angeles, United Shareholders. From 1985 until 1995, Mr. JAROUDI occupied a number of managerial positions at Saudi Hollandi Bank in Jeddah. He has been a Board Member and Vice Chairman of BLOM BANK QATAR since 2008. From 1989 until 1991, he was Co-Founder and Finance Director at Gulf Medical Co ltd. He is Co-Founder, Director of Industry Intelligence Inc., Los Angeles – California, since 2007. Mr. JAROUDI is holder of a Master of Arts degree in Economics from Syracuse University in New York and has a BA in Since 1999, he occupies the position of Co-Founder, Director Economics from the American University of Beirut. of Forestweb, Inc., Los Angeles.
3.3 Board Meetings Held in 2012
The following BLOM BANK S.A.L. board meetings were held during 2012
27/1/2012 20/3/2012 19/4/2012 19/7/2012 24/10/2012 12/12/2012
23 Corporate Governance
4. Information on Key Members of BLOM BANK S.A.L. Management
Mr. Amr N. AZHARI Mr. Elias E. ARACTINGI General Manager of BLOM BANK S.A.L. Deputy General Manager of BLOM BANK S.A.L., in charge of Strategic Planning & Organization and Retail Banking
• Born in 1970 • Born in 1959 • CEO of BANK OF SYRIA AND OVERSEAS • Member of the Board of BLOM BANK EGYPT • Chairman and General Manager of BLOM DEVELOPMENT • Member of the Board Audit, Corporate Governance and BANK S.A.L. Compensation Committees of BLOM BANK EGYPT • Chairman of Syria International Insurance (AROPE SYRIA) • Chairman of Syria and Overseas for Financial Services • Chairman of Société Fonçière du Liban et D’Outre-Mer S.A.L.
Mr. Amr AZHARI started his banking experience in 1991 at Mr. Elias Aractingi started his banking career in 1983 at Banque Banorabe –Paris. From 1991 to 1992, he worked at Bank Audi USA in New York where he was promoted several Gestion Pictet and Pictet & Cie Montreal - Canada, and from times until he reached the title of Vice President and Head 1995 to 1997, he occupied the position of Assistant Manager of Operations. He joined BSI (Banca della Svizzera Italiana)’s – Banque Banorient, Geneva – Switzerland. New York branch in 1988 as Vice President in the International Private Banking Group. From 1997 to 1999, he was a General Management Executive at Banque Banorabe – Paris. He moved on to become from In 1990, Mr. Aractingi joined Booz Allen and Hamilton 1999 to 2001, the Finance Manager of Banque Banorabe - based in Singapore as an Associate and was promoted to Dubai – UAE, followed by Manager of Banque Banorabe Paris Senior Associate in 1993, then to manager of the Bangkok – France from 2001 to 2004. office in 1994 and finally Principal in 1995.
In 2004, he became Vice-Chairman of BANK OF SYRIA AND At the end of 1995, he joined BLOM BANK S.A.L. in Beirut OVERSEAS and Assistant General Manager of BLOM BANK as Advisor to the Chairman, focusing on branch and head S.A.L. In 2006, in addition to the above, Mr. Azhari became office reengineering. In 1997, he initiated BLOM BANK’s Retail Chairman of Syria International Insurance (AROPE SYRIA). Banking activities.
In 2008, Mr. Azhari became General Manager of BLOM In addition to his duties at BLOM BANK S.A.L., Mr. ARACTINGI BANK S.A.L., Chairman & General Manager of BLOM held twice the position of Managing Director/CEO of BLOM DEVELOPMENT BANK S.A.L., Chairman of Societe Foncière BANK Egypt, in 2006 and 2009. du Liban et d’Outre Mer S.A.L. He was promoted to Deputy General Manager of BLOM BANK Mr. Azhari served as a Board Member of the Damascus S.A.L. in 2009. Stock Exchange from 2006 to 2009. Mr. Elias Aractingi holds a Bachelor Degree in Business In 2009, Mr. AZHARI was elected as Chairman of SYRIA AND Administration with distinction from the American University OVERSEAS FOR FINANCIAL SERVICES, and in 2010, he also of Beirut and an MBA in Finance from Columbia University’s became CEO of BANK OF SYRIA AND OVERSEAS. Graduate School of Business.
Mr. Amr AZHARI holds the following degrees from McGill University – Montreal, Canada: Master of Business Administration, Bachelor of Civil Law and Bachelor of Arts, major in Economics.
24 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
Dr. Pierre G. ABOU-EZZE Mr. Talal A. BABA Assistant General Manager Assistant General Manager Head of Human Resources at BLOM BANK S.A.L. Chief Financial Officer at BLOM BANKS.A.L.
• Born in 1955 • Born in 1967
Dr. Pierre Abou-Ezze Assistant General Manager at BLOM Mr. Talal BABA is the Chief Financial Officer. He was appointed BANK S.A.L., has 18 years of hands-on experience in Human as Assistant General Manager on July 2008. Resources. He has been the Head of HR at BLOM BANK S.A.L. since 1998, and he served as Advisor to the Chairman Mr. BABA is committed to maintaining the high level of integrity on training issues from 1995 to 1998. and transparency that BLOM BANK S.A.L. is known for.
Prior to joining BLOM BANK S.A.L., Dr. Abou-Ezze was in He joined BLOM BANK S.A.L. in 1991 where he started to academia. He served as the Director of the Graduate School excel and climb his career ladder. He has now over 21 years of Business and Management at the American University of of banking experience acquired with major banking players Beirut from 1993 to 1996, and he has been Assistant Professor on the Lebanese market. He also attended various training at the same school since 1991. programs and workshops in Lebanon and abroad.
Before moving back to Lebanon, Dr. Abou-Ezze started Mr. BABA earned his Bachelor’s degree in Accounting and his career as an Assistant Professor of Economics at the his Master in Business Administration from the Lebanese University of Ottawa, Canada, and at the University of Kuwait. American University – Beirut.
Dr. Abou-Ezze continues to lecture at various Universities in Lebanon, and to lead seminars and workshops in the field of Human Resources. He served as the Chairman of the Human Resources & Social Affairs Committee at the Association of Banks in Lebanon for 2 consecutive terms from 2005 to 2009. He also holds a Ph.D in Economics from McMaster University, Hamilton, Canada.
25 Corporate Governance
Mrs. Jocelyne Y. CHAHWAN Mr. Antoine N. LAWANDOS Assistant General Manager Assistant General Manager Deputy Head of Retail Banking at BLOM BANK S.A.L. Chief Information Officer at BLOM BANKS.A.L.
• Born in 1965 • Born in 1963 • Member of the Advisory Council for the Levant, VISA International
Mrs. Jocelyne Chahwan started her banking career in 1990 Mr. Antoine LAWANDOS started his career in 1986 by joining at the Bank of Montreal in Montreal where she was promoted ISTISHARAT, a leading software house, where he was quickly several times until she reached the title of Manager/ Investment promoted to Head of Production Unit of Banking Software Services. and where he acquired extensive experience in managing the development, implementation and integration of complex In March 1996, she joined BLOM BANK S.A.L. in Beirut and and mission-critical universal banking systems. Also, he was became the Head of the Training & Development Department. one of the main contributors in exporting a locally-developed In 1999, she moved to Retail Banking as Head of the Marketing core banking system to renowned banks in Europe and KSA, Division. a pioneering step at that time.
In 2009, she was promoted to the position Deputy Head of Before joining BLOM BANK S.A.L., Mr. LAWANDOS held the Retail Banking. position of Systems Engineering Department Manager at IBM’s representative bureau in Lebanon and that of Project Manager In October 2011, she became the first Lebanese banker on at MDSL, a well-known core banking solutions vendor, for the VISA’s advisory council for the Levant. In December 2011, she was promoted to Assistant General implementation of a reputable Irish core banking application Manager. in Lebanon.
Mrs. Jocelyne Chahwan holds a Master of Business In 1993, Mr. LAWANDOS joined BLOM BANK S.A.L. as the Administration from Ecole Supérieure des Affaires (ESA). Project Director for leading the Bank’s core banking application change and soon after, he became the Senior Manager of the Information Technology & Systems Development Department in 1995.
In 2006, Mr. LAWANDOS became BLOM BANK’s Chief Information Officer and in 2008, he was appointed Assistant General Manager of BLOM BANK S.A.L. in addition to being the Bank’s CIO.
Mr. LAWANDOS holds a Master of Engineering degree in Electronics And Information Systems from Université Saint- Jospeh’s School of Engineering – ESIB and has over 27 years of experience in leading core banking systems transformation initiatives from a technology vendor side as well as from a banking institution perspective.
26 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance
5. Blom bank S.A.L. Commercial Arrangements
Any commercial arrangement between the Bank and any of its affiliates is pre-approved by the General Assembly of Shareholders of the Bank and of the concerned affiliate according to art. 158 of the Lebanese commerce law, when applicable. No change of control has occurred during 2012.
6. General Management of BLOM BANK S.A.L.
Chairman & General Manager Mr. Saad AZHARI Group Secretary General Mr. Samer AZHARI General Managers Mr. Habib RAHAL Mr. Amr AZHARI Mr. Elias ARACTINGI** Assistant General Managers (*) Dr. Pierre ABOU EZZE Human Resources Mr. Talal BABA Finance Mrs. Jocelyne CHAHWAN Retail Banking Mr. Antoine LAWANDOS Information Systems Advisors (*) Mr. Michel AZZAM Sheikh Fahim MO’DAD Formerly, Vice Governor of the Central Bank of Lebanon Mr. Georges SAYEGH
Divisions, Departments & Units Administration Mr. Mohammad MARRACH Back Office Operations Ms. Wafa KISHLI Central Fund Transfers Mrs. Rima HAJJAR (EL) Communications Mrs. Isabelle NAOUM Compliance Mr. Malek COSTA Corporate Credit Relationship Mr. Samir KASSIS Credit & Facilities Mr. Mounir TOUKAN Finance Mr. Talal BABA Financial Institutions Mr. Grégoire AZAR Group Inspection Mr. Naoum RAPHAEL Hedging Advisory Mr. Gladson DOUGLAS Human Resources Dr. Pierre ABOU EZZE Information Systems Mr. Antoine LAWANDOS Internal Audit Mrs. Rania KAISSI Legal Affairs Me. Aimée SAYEGH Liability Product Management Mr. Mohamad Mokhtar KASSEM Marketing Overseas Mr. Fouad SAID Marketing Overseas – Gulf Region Mr. Marcel ABOU JAOUDE Procurement Mr. Mohammad MARRACH** Recovery Ms. Hiba CHERIF Retail Banking Mrs. Jocelyne CHAHWAN** Risk Management Mr. Gérard RIZK SME Relationship Mr. Charles HADDAD Strategic Planning & Organization Mr. Rabih HALABI Syndications and Structured Finance Mr. Morris KAIROUZ Syrian Desk Mr. Georges CHEDID Mr. Boutros KHOURY Trade Finance Mr. Jacques SABOUNJI Treasury & Forex Mr. Wassim KHODR
(*) By Alphabetical Order (**) As of July 2013
27 01 About BLOM Corporate Governance
28 BLOM BANK s.a.l. Annual Report 2012 Corporate Governance About BLOM 01
29 Management Discussion & Analysis 2012
31 1. Operating Environment 36 2. Overview 37 3. Evolution of Total Assets 38 4. Sources of Funds 4.1 Customers’ Deposits 4.2 Capitalization (Tier I & Tier II Capital) 41 5. Uses of Funds 5.1 Investment Securities Portfolio 5.2 Loans and Advances to Customers 45 6. Liquidity 46 7. Profitability 7.1 Net Interest Income 7.2 Non Interest Income 7.3 Staff and Operating Expenses 52 8. Dividend Distribution and Preferred Shares Revenue 53 9. Interest Rate Risk 53 10. Risk Management and Basel III Preparations 10.1 Risk Management 10.2 Internal Capital Adequacy Assessment Process (ICAAP) 10.3 Corporate Governance 57 11. Universal Banking Services 11.1 BLOMINVEST BANK Services 11.2 Commercial and Corporate Banking 11.3 Retail Banking 11.4 Islamic Banking 11.5 Insurance Products & Services 61 12. Information Systems and Technology 12.1 Leading-Edge Technology Deployment 12.2 Round-the-clock Banking Services 12.3 Advanced Electronic Payment Systems 12.4 Enterprise Application Integration (EAI) 12.5 Financial Reporting and Consolidation 12.6 Basel III and Regulatory Compliance 12.7 Systems Security and High Availability 63 13. People Development 13.1 General Overview 13.2 Policies and Procedures 65 14. Bank’s Operational Efficiency Management Discussion & Analysis 2012
1. Operating Environment
A global view: Dichotomy between the US global financial crisis. Further improvements are expected and Europe in 2013-14 when the average primary balance is expected to reach around 2% of potential output. However fiscal consolidation in 2012 has impacted negatively on the Euro The world economy have not yet recovered from the Area economy, contributing to a 0.4%y-o-y contraction. financial crisis of 2008-2009 and is not expected to fully do so this year. Global real GDP growth managed to The ECB is also expected to keep interest rates low during reach 3% in 2012 however it remains half a percentage 2013 as economic activity in the Euro zone will continue point lower than 2011. Developed countries continue to contract this year and only will start to grow next year. to face many challenges and they grew only by 1% Inflation remains subdued and inflationary pressures do not seem to rise to worrying levels. while emerging and developing economies grew by 5.5% last year. In 2013, the world economy is expected The international equity markets recovered in 2012, to grow by 3% with Europe’s performance improving boosted by unprecedented stimulus actions and somewhat but the US and emerging markets will monetary policies taken by Central banks. Strategies of witness declining growth rates. quantitative easing, pumping money in bonds’ markets, and maintaining interest rates at near-record lows, have The United States economy was growing well below its contributed into refreshing the markets across the world. potential with a high risk of recession this year if the fiscal The S&P 500 Index returned around 13% for the year, cliff had not been resolved by end 2012. The US grew by its best annual performance since 2009, and the MSCI 1.5-2% last year but the fiscal cliff haunted the economy rose about the same. Yet, elements from both sides of till the fourth quarter of 2012 when congressmen agreed the Atlantic collided to scare investors away from the on the tax increase with the spending side being dealt riskier assets and into the refuge of the fixed income with early this year. The austerity measures adopted will instruments. The European leaders consented over the amount to 1.5% of GDP rather than hitting 4.5% of GDP Greek debt only towards the end of 2012 and against most if no deal had been reached. A significant portion of this speculations in the markets, earning European equities effect is related to the automatic spending sequestration their recovery during the second half of the year. In the that is scheduled to begin on March 1, which, according to United States, the biggest market moves followed official the CBO’s estimates, will contribute about 0.6 percentage policy announcements, showing that investors remained point to the fiscal drag on economic growth this year. jumpy over the mixed-colors’ picture of the economy. Consistent with the moderate pace of economic growth, Speculations over President’s Obama’s re-election conditions in the labor market have been improving chances, divergent growth prospects and persistent gradually with unemployment reaching 7.8% by end 2012 bonds’ purchases by the FED have led investors to stick compared to 8.5% in December 2011. to bonds despite their record-low yields and inflation- eroded returns. On the monetary front, the Federal Reserve Bank is continuing with its quantitative-easing policy, buying USD MENA region: Divergent economic 85 billion of bonds each month as long as unemployment performances stays well above normal level, which is set at 6.5%, and inflation is subdued. The economies of oil-importing countries in the Middle Europe seems to start seeing the light at the end of the East and North Africa (MENA) region remain entangled tunnel. After a year that was characterized by weak by political tensions and weakening fundamentals while economic activity, consensus is that growth will rebound oil-exporting countries are performing well and enjoying in 2013. However this may not occur and the region will go sound prospects. In the latter, oil GDP growth is falling but non-oil GDP growth remains healthy. Wage increases through a new round of tensions, as budget deficits drift have weakened public finances and a scenario of above target yet again and negative investors’ sentiment sustained large drop in oil prices may constitute a key risk will weigh especially on peripheral countries. to fiscal sustainability. Both financial markets and fiscal performances improved MENA oil importers’ growth stagnated at low levels, throughout 2012. Spreads of peripheral countries’ bonds around 2% in 2012. Exogenous and endogenous factors have gradually abated since the middle of last year and coincided to further hamper economic activity in these stock markets felt the positive vibes. On the fiscal side, countries. Among these factors a weakening global the Euro Area primary fiscal balance is turning positive economy, high food and oil prices, and continued policy following four years of deficits in the aftermath of the uncertainty. There is a need to restore macroeconomic
31 Management Discussion & Analysis 2012
sustainability while minimizing the impact of fiscal growth fueled by a sustained high government spending. consolidation on growth and social welfare. On the capital markets, GCC and Egyptian stock markets Inflation remained stable in most countries, but concerns had a good year in general, while the Levant bourses are rising regarding widening external deficits with reserve posted mixed results. The market cap of Levant bourses buffers diminishing. Exports of goods are down in most of totaled USD 37.87 billion while the market cap for Mena oil importing countries and tourism arrivals are recovering bourses totaled USD 925.62 billion. Star performers were in some of the countries albeit slowly, but they are still far Egypt jumping by as much as 48.44%, with its market below 2010 levels. However remittances have remained capitalization soaring to USD 60.2 billion towards the stable and the overall current account deficit is expected end of 2012 from USD 48.6 billion at the end of 2011, to improve slightly as a weak recovery gets underway in while in the GCC, UAE beat all other bourses with Dubai Europe. jumping 20.94% and Abu Dhabi climbing 9.76%. Saudi Arabia wasn’t far behind increasing by 7.42%. Kuwait In contrast with oil importing countries, 2012 was also returned 2.46% and Muscat up 1.05%. Only Qatar characterized by a robust growth, which reached about and Bahrain in the GCC backed, with Qatar dropping 5.75% for oil exporters. This growth was mainly driven 4.86%, and Bahrain going down 6.4%. Outside the Gulf by strong expansions in the Gulf Cooperation Council markets, Amman edged down 2.24% with its market cap countries in addition to the almost complete restoration shrinking to around USD 26.1 billion from USD 26.9 billion of Libya’s oil production. However economic growth is in 2011. Damascus plunged 13.31%. Tunis 3.75% down. projected to fall to 3.25% in 2013 as oil production growth Casablanca, the second largest market outside the Gulf, stagnates. Non-oil GDP will continue to record strong was down 14.67%.
2012: A difficult year for Lebanon
The real sector related to living costs. Fuel consumption sub-index In this still messy regional and global environment, climbed 6.6%. Lebanon managed to keep its economy afloat although political tension and security skirmishes had their toll on A major challenge for 2013 is the stalemate in economic the different economic sectors. Real GDP grew by 1-1.5% activity as a result of declining tourism and real estate, in 2012 driven by robust consumption and trade patterns the two sectors that were the main drivers of economic with nominal GDP reaching USD 42 billion. Tourism growth during the past few years. The external factors are not helping in this regard as the unrest continues tumbled due to security events and was aggravated in Syria, and the whole region is going through major by the decision of Arab countries to warn their citizen difficulties. Internally, the decision making process not to visit Lebanon. Foreign direct investment and for any measure to promote economic growth or to portfolio investment deteriorated and exports went under implement any structural reform is complicated and pressure as transit routes through Syria closed down. extremely slow. These developments resulted in a negative balance of payments for a second year in a row. The tourism sector was undoubtedly the largest loser in 2012 owing to its high sensitivity to the regional and Demand continued to grow however at a decelerated domestic breakdowns, and the immediate translation rate. Uncertainty weighed on business environment of effects on collected revenues. A pillar sector for and investment incentives, despite low market interest Lebanon, tourism directly contributed to 9.8% of Lebanon’s GDP in 2011, or USD 4.131 billion, noting rates, leading credit to the resident private sector to that its total contribution goes up to 35.2% of GDP or decelerate reaching USD 39.6 billion by the end of USD 14.9 billion, when accounting for its effects on 2012, growing by 10.2% compared to past rates of investment, supply chains, income and employment. 13.25% and 24.40% in 2011 and 2010 respectively. This compares highly with the world’s average of Nevertheless, loans amounted to a considerable 95% tourism direct and total contribution to GDP of 5.2% of Lebanon’s GDP, and further plans were put into and 14% respectively. effect by the Central bank to revive lending and support economic growth. Despite the double digits declines registered throughout 2011 as the war in Syria was taking a severe downturn, Prices of consumer goods increased at the same rate of 2012 continued to post even lower levels. Visitors to previous years, affected by the jump in education costs Lebanon totaled 1.36 million in 2012, down 17.51% from 2011’s when they recorded 1.65 million, and 37% and fuel prices. Inflation recorded 4.7% in 2012 on a from 2010’s 2.17 million visitors. The drop in tourism year-end basis with education sub-index soaring by naturally resulted in lower tourist spending, which fell by 14.5% following government approval of wage increase 6% compared to 2011.
1. According to World Travel Tourism Council 2012
32 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
In conjunction with the tourism sector real estate activity ever of 4.18% of GDP in 2011. The usual double-digits delivered flimsy performance in 2012. Joining pressures increases in revenues2 slashed to a mere 0.66% in from the break of war in Syria and the fragile domestic 2012 failing to even keep up with nominal GDP growth situation tuned down the sector’s performance starting for the year which approached 5.7%3. late 2011, just when it had already entered its normal slowing phase after the rush of 2008-2010. Meanwhile, unexpectedly large expenditures came forth on the back of higher transfers made to the Electricity Indicators of real estate activity are all revealing Company (EDL) to finance its expensive oil imports, a slowdown in the sector. The number of issued prompting a general increase in outlays of 14.1% to construction permits during 2012, which reflects the USD 13.32 billion. Primary spending surged 23.9% to real estate activity in the next 6 months, registered a USD 9.51 billion against a 6.5% increase in 2011 to USD slight decrease of 0.84% to 18,193 permits. However, 7.67 billion. But it wasn’t all dark in the public finance the Construction area Authorized by Permit (CAP) room; deliberate capital expenditures were mobilized plummeted by 10.85% to 14.68 million sqm in 2012 in an effort to stimulate the slowing economy, where following a 6.5% fall in 2011. This would imply the noticeable spending was recorded on the level of public spreading of projects over lower-sized investments, and works and infrastructure (telecom and electricity). the shift of supply to serve a more selective demand. The number of real estate transactions also fell by 10.14% to The sluggish growth in public revenues was mainly the record 74,569, but the total value of transactions was result of a decline in non-tax receipts. Revenues from 3.8% higher reaching USD 9.17 billion. Moreover cement taxes managed to end 2012 on a positive but slight deliveries were down 4.35% after having recorded change of 3.06% to USD 6.76 billion, due to mixed consecutive rises of 6.18%, 6.72% and 16.07% in 2011, effects from the deteriorating situation in Syria and 2010 and 2009. Total registries in 2012 were 5,308,550 the slowdown witnessed in Lebanon. As for non-tax tons compared to 5,549,769 tons in 2011. revenues which mainly consist of transfers from public institutions, they were negatively impacted by the The external sector decline of telecom transfers to the treasury. Hence they The slowdown in foreign direct investment in real went down by 5.25% to USD 2.18 billion, noting that estate and other economic activities had its toll on the government decided to shift some of the telecom Lebanon’s balance of payments that stayed in the red proceeds during the year to municipalities to boost their for the second consecutive year despite narrowing to capacities and efficacy. USD 1.5 billion by end 2012 as compared to USD 2.68 billion in 2011. The decline in net foreign assets of the The spending spree was due to important increases in banking system resulted from foreign direct investment the largest two components, namely salaries and wages to Lebanon slashing to almost one-third of its 2011’s and transfers to the Electricity Company. The former level, lower tourism revenues that provide the market rose 21.51% to USD 4.46 billion after accounting for with foreign currencies, and lower capital inflows for the adjustments applied during 2012 consistent with portfolio investments. the rise of cost of living. The latter took up about USD 2.26 billion of the government’s outlays recording the Lebanon’s trade deficit for 2012 contracted by 4.2% to steepest surge of 29.8% compared to 2011. Another USD 16 billion compared to expansions of 15.91% and account that registered a large increase is the transfers 7.41% in 2011 and 2010. Adjusted imports declined by to municipalities that rose by 54.5% to USD 444 million 2.28% in 2012 as they were hindered by the tempering from USD 244 million in 2011. local consumption, opposite to accelerating exports on the back of emergent demand from war-troubled Syria. Further increase to the budget deficit was deliberately The attractive exports rise of 5.13% compared to the made through the government upsizing of its capital mere 0.28% during 2011, becomes less impressive expenditures by 12.5% to USD 504 million following a when looking exports’ individual growth and quantities, decline of 3.7% in the previous year. Special attention or compared to the 22% rise recorded in 2010. In would be given to the CDR budget which rose to USD fact, the 2012 increase appears to be almost solely 132 million, up from USD 96 million in 2011, the ministry attributed to the overwhelming positive performance of public work and transport which reached USD 84 of the precious metals’ industry, as well as to exports million from USD 61 million last year, and the Council of of necessity products and oil derivatives to ailing Syria, the South which received USD 41 million compared to which together, compensated for the fallback of major USD 33 million in the previous year. industrial exports.
The fiscal sector Nonetheless, there was a substantial improvement The slowdown of economic growth, high oil prices and made on the debt service level freeing up cash for the the adjustment of public employees’ wages to the cost government and reducing the cost of debt. Average cost of living were the main reasons behind the deterioration of debt for 2012 stood at 6.28% compared to 6.99% in in public finances for 2012. Hence, fiscal deficit ratio to 2011 and 7.43% in 2010. Under the umbrella of lower GDP increased to 9.3% and the primary surplus shifted international interest rates, the debt replacing during to a small deficit for the first time since 2006 standing at 2012 which consisted of 2 Eurobonds rounds, brought USD 110 million after having reached the largest surplus the average cost of foreign currency debt to 5.78%
2. With the exception of year 2010 when both revenues and expenditures proportionally declined by 0.17% and 0.71% respectively. 3. Considering BLOMINVEST’s adjusted inflation for the year, estimated at 4.7% instead of the official 10.1% 33 Management Discussion & Analysis 2012
from 6.66% and 6.86% in 2011 and 2010 respectively. resident private sector added 4.3% only compared to As for the local currency debt, average cost in 2012 10.53% in 2011. In accordance, the average weighted moved to 6.64% from 7.20% and 7.8% in 2011 and yield of interest on deposits in dollar increased to 2.86% 2010 respectively. To note that during 2012, total public in 2012 from 2.83% in December 2011, while average debt rose by 7.51% to USD 57.69 billion, with its local weighted interest on LL deposits decreased to 5.41% in currency part barely adding 1.74% against a 16.53% December compared to 5.63% in 2011. rise in its foreign currency section to USD 24.39 billion. Consequently, debt to GDP ratio increased to 137% of Money supply was also affected by the increasing GDP in 2012 compared to 135% in 2011. government expenditures, which heightened the net claims on public sector by 7.2% or USD 2.44 billion. The management of the government’s portfolio of The banking sector continued to step in to finance treasury bills realized some wins, extending its maturity government’s expenditures through TBs subscriptions to 1,105 days from 955 days in 2011, while slightly and roll over of maturities, with BDL occasionally pushing down the weighted average yield from 6.83% covering for shortage in subscriptions. In fact, BDL in December 2011 to 6.54% in December 2012. securities portfolio rose from USD 13.16 billion at end 2011 to USD 16.58 billion, and commercial banks’ With an election looming and the recovery looking pallid, holding of government’ securities rose to USD 31.06 the government seems locked between controlling billion from USD 29.15 billion in December 2011. its budget deficit and promoting growth through expansionary policies. The government will face the The banking sector maintained its strong performance difficult task of containing the budget deficit increase despite the local and regional tensions. The consolidated in order for the debt to GDP ratio to remain stable or balance sheet of commercial banks recorded an 8.04% even decline. However additional spending may have growth in 2012 to stand at USD 151.88 billion compared a positive impact on the economy if it is related to to a 9.04% growth in 2011. Resident and non-resident infrastructure such as roads, electricity, telecom, which private sector deposits increased by 8.02% y-o-y will increase the country’s potential output. to reach USD 125 billion by end 2012. As for the dollarization rate of deposits, it stood at 64.82% by Moreover the government has another challenge, which the end of 2012, slightly lower than the 65.92% of the is to implement structural reforms that will help jump start previous year. On the assets side, claims on resident the economy and attract foreign investors and capital. and nonresident private sector rose by 10.35% y-o-y One of the main issues to tackle is the ongoing problem from USD 39.38 billion to USD 43.45 billion with their of the subsidies to the Electricity Company (EDL) as it is dollarization rate narrowing to 77.63% from 78.4% getting aggravated by the high oil prices and the cutoff in 2011. The public sector claims witnessed a 6.53% of gas supply from Egypt. Subsidies to EDL are draining growth by December 2012 as Treasury Bills in Lebanese on government resources and constitute around 20% Pounds held by commercial banks rose by 9.1% to USD of total spending. Other structural reforms include the 17.98 billion. improvement of the business environment as Lebanon ranks low on the doing business indicator published by The central bank adopted a myriad of steps to retaliate the World Bank. against the shocks caused by the ongoing crisis in the region, starting by containing inflation in order The monetary sector to avoid value wipes of assets, to pushing credit to In contrast with fiscal policy, monetary policy witnessed businesses and households through lower interest few changes during the past few years, flowing steadily rates. BDL had launched stimulation packages for between the standard missions of boosting economic private lending, expected to boost economic growth growth, reining in inflation, preserving the national by 1% to 2.5% in 2013, while inflation is assumed to currency, and maintaining the soundness of the financial remain within acceptable range of 6% given that it has system. Broad money supply M3 grew 7% in 2012 to toned down during the past two years to 4.13% and reach USD 104.01 billion following a lesser growth of 4.73% respectively. As for the Lebanese pound, the peg 5.5% in 2011 when it stood at USD 97.23 billion. Former against the dollar initiated in December 1997 remains to 2011, double digit growth rates were recorded such strongly defended by BDL. Sitting over foreign reserves as 14.72%, 19.65% and 12.27% in 2008, 2009 and approximating USD 35.73 billion, 10.86% higher than 2010 respectively. 2011’s, BDL holds enough reserves that cover more than 20 months of imports. The dollarization rate of M3 decreased from 59.99% in 2011 to 58.5% at the end of 2012. This was the result The Eurobonds market of sight and term deposits in LBP rising by 19% and On the Eurobond market, investors profited from the 10% respectively, while foreign currency deposits of the spread between the yields of the government Eurobonds
34 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
and the US treasuries during the first half of the year, but While the stable political and security environment the market failed to sustain international demand later as remains the main determinant of investors’ sentiments, the country felt the repercussions of the war in Syria and the balance of payments results (surplus or deficit) will went through domestic political and security skirmishes. be essential during 2013 in setting the demand trend on the Eurobonds markets. During 2012, the Lebanese government issued Eurobonds for a total of USD 5.475 billion, of which The equities market USD 2.475 billion were tapped on the primary market Although much of 2012 was a struggle to Lebanese over 2 rounds. The remaining USD 3 billion were issued equities as it was to the Eurobonds, the twilight in March and December as part of the debt replacement months were aggressive enough to reflect the appetite agreements between the BDL and the ministry of finance, of investors and the deep rooted faith that Lebanese by which the MOF is allowed to redeem Treasury Bills stocks remain undervalued. The BLOM Stock index from BDL’s portfolio against Eurobonds for the same (BSI) which tracks the market, lost 0.65% during amounts but at lower interest rates and longer maturities. 2012, however dipping by as much as 4%-5% in the The attractiveness of the Lebanese yields proved high 3rd quarter, and bottoming in October at 1,104 points. during the first round conducted in April as the USD However the subsequent status quo restored faith in 950 million issuance was 3 times oversubscribed with the possibility of containing the security skirmishes, a considerable international participation accounting allowing equities to breathe and ignore the recurring for 33% of the issuance. However, the second round events north and east of the country. Equities surged executed during November was received with mixed again in December although from a low base with the sentiments. Nonetheless the government managed to BSI closing the year at 1,169 points, as investors took issue USD 1.525 billion, part of which was a voluntary advantage of the undervalued listed companies. debt exchange on bonds maturing in 2013. With the ongoing war in Syria, and Europe still trapped Summing up the year, the BLOM Bond Index which in its problems, internal and external difficulties tracks the Eurobonds denominated in dollars finished will continue to weigh on the Lebanese economy. 2012 at 109.07 points, down by 1.7% since year start Therefore 2013 appear to be more challenging than as the slowing demand during the second half weighted 2012 especially when it comes to internal economic on its level, and pushing the weighted average yield on developments. Several issues remain to be addressed holding the Eurobonds up by 14 basis points to 5.02%. by the government starting from the control of the fiscal The performance of the medium- and long-term bonds deficit in an election year and not ending with the wage reflected the rather stable demand, peaking during increase. March-April when the 5Y bond and the 10Y bond reached their lowest yields of 4.65% and 5.8% respectively, and To end on a positive note, prospects of an improving fading in August when yields rose to 5.65% and 6.49% economy benefiting from the oil discoveries as well as respectively. The two benchmark notes ended the year from the adjustment of economic policies to fit in the on a slight change, with the 5Y Lebanese Eurobond crisis, will definitely create a positive sentiment among returning 4.83%, down by 2 basis points since year start local investors as well as internationals. In addition the and the 10Y bond maturing in 2022 yielding 5.95%, up resilience of the Lebanese economy and especially the by one basis point since end 2011. Lebanese banking sector, with its assets exceeding 3 times the size of the economy, has been proved Eurobonds prices and their spread against the US as it was tested several times in the past. Therefore, treasuries reveal much less volatility than Credit Default assuming that Lebanon reaches its own deal over the Swaps spreads. This is mainly due to the stable parliamentary election laws and successfully installs and dedicated local investors with domestic banks a new parliament, and absent any war surprises, the constituting the core base of Eurobonds holders. While chances for a better economic performance and a the US bond markets had a good year, with the US 5y and correcting trend on the stock market appear to be 10y treasuries’ yields each dropping by 11 bps to end at 0.72% and 1.78%, the spread between the Lebanese 5Y strong. and 10Y bonds yields and their US comparable widened from 402 bps and 405 bps, to 411 bps and 417 bps respectively. As for the Lebanese CDS which reflect the perceived default risk of the government, they stood at 450 bps by end December 2012, narrowing from 472 bps in December 2011.
35 Management Discussion & Analysis 2012
2. Overview
In 2012, BLOM BANK witnessed another successful year marked by a solid financial position, a diversification of products and services, and a wider regional presence.
BLOM BANK’s strong position as the leading banking group in Lebanon was reflected by maintaining the status of the most awarded bank received in 2012 and 2013:
The Banker EMEA Finance • Best Bank in Lebanon for 2012 • Best Asset Manager in Lebanon for 2012 • Islamic Bank of the Year - Lebanon 2013 • Best Local Investment Bank in Lebanon for 2012 Euromoney • Best Bank in Lebanon for 2013 from GTR magazine Euromoney • Best Trade Finance Bank in Lebanon for 2012 • Euromoney Private Banking and Wealth Management Survey 2013 The New Europe Fast 50 • Best Net-worth-specific services - High Net • Best Bank in Lebanon for 2013 Worth I (USD 1 million to USD 10 million) The New Europe Global Finance • Best Bank in the Middle East for 2012 • Best Bank in Syria for 2013 • Best Foreign Exchange Bank Providers in The European Lebanon for 2013 • Best Bank in Lebanon for 2013 • Best Consumer Internet Bank in Lebanon for • Best Bank in the Middle East for 2013 2012 First Protocol Banker Middle East • Youth orientation and development for 2012 • Best Regional Retail Bank for 2013 • Best Private Equity Fund for 2013 MENA FM Performance Awards • Best Car Loan in Lebanon for 2013 • Best Levant Asset Manager for 2013 • Best Bank in Lebanon for 2012
BLOM BANK also continued to maintain the highest million and total customers’ deposits attained USD financial ratings in Lebanon. As such, the Bank has been 21,791 million by the end of 2012. repeatedly rated by Capital Intelligence, a Middle East- specialized rating agency, “BBB-”, which is the highest In terms of strategy, BLOM BANK continued to build financial strength rating in Lebanon. Moreover, Moody’s on its geographic expansion and business services maintained its foreign currency rating of “B1”, and S&P diversification. Foreign expansion not only spreads the credit rating of “B”. risk of operating in Lebanon, but also diversifies the income base by taking advantage of the economic and In 2012, as one of the largest banks in the country, BLOM business opportunities present in regional economies. BANK net profits reached USD 335.93 million even after In 2012, BLOM BANK Group was operational in 12 providing additional collective provisions amounting to countries: Lebanon, Syria, Egypt, Jordan, Qatar, UAE, USD 32.8 million, while total assets attained USD 25,051 France, Switzerland, England, Cyprus, Kingdom of Saudi
36 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Arabia and Romania. In addition, the Bank has developed funds and investment vehicles for retail and high net- further its retail network by opening two new branches worth investors diversified in their asset composition in Jordan located in Aqaba and Abdali, and launched and geography. Following the success of the BLOM two new branches in Lebanon, namely in Broumana and Cedars and Petra Balanced funds that received Jdeideh. numerous awards from leading international agencies, BLOMINVEST launched several other successful funds The other component of the strategy is to diversify to a total of eight and amounting to USD 537.9 million in business activities towards a universal banking model. 2012. The aim of the new products is the diversification As a result, the bank has expanded the operations of in the sources of income that gives increasing share for its investment arm, BLOMINVEST BANK, by enhancing non-interest income. its private and investment banking and capital market To conclude, BLOM BANK will continue to pursue activities, in addition to introducing asset and wealth its organic growth strategy in the coming years by management services. The latter aims at establishing capitalizing on its existing resources and capabilities.
3. Evolution of Total Assets
BLOM BANK witnessed a 8.14% growth in assets by the end of 2012. This resulted from the bank’s expansionary policy and the perceived confidence of expatriates in BLOM BANK Group as a trustworthy source of placing their deposits.
Total assets of the bank grew by 8.14% to reach USD 25.1 billion, as compared to USD 23.2 billion recorded in 2011. On the other hand, the share of assets denominated in foreign currencies witnessed a slight decrease to 70.91% from 71.83% a year earlier.
Evolution of Total Assets (in USD Million)
2012 25,051
23,165
2010 22,344
20,702
2008 17,898
16,639
2006 14,212
11,918
2004 10,835 years 0 5,000 10,000 15,000 20,000 25,000
37 Management Discussion & Analysis 2012
Total Assets by Region
2012 2011
% %
Lebanon 76.5 Lebanon 75.6 MENA 13.4 MENA 14.8 MENA includes Egypt, Syria and Jordan Gulf 2.9 Gulf 3.1 Gulf includes UAE, Qatar and KSA. Europe 7.2 Europe 6.5 Europe includes France, United Kingdom, Romania, Switzerland and Cyprus.
4. Sources of Funds
2012 2011
BLOM BANK’s main sources of funding include customers’ deposits and total capital funds (Tier I & Tier II). Customers’ deposits constituted the biggest share of sources of funds with 87.0% of total % % funding in 2012. Total capital funds Customers’ Deposits 87.0 Customers’ Deposits 87.6 constituted 8.7% of total funds in Total Capital Fund 8.7 Total Capital Fund 8.6 2012, while the share of banks and Banks & Financial Institutions 2.0 Banks & Financial Institutions 1.0 financial institutions amounted to Other Liabilities 2.3 Other Liabilities 2.8 2.0% in 2012 and other liabilities comprised 2.3%.
4.1 Customers’ Deposits
Throughout 2012, deposits at BLOM BANK continued to rise compared to 2011. Customers’ deposits increased by 7.36%, up from USD 20,296 million in 2011 to reach USD 21,791 million in 2012 as BLOM BANK continued to attract depositors who opted for a safe and trustworthy haven for their funds.
38 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Customers’ Deposits (in USD Million)
2012 21,791
20,296
2010 19,606
18,024
2008 15,109 13,737
2006 11,735
10,161
2004 8,992 years 0 5,000 10,000 15,000 20,000
Total Deposits by Region
2012 2011
A concentration analysis of consolidated deposits by region reveals that Lebanon maintained the lead share with 78.9%, the remaining 21.1% were distributed among regional and European countries. % % With regards to foreign currencies’ Lebanon 78.9 Lebanon 77.7 share of total deposits, they slightly MENA 12.5 MENA 14.2 decreased by the end of 2012 Gulf 2.0 Gulf 2.2 to 72.1% of total deposits, as Europe 6.6 Europe 5.9 compared to 73.2% in 2011.
On the other hand, BLOM BANK’s market share in terms of customers’ deposits within the Alpha Group (banks with deposits over USD 2 billion) accounted for 16.47% in 2012.
39 Management Discussion & Analysis 2012
Total Deposits by Type of Client
2012 2011
A concentration analysis of consolidated deposits by type % % of client reveals that “Individual Corporate 15.4 Corporate 15.8 customers’ deposits” accounted to 84.6% as compared to 84.2% Individuals 50.7 Individuals 52.2 in 2011 and “Corporate deposits” High Net Worth individuals 33.9 High Net Worth individuals 32.0 accounted to 15.4% as compared to 15.8% in 2011.
4.2 Capitalization (Tier I & Tier II Capital) Tier I & Tier II Capital (in USD Million)
Total capital funds increased by 10.02% year- on-year to USD 2,182 million at the end of 2012, bringing its contribution of total funds to 8.71% 2,182 from 8.56% in 2011. 2,000 1,983 1,891 Tier I Capital alone increased by 10.03% to USD 1,708 2,172 million at the end of 2012 compared to an increase of 8.6% by the end of 2011. 1,500 1,459 Tier I increase can be mainly attributed to retained 1,388 profits of the year 2012 amounting to USD 216.1 million after dividend distribution. This measure 1,271 falls in line with the bank’s strategy of growing organically and at a steady pace. 1,000 958
791
500
0
years 2004 2006 2008 2010 2012
Tier 1 Tier II
40 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Total Capital Funds by Region
2012 2011
A concentration analysis of total % % capital funds by geography shows Lebanon 64.2 Lebanon 61.6 that Lebanon accounted for 64.2% MENA 17.2 MENA 19.8 at the end of 2012 (61.6% in 2011) Gulf 6.7 Gulf 6.2 and the remaining 35.8% were Europe 11.9 Europe 12.4 spread among countries in MENA, Gulf and Europe.
5. Uses of Funds
BLOM BANK’s strategy stresses the maintenance of securities to total assets increased to 18.2% in 2012, up high asset quality and a strong portfolio of investments. from 17.8% in 2011. This was followed by an increase in The risk component, which has always been the Bank’s the share of cash and deposits at the Central Bank to total primary consideration while assessing the uses of funds, assets to 36.0% in 2012 from 35.1% in 2011. The Bank’s is reflected in the return on assets ratio that has always placements with other banks and financial institutions been at the forefront of listed Lebanese banks. The 2012 amounted to 13.7% of total assets in 2012 compared to return on assets ratio stood at 1.39%. 14.2% in 2011. On the other hand, the share of bonds and financial instruments with fixed income inched down Within the overall use of funds, the share of Lebanese to 5.6% in 2012, from 5.9% in 2011. Treasury Bills as well as other governmental debt
2012 2011
% % Lebanese Treasury Bills and Lebanese Treasury Bills and other governmental bonds 18.2 other governmental bonds 17.8 Cash and Central banks 36.0 Cash and Central banks 35.1 Banks & Financial Institutions 13.7 Banks & Financial Institutions 14.2 Bonds and Financial Bonds and Financial Loans granted to customers Instruments with fixed Income 5.6 Instruments with fixed Income 5.9 constituted 24.1% of total assets in Loans to Customers 24.1 Loans to Customers 24.1 2012 and 2011. Others 2.4 Others 2.9
41 Management Discussion & Analysis 2012
5.1 Investment Securities Portfolio
BLOM BANK’s investment securities portfolio is 43.44% in FC for the year 2011. As for the Central predominantly made up of governmental debt securities Bank of Lebanon certificates of deposits 58.32% were (45% of total portfolio), central banks securities (40% denominated in LL and 41.68% were in FC as compared of total portfolio), corporate debt securities, funds and to 58.6% in LL and 41.4% in FC for the year 2011. equity instruments.
The currency composition of the Lebanese governmental debt securities for the year 2012 were 57.21% in LL and 42.79% in FC as compared to 56.26% in LL and
2012
Fair Value Fair Value through through Other Amortized Cost Total Profit and Loss Comprehensive USD Million Income Central Bank of Lebanon Certificates of 4,062 - - 4,062 Deposits Lebanese Governmental Debt Securities 3,584 36 - 3,620 Other Governmental Debt Securities 883 51 - 934 Corporate Debt Securities 599 431 - 1,030 Certificates of Deposits-Banks and 364 - - 364 Financial Institutions Funds - 20 2 22 Equity Securities - 24 2 26 9,492 562 4 10,058
2011
Fair Value Fair Value through through Other Amortized Cost Total Profit and Loss Comprehensive USD Million Income Central Bank of Lebanon Certificates of 4,097 - - 4,097 Deposits Lebanese Governmental Debt Securities 3,381 19 - 3,400 Other Governmental Debt Securities 717 3 - 720 Corporate Debt Securities 594 509 - 1,103 Certificates of Deposits-Banks and 265 - - 265 Financial Institutions Funds - 18 3 21 Equity Securities - 19 2 21 9,054 568 5 9,627
42 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
5.2 Loans and Advances to Customers
Following BLOM BANK’s adoption of a conservative requirements of the Central Bank. Thus, outstanding loan strategy in order to maintain a high asset quality, loans reached USD 6,028 million at the end of 2012, still the ratio of net loans and advances to total deposits, on the rise by 7.82% from the previous year. which has been successfully maintained at relatively low levels, continued to increase in the past three years from BLOM BANK’s market share in terms of total loans and 26.41% in 2010 to 27.54% in 2011 to 27.66% in 2012. advances within the Alpha Group (banks with deposits This was driven by the bank’s strategy to expand its loan over USD 2 billion) reached 13.17% in 2012. book that was coupled by the easing of local reserve
Evolution of Loans and Advances (in USD Million)
2012 6,028
5,591
2010 5,178
4,019
2008 3,474
2,772
2006 1,988
1,670
2004 1,352 years 0 1,000 2,000 3,000 4,000 5,000 6,000
Net Loans by Region
2012 2011
A concentration analysis of the loan portfolio by region reveals that Lebanon maintained the lead share with 71.7% at the end of 2012 (67% in 2011), while the remaining loan portfolio were spread among the group entities mainly in the MENA region which accounted for 16.9% at the end of 2012 down from 21.0% % % in 2011 mainly due to the decrease in the loan portfolio in Syria. Europe Lebanon 71.7 Lebanon 66.9 held 6.4% of the loan portfolio MENA 16.9 MENA 21.0 (7.6% in 2011) and the Gulf region Gulf 5.0 Gulf 4.5 accounted for 5.0% (4.5% in 2011). Europe 6.4 Europe 7.6
43 Management Discussion & Analysis 2012
BLOM BANK’s commercial loan portfolio accounted for 258 million was mainly driven by the increase in the 65% from the total loan portfolio at the end of 2012 (67% housing loans. in 2011) and the retail portfolio accounted for 34.8% at BLOM BANK during 2012 continued to benefit from the the end of 2012 (32.9% in 2011). Central Bank of Lebanon incentives to stimulate lending and economic growth by easing of reserve requirements The increase in the retail portfolio during 2012 by USD of banks.
Net Loans by Type 2012 2011 USD Million % of Total USD Million % of Total Commercial Loans 3,918 65.0% 3,724 66.6% Corporate Loans 2,759 45.8% 2,595 46.4% Syndicated Loans 61 1.0% 70 1.3% Margin Lending 116 1.9% 147 2.6% SMEs 982 16.3% 912 16.3% Retail Loans 2,099 34.8% 1,841 32.9% Car Loans 642 10.7% 674 12.1% Credit Cards 91 1.5% 78 1.4% Housing Loans 1,098 18.2% 869 15.5% Personal Loans 268 4.4% 220 3.9% Loans to Related Parties 11 0.2% 26 0.5% Total Net Loans 6,028 100.0% 5,591 100.0%
Provisions and unrealized interest for impaired loans decreased in 2012 to reach 61.62% from 68.54%, however including collective provisions increased to reach USD it reaches 121% while accounting for the real guarantees. 284 million at the end of 2012 compared to USD 198 million in 2011.The major driver of this increase was the The ratio of foreign currency loans with respect to total collective provisions that the bank provided for during loans in 2012 decreased from 84.46% to 83.32% and 2012 and 2011 against any potential deterioration of the the ratio of foreign currency loans to foreign currency loan portfolio especially in Syria. deposits slightly increased to 31.99% in 2012, from 31.76% in 2011. Collective provisions remained the same at a level of USD 68 million at the end of 2012. The breakdown of the loan portfolio by maturities shows that medium and long term loans with maturities Gross doubtful loans to gross total loans increased to exceeding one year constituted 26.7% of the bank’s 5.44% compared to 3.20% in 2011. The increase was outstanding net loans in 2012 as compared to 28.3% in mainly driven by the doubtful loans in Syria. 2011, whereas short term loans, with maturities of less than one year, constituted 73.3% of the total net loans, On the other front, the coverage ratio of doubtful accounts compared to 71.7% in 2011. by monetary provisions (excluding collective provisions) Gross Loans by Economic Sector
2012 2011
BLOM BANK seeks diversification in its loan portfolio through lending to different economic sectors.
% % The highest economic sector share is consumer activities (37%), Agriculture and Forestry 0.8 Agriculture and Forestry 0.7 followed by Services (20%), Manufacturing 9.2 Manufacturing 10.3 Construction (19%), Trade (14%) Trade 13.5 Trade 13.2 and Manufacturing and Agriculture Services 20.3 Services 25.5 (10%). Construction (Developers) 4.5 Construction (Developers) 3.9 Construction (Project Financing) 14.9 Construction (Project Financing) 10.0 Freelance Professions 2.9 Freelance Professions 4.0 Consumer Loans 33.9 Consumer Loans 32.4
44 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Gross Loans by Type of Collateral
BLOM BANK loan portfolio remains highly collaterized, where secured lending against mortgages and cash collateral represents 61% from total lending at the end of 2012 (same as year 2011). The analysis of the gross loan portfolio by type of collateral reveals that retail loans accounted for the largest share of the 2012 portfolio, rising from 32.37% in 2011 to 33.92% in 2012. Moreover, advances against personal guarantees decreased, representing 8.17% of the total gross loans portfolio in 2012, from 10.98% in 2011. Advances against cash collateral went up to 14.18% in 2012 from 13.60% in 2011.
2012 2011
In the year 2012, secured loans accounted for 87% of total loan portfolio, whereas overdraft loans accounted for 13%. % % Commercial Loans Secured Commercial Loans Secured by Mortgages 20.7 by Mortgages 22.1 Advances Against Personal Advances Against Personal Guarantees 8.2 Guarantees 11.0 LC Financing 0.1 LC Financing 1.1 Advances Against Cash Advances Against Cash Collateral 14.2 Collateral 13.6 Syndicated Loans 1.0 Syndicated Loans 1.2 Retail Loans 33.9 Retail Loans 32.4 Advances against securities 7.5 Advances against securities 10.0 Advances against Bank Advances against Bank guaratntees 0.7 guaratntees 0.2 Overdraft 12.9 Overdraft 7.6 Other 0.8 Other 0.8
6. Liquidity
BLOM BANK’s ability to maintain high liquidity levels, The liquidity position is assessed and managed under a minimize risks and ensure high quality of assets has variety of scenarios, giving consideration to stress factors been at the center of liquidity management and core relating to both the market in general and specifically to objectives of the Group. The Bank has successfully the Group. maintained ample liquidity in 2012 where overall liquidity BLOM BANK has arranged diversified lending sources in stood at 57.99%. As such, the Lebanese Pound liquidity addition to its core deposits base, and adopted a policy of ratio (including Lebanese government Treasury Bills) was managing assets with liquidity in mind and of monitoring 98.61% in 2012, reflecting high liquidity levels. Moreover, future cash flows and liquidity on a daily basis. the immediate liquidity (cash & banks) in foreign currencies accounted for 52.53% of foreign currency Net Liquid assets (that mature within one month) to deposits in 2012, as compared to 53.12% in 2011. total customers’ deposits ratio at BLOM BANK stood at
45 Management Discussion & Analysis 2012
17.76% at the end of 2012 compared to 18.57% in 2011. noticeable in BLOM BANK accounts. In 2012, the gap Net liquid assets (that mature within one month) consists was negative in the maturities from zero to three months, of cash, short-term deposits and liquid debt securities amounting to USD 12,538 million. After three months, the available for immediate sale less deposits for banks and maturity gaps turn positive, reaching USD 6,098 million financial institutions due to mature within next month. for maturities of two to five years.
Maturity mismatch between assets and liabilities, which characterizes the Lebanese banking sector, was also 7. Profitability
BLOM BANK preserved its position as one of the most BLOM BANK’s performance was also reflected in profitable and the best performing bank in Lebanon for attaining the highest profitability ratios. Return-on- the year 2012. The bank recorded net profits of USD average common equity stood at 17.80% in 2012, 335.93 million, increasing by 1.32% compared to the compared to 19.20% a year earlier. Return-on-average year 2011 where net profits stood at USD 331.55 million. assets for the year 2012 reached 1.39%. BLOM BANK’s Lebanese operations still constitute the lion’s share with 85.05% of total net income. BLOM On the other hand, earnings per share increased to USD BANK’s profits contributed to a considerable portion 1.53 in 2012 from USD 1.48 in 2011. of the total banking sector profits as it accounted for a share of 19.93% of the Alpha Group (banks with deposits over USD 2 billion).
Evolution of Net Income (in USD Million)
2012 335.93
331.55
2010 330.60
293.02
2008 251.60
204.70
2006 180.30
136.85
2004 91.15
years 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00
46 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
7.1 Net Interest Income
Net interest income registered a 1.16% increase in 2012 to USD 537.7 million (including USD 15.1 million net interest income on financial assets and liabilities designated at fair value through profit and loss). The growth came as a result of a 5.03% increase in interest and similar income to USD 1,307.3 million in 2012, while interest charges reached USD 769.6 million for 2012 compared to USD 713.1 million for 2011.
7.1.1 Interest and Similar Income
The 5.03% increase in interest and similar income deposits with banks and central banks increased to is attributed to the diversification of interest income 14.59% from 9.62%. As a result, the contribution generating instruments where the bank opted to make of bonds and other financial instruments with fixed better use of resources by transferring into relatively income (including Central Bank of Lebanon certificates safer and better yielding placements with the Central of deposit) stood at 28.10% in 2012, as compared to Bank of Lebanon, fixed income securities and by 31.46% a year earlier. extending loans. Interest income generated from loans and advances The breakdown of interest and similar income reveals a including related parties represented 32.49% of the decrease in the share of governmental debt securities total in 2012, decreasing from 33.10% in 2011 due to to 24.82% in 2012 compared to 25.82% in 2011. On the deterioration in the loan portfolio in Syria. the other hand, the portion of income generated from
2012 2011
% % Lebanese TB’s and Other Lebanese TB’s and Other Governmental Bills* 24.8 Governmental Bills* 25.8 Deposits with Banks and Deposits with Banks and Central Banks 14.6 Central Banks 9.6 Bonds & Other Financial Bonds & Other Financial Instruments with Fixed Instruments with Fixed Income including CD’s* 28.1 Income including CD’s* 31.5 Loans and Advances Loans and Advances * Including net interest income on financial (including related parties) 32.5 (including related parties) 33.1 assets and liabilities designated at FVTPL.
47 48 BLOM BANK s.a.l. Annual Report 2012 49 Management Discussion & Analysis 2012
7.1.2 Interest and Similar Charges
2012 2011
% % Deposits from Customers Deposits from Customers Including Related Parties 99.0 Including Related Parties 98.9 Interest and similar charges Deposits and Similar Deposits and Similar Accounts from Banks and Accounts from Banks and increased by 7.9% to USD 769.6 Financial Institutions 1.0 Financial Institutions 1.1 million in 2012 as compared to USD 713.1 million in 2011.
7.1.3 Average Balance Sheet and Interest Rates
An analysis of average interest earning assets shows On the other hand, an analysis of average interest that governmental debt securities accounted for bearing liabilities reveals that average interest bearing 19.80% of total average interest earning assets in 2012, liabilities went up by 4.38% to USD 20,961 million decreasing from 20.30% in 2011. The average deposits compared to USD 20,081 million a year earlier. with banks and central banks increased to 29.61% in 2012 as compared to 28.09% in 2011. The share Deposits from customers including related parties of bonds and other financial instruments with fixed accounted for the largest share of the average interest income, including Central Bank of Lebanon certificates bearing liabilities, amounting to 98.69% in 2012 of deposit, accounted for 24.50% compared to 25.36% while deposits from banks and financial institutions a year earlier and the average loans and advances represented the remaining 1.31%. slightly decreased to 26.09% in 2012, compared to 26.25% in 2011. 2012 2011 Interest Interest Average Average Average Average Earned - Earned - Balance Rate Balance Rate USD Million (Paid) (Paid) Governmental Debt Securities 4,318 324.5 7.52% 4,261 321.4 7.54% Interest Earning Placements with Banks and Financial Institutions (Including Central Banks 6,457 190.7 2.95% 5,898 119.7 2.03% Placements) Bonds and Other Financial Assets with Fixed Income (Including Central Bank of Lebanon 5,343 367.4 6.88% 5,323 391.6 7.36% Certificates of Deposits) Loans and Advances to Customers 5,691 424.7 7.46% 5,511 412.0 7.48% Total Average Interest Earning Assets 21,809 1,307.3* 5.99% 20,993 1,244.7** 5.93%
Customers Deposits 20,687 (762.3) 3.68% 19,853 (705.3) 3.55% Interest Bearing Deposits with Banks and Financial Institutions 274 (7.4) 2.70% 229 (7.8) 3.42% Total Average Interest Bearing Liabilities 20,961 (769.7) 3.67% 20,081 (713.1) 3.55%
Interest Spread 2.32% 2.38% Net Interest Margin 2.24% 2.29%
*Including USD 15.13 million net interest income on financial assets and liabilities at FVTPL ** Including USD 15.77 million net interest income on financial assets and liabilities at FVTPL
50 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Net Interest Margin
2.50
2.42% 2.29% 2.29% 2.00 2.24% 2.13% 2.18% 2.03%
1.50 1.75% 1.77%
1.00
2004 2006 2008 2010 2012 years
7.2 Non Interest Income
Non-interest income increased by 29.3% year-on-year, amounting to USD 273.03 million in 2012 compared to USD 211.16 million in 2011.
Constituents of Non-Interest Income
2012 2011
Net commissions showed a decrease of 3.59% to USD 112.55 % % million in 2012,and a share of Net Commissions 41.2 Net Commissions 55.3 41.2% of non-interest income. Net Gain/Loss on Financial Net Gain/Loss on Financial The remaining 58.8% of non- Assets and Liabilities Assets and Liabilities interest income in 2012, mainly is designated at Fair Value designated at Fair Value attributable to net gain on financial through Profit and Loss 47.2 through Profit and Loss 2.5 assets and liabilities designated at Net Gain/Loss on Financial Net Gain/Loss on Financial Operations 8.0 Operations 37.7 fair value through Profit and Loss, Other Operating Income 3.6 Other Operating Income 4.5 accounted for 47.2% of total non- interest income in 2012.
51 Management Discussion & Analysis 2012
7.3 Staff and Operating Expenses
Staff and operating expenses reached USD 263.09 million staff and operating expenses with 62.40% while operating in 2012, registering a year-on-year increase of 6.85%. expenses stood at 37.60%.
Staff expenses (salaries and related benefits) increased That said, BLOM BANK is still maintaining a relatively by 4.23% in 2012 to USD 164.18 million while operating low cost-to-income ratio, reflecting the Bank’s efficient expenses went up by 11.51% to reach USD 98.91 million. cost-containment policy. The cost-to-income ratio slightly increased to 37.99 % in 2012 compared to Thus, staff expenses accounted for the largest share of 36.21% in 2011.
USD Million 2012 2011 Staff Expenses 164.18 157.52 Operating expenses 98.91 88.70 263.09 246.22
2012 2011 Number of Employees* 4,414 4,357 Staff Expenses per employee (USD) 37,195 36,153 Operating expenses per employee (USD) 22,407 20,357
* For more details refer to 13.1
Cost to Income Ratio
42.00 40.93%
40.00
37.99% 38.00 37.26%
36.21% 36.00
34.00 35.58% 35.04% 35.10% 34.63% 34.11%
32.00
30.00
2004 2006 2008 2010 2012 years 8. Dividend Distribution and Preferred Shares Revenue
During BLOM BANK’s Annual General Assembly, on common stocks and Global Depositary Receipts (GDR), April 15 2013, the distribution of dividends for the year they received the equivalent of LL 675 per share. All 2012 was approved. Holders of preferred shares series distributed dividends are subject to a 5% tax. 2011 received a USD 0.7 per share. As for holders of
52 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
9. Interest Rate Risk
Interest rate risk arises from adverse movements in Given that the majority of the bank’s deposits are re- interest rates, thus affecting the bank’s interest earning priced within the three months interval, while most of the assets and liabilities. Interest rate risk is well managed bank’s treasury bills and government bonds portfolio are through the continuous re-pricing of assets and liabilities. re-priced after the three months period, interest rate risk Most assets and liabilities are re-priced within one year. continues to remain within this period.
10. Risk Management and Basel III Preparations
10.1 Risk Management
The consolidated Basel III Capital Adequacy ratio of the Group reached 13.65% by the end of 2012 against 12.9% in 2011.
BLOM BANK Group (excluding Insurance Subsidiaries) Capital Adequacy Ratio / Tier I Ratio
13.96% 14.00% 13.81% 13.65%
13.50% 13.68% 13.59% 13.54% 13.02% 13.00% 12.91% 12.70% 12.94% 12.84% 12.50% 12.75%
12.00%
2007 2008 2009 2010 2011 2012 years
CAR Tier I Ratio
The ratio calculation was based on the Banking Control Commission of Lebanon (BCCL) requirements amended following the Basel III directives on capital resilience issued by the Basel Committee on Banking Supervision (BCBS) in June 2011. Three capital adequacy ratios were introduced and Lebanese banks are required to abide by the minimum set limits by end of 2015.
• Net Common Equity Tier 1 / Total Risk Weighted Assets • Tier 1 / Total Risk Weighted Assets • Total Capital Funds / Total Risk Weighted Assets
53 Management Discussion & Analysis 2012
The BLOM consolidated CAR ratios are clearly above that would be required under Basel III once the capital the regulatory requirements and exceed the 10.5% conservation buffer element is fully implemented.
BCCL Minimum Limit Basel III Minimum Limit (including Ratio BLOM Ratio (by end of 2015) capital conservation buffer of 2.5%)
Net Common Equity Tier 1 / Total Risk 12.06% 8% 7% Weighted Assets Tier 1 / Total Risk Weighted Assets 13.54% 10% 8.5%
Total Capital Funds / Total Risk Weighted 13.65% 12% 10.5% Assets
Those ratios are calculated in accordance with the Standardized Approach for Credit Risk, the Basic Indicator Approach for Operational Risk and the Standardized Measurement for Market Risk.
The BCCL has since made some amendments to its calculation requirements in a memo issued in April 2013 that would result in 2012 Capital Adequacy Ratio being re-stated as follows:
2012 BLOM Ratio 2012 2011 (based on BCCL memo- April 2013)
Net Common Equity Tier 1 / Total Risk 12.06% 11.27% 12.44% Weighted Assets Tier 1 / Total Risk Weighted Assets 13.54% 12.84% 13.89% Total Capital Funds / Total Risk Weighted 13.65% 12.91% 13.99% Assets
Total Capital Funds as per Basel III increased by 11.95% position is relatively affected by Lebanon’s sovereign in 2012, standing at LL 2,906,246 million at end of year, rating of B (by S&P scale) which impacts the Risk compared to LL 2,596,091 million at end of 2011. This Weighting of Foreign Currency government securities increase is mainly attributed to the retained earnings as holdings of the Bank. As for the Market RWAs and well as the increase in the Bank’s reserves. Operational RWAs, they increased correspondingly by 21.55% and 48% representing 3.84% and 8.56% of the Total Risk Weighted Assets went up from LL 20,109,108 Bank’s total RWAs. million in 2011 to LL 21,284,482 million at end of 2012. The Credit RWAs represent 87.60% of the Bank’s total The increase in Capital Funds offset the impact of RWAs’ RWAs and it increased by 4.57% from 2011 to 2012. This growth, leaving the CAR at 13.65%.
Capital Funds as per Basel III
LL Million 2012 Common Equity Tier I Capital 2,805,989 Common Equity Tier I Capital Deductions (238,084) Net Common Equity Tier I Capital 2,567,904 Additional Tier I Capital 314,996
Tier I Capital 2,882,900 Tier II Capital 23,346 Total Capital Funds 2,906,246
For regulatory as well as internal purposes, the Bank calculates Basel Capital Adequacy Ratio on a group consolidated basis and by individual legal entity, allowing for close monitoring of the capital position of each banking subsidiary. In the latter case, every single entity achieved a Basel III Capital Adequacy Ratio above the minimum 8% international requirement.
54 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Two new minimum standards for funding liquidity have BLOM BANK Group (excluding Insurance been developed by the BCBS: Liquidity Coverage Ratio Subsidiaries) Risk Weighted Assets by Risk Type (LCR) and Net Stable Funding Ratio (NSFR). The first being intended to promote short term resilience of a LL Million bank’s liquidity risk profile, and the second to provide sustainable maturity structure of assets and liabilities. 25,000,000 LCR has a time horizon for one month and the NSFR for one year. The BCBS also introduced a leverage ratio requirement that is intended to constrain leverage in the banking sector and bring in a simple, transparent 21,284,482 20,109,108 and independent measure of risk. We have calculated 20,000,000
a preliminary Tier 1 leverage ratio for the Bank and the 17,813,871 results were clearly above the 3% minimum set by the committee. 15,760,657 Certain aspects of the Basel III rules are subject to 15,000,000 14,919,262 national discretion and interpretation, as such, the estimated impact on BLOM BANK is subject to change 13,846,230 as the regulators develop their requirements around the practical implementation of the new rules. 10,000,000 The Bank’s capital position is closely monitored by General Management and Group Risk Management. The latter is delegated by the Board of Directors to ensure sound, comprehensive and effective Risk Management practices and processes are in place 5,000,000 throughout the Group.
Group Risk Management has implemented a Risk Management Structure within the Group whereby each country in which the Bank is present has its own Risk 0 Manager that reports to the Group Chief Risk Officer. 2007 2008 2009 2010 2011 2012 Currently, there are eight country Risk Managers. years
All areas of risk coverage by the Group underwent Credit Risk Operational Risk Market Risk continued development during 2012:
Under Credit Risk, the generation of Internal Ratings contribution based on various dimensions (Business through the Moody’s Risk Analyst system for the Bank’s lines, Branches, Regions, Products, etc.). Moreover, the commercial, corporate and SMEs credit portfolios Focus ALM system enables the Bank to closely monitor continued. Moreover, during 2012 the Bank developed liquidity and interest rate risks by generating detailed scorecards for Project Finance, HNWI, Cash-Collateral Interest Rate Sensitivity Gaps, Earnings at Risk, Cash- & Kafalat loans enabling the Bank to internally rate flow balance sheets, Interest Rate Shocks and Foreign mentioned loans. Exchange fluctuation scenarios.
Application scorecards developed by Fair Isaac for Retail Market Risk has automated the calculation of the market Banking products were implemented. The retail products risk capital charges for BLOM BANK Lebanon, Foreign covered include car loans, personal loans and credit cards. Branches, and BLOMINVEST BANK under the Bancware Capital Manager (BWCM) system. The Bank is putting in place an infrastructure that would enable it to meet requirements necessary to move The Capital Manager and the ALM systems have analytic as eventually towards an Advanced IRB approach in Credit well as scenario generating capabilities. These capabilities Risk under Pillar I of Basel II. are thoroughly used to generate internal and regulatory reporting and meet pillar II requirements of Basel II. For Market Risk, static ALM for BLOM BANK Lebanon, Cyprus, and BLOMINVEST BANK was implemented and The Market Risk team closely monitors the Bank’s funding dynamic ALM was also implemented for BLOM BANK and liquidity position and performs various stress tests to Lebanon. Static ALM for Jordan Branches is in its final take into account changes in the operating environment stages. Parameterization and testing is being undertaken in Lebanon and the region. The Bank places importance in order to implement Funds Transfer Pricing (FTP); the on maintaining high liquidity to meet short term needs, as Bank will be using Sungard Focus FTP in order to transfer well as sustaining a stable deposit base. price the Bank’s positions and analyze net interest income
55 Management Discussion & Analysis 2012
The Operational Risk team of Group Risk Management The ICAAP exercise showed that the Bank has an ensures that all activities are covered by clear policies adequate capital base to support its operations and to and procedures taking into account all relevant risk finance its growth in line with its strategic objectives. aspects which are highlighted through risk control self Results have shown that the Bank holds sufficient capital assessments of all business and operational activities. to weather stressed situations. The Bank maintains detailed Loss Incidence Database reflecting Basel requirements whereby business lines 10.3 Corporate Governance and loss types are clearly highlighted. Moreover, the Operational Risk team prepared a new more The Corporate Governance Code was approved at the comprehensive Business Continuity Plan that covers end of 2007 by the Board of Directors at BLOM BANK potential emergency scenarios and ensures that Business and most recently updated in December 2012. The Code Continuity policies are in conformity with best practices. is also published on the Bank’s website including details related to Board Committees’ meetings. Policies and procedures covering all types of risks have been reviewed and updated to ensure they take full The Board exercises its oversight function to a large recognition of best practice, cover regulatory and internal degree through four dedicated Board Committees: the guidelines and shield against new risks. Board Audit Committee, the Board Risk Management 10.2 Internal Capital Adequacy Assessment Committee, the Consulting Strategy and Corporate Process (ICAAP) Governance Committee and the Nomination and Remuneration Committee. The Bank developed a comprehensive Internal Capital Adequacy Assessment Process (ICAAP) document The Board Audit Committee’s responsibility is to concerned with managing and forecasting capital monitor and assess the integrity of the Bank’s financial requirements across the Group that was submitted to the accounting. The Audit Committee also assesses the Banking Control Commission of Lebanon at end of June competence of External Auditors as well as the Internal 2011, based on end-2010 balances. The ICAAP exercise Audit Department, in addition to internal controls is updated on a yearly basis and significant changes and compliance with the Bank’s by-laws and internal are reported to the Bank’s General Management and regulations. Board Risk Management Committee. The ICAAP takes into account forward-looking factors such as the Bank’s The Board Risk Management Committee periodically strategic plans and conceivable external changes. reviews and evaluates the Risk Management function of the Group, and reports and drafts recommendations to The Bank has put in place a strategic plan that clearly the Board. delineates its near-and-longer term capital needs, capital expenditures required for the foreseeable future, The Consulting Strategy and Corporate Governance target capital levels, and external capital sources. It also Committee oversees the development of the strategic performed rigorous and forward-looking stress tests that plan and monitors its progress throughout the Group. identify plausible severe events or adverse changes in market conditions, and assess their impact on the Bank’s It approves and monitors large projects, develops capital adequacy. corporate governance policies and practices, and advises the Board on overall business development. To assess overall capital adequacy, the Bank considers not only quantitative techniques but also includes an element The Nomination and Remuneration Committee provides of qualitative assessment or management judgment of assistance to the Board in identifying individuals qualified both capital model inputs and outputs. These other factors for directorship to sit on Board committees. Also, it plans could be ratings, market reputation and strategy. the succession of executive and non-executive directors and evaluates the performance of top management, The ICAAP considers all risks faced by the Bank, and including Board members. mainly: Pillar I risks (credit risk, market risk, operational risk), risks not captured under Pillar I but elaborated under The Bank in its Corporate Governance Code has Pillar II (credit concentration risk, country risk, interest established independence criteria for non- executive rate risk in the banking book, liquidity risk, reputation members of the Board who must constitute a majority risk, strategic risk), risk factors external to the institution, of the Board. The Board Committees are fully functional non-banking risks (sovereign risk). and meet in accordance with their stipulated frequency.
The Bank has also documented its risk appetite The Bank firmly believes in the basic principles of statement, detailing the following aspects: key risks that accountability, reporting and transparency throughout the Bank is exposed to, basic principles encompassing the organizational structure. Senior management risk management practices, definition of risk appetite, exercises the authority delegated to it by the Board risk appetite objectives, risk appetite framework and Key Risk Indicators (KRIs) along with their thresholds. BLOM through clear and segregated reporting channels, BANK risk appetite statement constitutes quantitative including Management Committees covering all areas of and qualitative parameters. It is elaborated at each entity operations. They also ensure that internal risk and control level as well as on a consolidated basis. procedures and structures are overseen by respective departments, namely Internal Audit, Risk Management and Compliance.
56 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
The Bank makes sure that all employees act equitable manner. As such, all employees are required professionally, ethically and with the utmost integrity to attend presentations on the Bank’s Code of Conduct in accordance with an established Code of Ethics and and Corporate Governance. The Bank will continue Conduct. Additionally, the Bank recognizes the value to develop its Corporate Governance practices while of its Human Resources as a prime stakeholder in the seeking to protect and enhance stakeholders’ interests institution, endeavoring to treat all employees in the most from shareholders to employees.
11. Universal Banking Services
In line with its aim of maximizing customer satisfaction to currencies and precious metals with active market and increasing shareholders’ value, BLOM BANK has making capabilities. adopted the policy of diversification of its products and services. BLOM BANK provides the following universal Research Services banking services that suit all customers’ needs: A team of economists and analysts provide value added research and equity coverage across the MENA region - BLOMINVEST BANK Services by systematically publishing economic and financial - Commercial and Corporate Banking information including indices as well as conducting - Retail Banking equity analysis on leading regional institutions. - Islamic Banking - Insurance Products and Services 11.2 Commercial and Corporate Banking
11.1 BLOMINVEST BANK Services During 2012, BLOM BANK has continued to expand its credit portfolio benefiting from its high liquidity and BLOM BANK through its investment banking arm, availability of excess deposits. In this regard, 2012 BLOMINVEST BANK, is one of few institutions within witnessed a significant increase in the credit portfolio by the greater Levant region that offer Private banking, 14.7% mainly due to the extension of new loans to SMEs Investment banking, Asset Management, Brokerage, as well as to Corporate clients, whilst, preserving the and Research services under one roof. Based on its track conservative credit practices of BLOM BANK. record, BLOMINVEST BANK to date remains the most awarded local investment bank. In addition to conventional banking loan services, BLOM BANK developed its products and services to meet Private Banking Services market trends and requirements. A dedicated team of private bankers optimize the wealth management and financial advisory experience of clients Subsidized and Soft loans by offering them tailor-made investment instruments BLOM BANK continued to take advantage of BDL that are in line with their risk profile and across an open incentives related to extending credit against decrease architecture platform of diverse asset classes. in required reserves. The bank therefore developed its existing products and services to provide financing Investment Banking Services in compliance with BDL Circular #158 which enables A team of investment banking experts offer equity and the bank to provide soft and subsidized loans with debt capital markets advisory services to the private appropriate tenors that meet the needs of our diversified and public sector in terms of capital raising, mergers clients in all sectors of the Lebanese economy. and acquisitions advisory solutions and the initiation of carefully selected real estate projects. Arab Trade Finance Program (ATFP) In contributing to the development of the Lebanese and Arab economies, BLOM BANK increased its line of credit Asset Management Services with the ATFP to USD 25 million. This enhances the An experienced team of asset managers oversee the trade of goods of Arab origin and associated services entire value chain of fund management business by and encourages Lebanese exporters and importers to engineering sustainably performing funds that meet the increase their business transactions with the Arab World. low-medium risk profile of client demand, in addition to undertaking discretionary portfolio management. SME Relationship Unit BLOM BANK has initiated the SME Relationship Unit in Brokerage Services 2011. The objective of this unit was to give support to A team of skilled traders extend competitive and around BLOM branches located all over Lebanon to promote the clock execution on global capital markets from new loans, attract prospect clients and increase credit fixed income instruments to equities to derivatives facilities to existing SME clients. As a result, its impact
57 Management Discussion & Analysis 2012
on the credit portfolio was remarkable in 2012 due to international and exclusive group of individuals wherever attracting new SME clients that enhanced our portfolio they may be. and our existence in the market. Moreover, the Bank has Internet cards dedicated for Corporate Financing Internet users, a Platinum Euro card for those who visit BLOM BANK Corporate Department helps in extending Europe frequently, and prepaid cards “mini” for those credit to Corporate Clients especially in the fields of wishing to have a card without opening an account. Project Finance, Real Estate Development and Trade Financing among other loans and credit facilities. During BLOM also has “Watan”, a card which was launched 2012 the unit was highly active in attracting new clients solely for the Lebanese army, internal security and that contributed to the increase of the bank’s credit national security forces. portfolio.
Syndicated Loans BLOM was the first bank in Lebanon to launch the BLOM BANK mandated and participated in several “Personalize your card” service whereby cardholders can syndicated loans to finance projects in Lebanon and add on the front of their card a personal image from their other Arab countries. own collection, or an image from BLOM’s unique Image Library, which includes categories like sports, wildlife, Islamic Financing love, pets, holidays and special occasions to name a BLOM BANK developed its existing products and services few. BLOM exclusively offers the possibility of having this to provide financing in compliance with the Islamic Sharia service online or physically through any branch. through its subsidiary, BLOM DEVELOPMENT BANK. As part of its Corporate Social Responsibility activities, Overseas Financing BLOM BANK launched two new programs in 2010 that BLOM BANK continues to expand its credit portfolio were considered unique in Lebanon; the BLOM Shabeb overseas in affiliation with the Group entities in the Middle and MasterCard Giving card. East region, Europe and the GCC. BLOM BANK Qatar further strengthened its contributions The BLOM shabeb Program targets the Youth who by extending credit facilities to corporate clients in consist of middle and high school students, university Qatar thus benefiting from the booming economy that students, and future professionals. The program offers is expected to continue its growth during the coming the youth an array of banking services, especially catered decade especially with Qatar hosting the 2022 Football to their lifestyles and needs. The retail department has World Cup Tournament. introduced three types of cards to suit the needs of the youth: prepaid cards, debit cards, and preapproved In conclusion, BLOM BANK strives to contribute fundamentally to the development of the Lebanese and credit cards for students of predetermined universities. Arab economies while maintaining a conservative and sound lending policy. On another front, BLOM BANK launched the MasterCard Giving card, first of its kind in the world, in collaboration 11.3 Retail Banking with the Lebanese Mine Action Center (LMAC), a unit of the Lebanese Army. The program offers a Gold 11.3.1 Products and Services MasterCard® or a Titanium MasterCard™ card, which combine the benefits of a credit card, with the ability In 2012, BLOM BANK introduced new retail products, to donate to the LMAC, which is in charge of demining and developed its portfolio of existing payment cards, the Lebanese territory, spreading awareness in the loans, and services. minefields’ surroundings and caring for those who are injured due to mines. Donations are made whenever Payment cards BLOM MasterCard Giving Affinity cardholders pay the BLOM BANK offers a wide range of payment cards that card’s annual fee and whenever they use their cards target different customers, provide different methods of for purchases or for cash withdrawals. In 2012, BLOM payments and meet different purposes. These cards vary BANK added to this groundbreaking initiative a new in type and in currency. The segmentation of cards took mission which is planting trees in all the demined areas into consideration the various types of customers and of Lebanon with over 1,000 olive and pine trees already their card needs; debit, charge, credit, co-branded and planted in the villages of Houla and Souk El Ghareb. prepaid. BLOM BANK introduced the Khoury Home Visa Platinum As such, BLOM cards are under both brands, Visa and MasterCard and range from Electronic, Classic, Gold, card, specially designed for the distinguished customers Titanium, Platinum, Black Platinum, and Corporate of Khoury Home, combining the benefits of holding a (Business Platinum, Platinum Corporate, and Classic Visa credit card and the rewards for enrolling in Khoury Corporate cards). The Black Platinum card has been Home loyalty program. The card offers a repayment replaced by a much more prestigious card, which allows method allowing cardholders to settle their purchased its cardholders to enjoy exclusive benefits and hand- item in equal monthly installments. picked privileges worldwide. The BLOM Visa Infinite is only available upon request and reserved to the most In 2012, BLOM BANK also partnered with the Association discerning of customers tailored to suit the needs of an of Lebanese Industrialists offering their members special
58 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
and exclusive deals ranging from POS machines, Business KARDI Loans with no file fees, as well as payment cards (BLOM- For personal loans ALI Corporate Black Platinum) at competitive rate and featuring an array of complimentary benefits. Consumer Loans In association with a number of leading retailers in POS Machines Lebanon, winner of the Best Personal Loan in the Middle Merchants in Lebanon wishing to install BLOM POS East for 2011, from The Banker Middle East. machines have a choice between: Student Loans In cooperation with the American University of Beirut and GPRS machines other institutions. Wireless and do not require any electricity or telephone cables, and do not even require any telephone line. With a SAYARATI SIM card provided by BLOM BANK, our GPRS machines For car loans (new or used vehicles), winner of the Best are mobile, allowing merchants to move them anywhere Car Loan in the Middle East for 2011, from The Banker they desire. They accept dual currencies (USD- LL) Middle East.
Hypercom POS machine Housing Loans Require electricity line and a fixed telephone line. They • DARATI for housing loans (principal home, or non- are a dual currency machines: USD and LL. principal home) • Housing loans in Collaboration with the Institution for Veriphone machines Public Housing (IPH) Require electricity line and a fixed telephone line. They • Housing Loan for projects under construction are a single currency machine: USD or LL. • Housing Loans for the Military, Internal security Forces and Judges in collaboration with their administration. The BLOM machines accept payment cards under the Solar Loans brands of Visa, Visa Electron, MasterCard, MasterCard In association with numerous local companies that offer Electronic, and Maestro. solar installations.
The machines are equipped with the latest EMV SME loans technology that allows acceptance of Chip cards. Small and medium enterprises or even self-employed This technology provides ultimate security to both the or business owners can benefit from a variety of loans cardholder and the merchant. tailored for their needs:
BLOM BANK provides merchants with a next day Small Business Loan for SMEs settlement of the transaction amount, with a one day Including a special program offered in coordination with value date as of the settlement of the amounts. BLOM the European Social Fund for Development. BANK also dedicates an account manager to handle all inquiries and suggestions concerning POS issues. In Business Loan addition, BLOM BANK puts at its merchants’ disposal a For financing an office, a warehouse, a clinic, etc. 24 hour call center which is tailored to cater for all needs and to provide all the needed support. KAFALAT It is a subsidized loan for small business owners. Reward Programs The BLOM Golden Points Loyalty program enables Bancassurance Services customers to accumulate Miles and Points with every AROPE Insurance, BLOM BANK’s subsidiary, offers all USD they spend using their card. Cardholders may kinds of insurance services from personal accident, to redeem their miles for airline tickets to the destination health, to fire, to car insurance and so on. BLOM BANK also of their choice, and on the carrier they desire. Points are offers investment programs coupled with a life insurance redeemable for valuable gifts such as free stays at the policy in collaboration with Arope Insurance. A successful finest hotels, fragrances, electronics, and much more. line of savings/insurance plans is also on offer; DAMANATI Plus, a retirement plan coupled with life insurance and The BLOM Gifts Loyalty program allows cardholder to WALADI Plus, a child’s education program, coupled with win valuable gifts for purchases at certain merchants life insurance. over a period of 6 months. Investment Products The Shabeb Loyalty program is a recently launched BLOM BANK offers a collection of investment products program dedicated to the BLOM Shabeb cardholders to help manage one’s finances in a better, safer and more that entitles them for discounts and special deals at profitable way. Accordingly, BLOM BANK, in collaboration reputable merchants across Lebanon. with BLOMINVEST BANK, offers a collection of Mutual Fund programs. Our co-branded card Alfa BLOM MasterCard offers free talk time to cardholders on monthly basis and on card Special Accounts spending. BLOM BANK offers a number of special accounts, catered for special needs. In addition to the traditional Consumer loans savings and current accounts, Maksabi a special savings BLOM BANK’s customers can take advantage of a account, utility bills account, Salary Domiciliation number of consumer loans to satisfy their various needs: accounts, and 3 types of bundled accounts that offer
59 Management Discussion & Analysis 2012
the client current accounts with various services for a user-friendly website where users can make use of monthly fee: Account Plus Classic, Account Plus Gold simulators and of online applications through: and Account Plus Platinum. www.blomretail.com. Clients opening a Wedding List Account benefit from BLOM BANK developed a friendly, easy-to-use mobile personalized debit cards, a preapproved credit card, along version of the public website compatible with all with exclusive offers that are related to that Special Day, smartphones in the market. and created to save up on all your wedding expenses. 11.3.3 Technology 11.3.2 Customer Service Call Center The primary aim of BLOM BANK is to better service its The Call Center’s monitoring system has been upgraded customers by offering the best products and services. for a better examination and control: Fraud Monitor System, ATM Monitor System. BLOM eCash The BLOM eCash service offers customers the possibility Workflow of making transfers to any person without the need for a BLOM internally developed a workflow system to bank account. The transfer is initiated by the customer process most retail loans electronically, thus benefiting through his PC or mobile and the funds are withdrawn by from Electronic Archiving, as well as speed in approval the recipient from any BLOM ATM without a card. and response cycles (e.g.: 1 hour for car loans).
Sales Force 11.4 Islamic Banking BLOM has more than one sales channel which range from Direct Sales, to indoor Sales, to telemarketing The year 2012 was associated with many political and teams available to promote and sell each and every economic challenges particularly the unstable and Retail product or service. ambiguous local and regional environment, BLOM DEVELOPMENT BANK (BDB), in spite of all of this, Call Center succeeded to maintain a steady growth where its total BLOM customers can enjoy the convenience of a 24-hour deposits grew by 59% compared to last year and its total call center, ready to cater for all their needs and inquiries. assets increased by 30%. The retail department also has a telemarketing team to Industry market share reached around 20% of the sector, make outbound informative calls to existing clients. which is considered an achievement knowing that BDB is the most recently established Islamic Bank in Lebanon E-Banking (Feb 2006). BLOM BANK offers to its customers phone banking BDB played a vital role in developing innovative new services such as “Allô BLOM” (a 24-hour customer Shariaa-compliant products, where it has succeeded service) as well as internet banking services such as in coordination with Banque du Liban (BDL), to develop e-BLOM. This service allows users to complete many of and implement a Shariaa compliant mechanism, their routine banking transactions in the comfort of their enabling Islamic Banks to place its obligatory reserve home/office. The client may even apply for a card, issue requirements with profit, opening doors for any future a prepaid card, or even perform outgoing transfers. short or long term investment opportunity with BDL. On the strategic front, after the success of its Tripoli branch, Mobile Banking opened in 2010, BDB continued its local expansion plan by The Mobile Banking service is a member of the eBLOM the soon-to-open a third branch in Saida during 2013. suite of electronic services and delivery channels and is New SME department was setup during the year to a completely optimized service for mobile and devices extend its services to productive services in the market. which puts at the client’s disposal a wide range of online 2012 witnessed the establishment of Takaful insurance banking services. Just by getting connected, BLOM services, through an Islamic window operated by the customers can manage their accounts and cards on a sister company Arope insurance, where BDB provides real-time, fast and secure basis, along with access to Shariaa and investment advisory. unique features that are constantly updated. 11.5 Insurance Products & Services SMS Alert Service The Bank provides a convenient SMS ALERT service, Despite a difficult year, AROPE has strongly and worthily enabling customers to receive alerts whenever the preserved its 4th place among 51 Insurance Companies balance of accounts changes or whenever a transaction operating in Lebanon, with a market share reaching 10% is being performed. in Life Business and 6% in Non Life Business.
Social Media In total, AROPE scored in 2012 USD 92.79 million of Life The BLOM Retail page on Facebook features constant and Non Life Premiums. updates about the latest promotions and the various products and services launched by the bank. The page As a leader in its field, AROPE Insurance constantly currently has more than 94,000 fans and is considered diversifies its Lines of Business and has introduced lately one of the most successful pages on Facebook- the new TAKAFUL Window to prove furthermore being Lebanon. A new channel has also been established on a trendsetter and to better meet the Lebanese Market’s YouTube featuring BLOM BANK’s TVC’s and TV releases. insurance needs. Takaful Solutions are addressed to Customers wishing to have their insurance covers Public Website in compliance with the Islamic Shariah as a viable BLOM retail products and services enjoy an independent, alternative to Conventional Insurance.
60 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
With the unrest in Syria, the market conditions have satisfying, thanks to our conservative strategy based drastically deteriorated during 2012. However, AROPE primarily on maintaining a healthy and profitable portfolio. Syria achieved relatively acceptable results with a net AROPE subsidiaries registered growth in Written profit of SYP 83.39 million and shareholder’s equity Premiums reaching +200% for AROPE Life Insurance reaching SYP 1.28 billion. S.A.E, and +66% for AROPE Insurance for Properties Despite the political situation in Egypt, 2012 performance and Liabilities S.A.E. In terms, of net profit, AROPE was remarkable and the results came out fair and subsidiaries combined scored +164% in 2012. 12. Information Systems and Technology
The rapid advancement in Information Systems and alliances with several prominent companies, retailers Technologies that we have been witnessing in our world and service providers in Lebanon in order to develop co- has been changing the traditional banking industry. In fact, branded credit cards thus creating marketing synergy banks around the world are now adopting new strategies and enlarging the reach of our target audience. in the way they approach markets and customers as they seek competitive advantage by offering technology- Green IT – With the growth of our business and the based products and services. increase in our transactions’ volume, the demand for powerful, versatile and highly available IT systems has In its constant endeavor to be aligned with the globally been escalating. This increase in the demand for IT- changing banking industry, BLOM BANK has been related services has amplified the needed number of proactively using powerful information technologies in servers, storage and supporting infrastructures which order to introduce innovative products and services, enlarge the carbon footprint and increase the needs for thus enriching its portfolio of offerings and enhancing space, lighting, power, and cooling. its customers’ experiences while achieving product differentiation, competitive advantage and institutional Therefore, and in order to meet the growing data volume growth. and the increasing processing demand while managing escalating resource costs, we have completed, in 2012, In fact, in 2012, BLOM BANK continued to invest in the set-up of our green data center at our head office state-of-the-art technologies in order to diversify the and branches by adopting server virtualization and bank’s delivery channels, enrich the products delivered consolidation (ratio 10:1) so that the resources of a single through these channels, innovate in payments and cards physical server can be shared among multiple instances technologies, enhance risk management and boost of virtual servers hosted on it, thus maximizing hardware systems security while gaining more customer insights utilization and dramatically decreasing the power and developing business intelligence, and at the same consumption, the space needed, the cabling required time keeping in-line with national and international and the overall carbon footprint of our data center. compliance and regulatory requirements. It is also worth noting that BLOM BANK has been 12.1. Leading-Edge Technology Deployments adopting a “fit-for-purpose” core banking infrastructure in order to be able to take advantage of a high degree of Intelligent Deposit ATMs – In 2012, we have continued to flexibility and quality of service at low costs. Moreover, by diversify our self-service delivery channels and to enrich deploying core systems transaction engines on proven the portfolio of services which are available through our infrastructure that is massively scalable, BLOM BANK large network of ATMs consisting of more than 100 ATMs will be able to ensure continued high performance as scattered across Lebanon by introducing intelligent front office volume grows while following the Green IT deposit ATM machines. These ATMs allow customers trend. to deposit cash in multiple currencies directly into their accounts and the deposited money will be reflected in 12.2. Round-the-clock Banking Services real-time onto the account’s balance. Also, these ATMs provide the cardholder with the possibility to deposit In 2012, BLOM BANK continued to enrich its eBlom cheques in a convenient way. suite of on-line, real-time, round the clock banking The introduction of intelligent deposit ATMs will pave the services delivered through a multitude of electronic way for introducing deposit-based transactions such channels as follows: as paying bills, settling loans and other fees while off- loading our branch counters and will allow for larger eBlom Internet Banking deployments of such ATMs in 2013. BLOM BANK’s classic online banking service, winner of the “Best Consumer Internet Bank in Lebanon for Co-Branded Credit Cards – In 2012, we have introduced 2012” award from “Global Finance”, that offers a wide new technological concepts into the way our payment array of services which are continuously expanded and cards are conceived in order to produce cards capable enhanced. of functioning in different modes depending on the purpose for which they are used. In fact, these cards can eBlom Mobile Banking behave as installment cards at specific merchants and as A service adapted to mobile phones, smart phones regular credit cards at other merchants and earn different and tablets allowing customers to easily access their types of rewards which are interchangeable, anytime accounts and cards with few taps as well as to locate and upon the customer’s preference, between gifts and BLOM BANK’s nearest ATMs along with maps and travel miles. This versatility was only made possible directions. The eBlom Mobile Banking service offers through a high degree of IT integration with third-parties almost the same services of our classic eBlom Internet and an advanced interoperability between our systems Banking service via an easy to use interface optimized and external systems and has allowed us to enter into for smart phones and tablets.
61 Management Discussion & Analysis 2012
BLOM eCASH 12.3. Advanced Electronic Payment Systems The first of its kind payment service in Lebanon and the region providing a Person-to-Person (P2P) service aimed In 2012, BLOM BANK kept on growing its Visa and at facilitating money exchange between individuals and MasterCard card offerings and enhancing the reliability which is based on card-less ATM transactions without and effectiveness of its payment systems. BLOM BANK any kind of involvement with BLOM BANK on the also kept on delving into the point-of-sale acquiring recipient’s side. In fact, with BLOM’s eCASH person- business by expanding the presence of POS machines to-person payment service, customers can perform, at merchants across Lebanon and by implementing the using the classic Internet Banking or Mobile Banking dynamic currency conversion functionality on BLOM services, real-time instant payments from anywhere BANK’s POS machines which allows payments to be in the world to any person in Lebanon. The real-time done in the cards’ native currency. aspect of the service makes it more attractive than a Furthermore, BLOM BANK kept on reaping the benefits traditional wiring that takes at least 24 hours to reach of its online card fraud monitoring system capable the intended recipient. Furthermore, the BLOM eCASH of sending real-time alerts to the bank’s call center was designed to be a cornerstone which paves the way agents, thus enabling immediate action and insight as to offering the public at large a more global P2P and well as reporting and tracking should a fraud pattern be eWallet services at a later stage. detected. This card fraud monitoring system drastically reduced fraud losses and incidents. Allo BLOM BLOM BANK’s phone banking service allowing 12.4. Enterprise Application Integration (EAI) customers to consult their accounts from any landline or mobile phone. During this year, BLOM BANK kept on developing its Service Oriented Architecture (SOA) framework to achieve Intelligent ATM Network the highest degree of integration between the different Intelligent ATM machines deployed all over Lebanon information systems thus enabling a 360o view of clients’ through which users can withdraw money, deposit cash activity. This framework was built around a powerful directly into their accounts in multi-currency, deposit and flexible workflow engine which allows the bank to checks, settle credit card bills, redeem BLOM eCASH, manage the complexity, control the quality and limit the recharge their mobile lines, etc. cost of business processes throughout their lifecycle which involves both people and systems in addition to SMS Alerts shortening the time to take business decisions and to A real-time alerting system based on delivering SMS deliver end products and services to customers. to customers’ mobile phones to instantly inform them about movements on their accounts or cards and about In addition, this EAI framework was applied to many selected debit transactions effected on their accounts. processes, in particular, the consumer loans processing systems consisting of a loan origination system, a loan Call Center assessment system, and a loan granting system. This BLOM BANK’s Call Center is available 24-hours a framework has allowed BLOM BANK to offer an instant day all year long and is benefiting from continuous loan granting system aimed at instantaneously granting enhancements based on CTI and IP telephony to achieve walk-in customers a personal loan specially targeted to seamless integration with the Bank’s CRM application. their needs. The EAI framework was also applied to many processes, in particular, to automate the processing of incoming checks from the national clearing house. Digital Signage Display A system that enables the bank to broadcast in real-time over large LCD screens deployed at the branches live 12.5. Financial Reporting and Consolidation and updated information covering stock quotes, foreign During 2012, BLOM BANK completed the implementation exchange quotes, news feed, marketing campaigns, of a comprehensive web-based solution that offers new promotions, TV commercials etc. powerful financial consolidation and reporting built on an advanced data warehouse and which allows the Lead Referral System consolidation of the financial statements across BLOM A targeted campaign management and lead referral tool BANK Group. This solution also offers built-in financial that allows the profiling of customers using a centralized intelligence and advanced analytics to provide timely and knowledge base and to offer over-the-counter customers accurate information and improved decision support. new products and services that are tailored to their needs. These custom offerings are presented to customers during their presence at the branch. 12.6. Basel III and Regulatory Compliance In 2012, BLOM BANK continued to address compliance In addition, and in order to provide an integrated banking requirements through the usage of state-of-the-art systems website experience, BLOM BANK introduced the eBlom for Corporate and Commercial Credit Risk Rating, Assets & Portal, which is a unified authentication platform for Liabilities Management, Funds Transfer Pricing and Capital BLOM BANK and its sister or affiliated companies, in Management based on specialized data marts aimed at order to securely establish the identity of individuals fulfilling Basel III and other regulatory requirements. accessing the various electronic services offered through the Internet and protect them against online identity In addition, BLOM BANK kept on building credit theft. This authentication methodology is based on the scorecards by integrating to the loan origination widely recognized two-factors of authentication method workflow a credit scoring system for loans based on and requires the customer to provide his username advanced scoring models. and password as well as an SMS-based One-Time- Password (OTP) that he would need to retrieve from his mobile phone.
62 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
12.7. Systems Security and High Availability would ensure higher availability and protect the bank’s information systems from losses in case of an unforeseen BLOM BANK kept on improving its IT Infrastructure disaster and it also accelerates the development of new reliability and high availability through servers’ virtualization services to meet the bank’s future demands for expansion. and consolidation and enterprise storage consolidation while following the Green IT trend. BLOM BANK also kept on raising its employees’ awareness by adopting Information Security Policies and Procedures Also, BLOM BANK continued investing in state-of-the-art to address and prevent security threats and by pro-actively data centers, disaster recovery sites and data protection monitoring systems’ activity and implementing advanced technologies in order to keep on protecting the bank’s preventive and detective controls. assets to assure business continuity. In fact, these facilities
13. People Development
13.1 General Overview
BLOM BANK Management continues to stress the Employees, on the other hand, are required to comply with importance of human resources in keeping the bank on a set of policies concerning safety, information security its path to become a major player in the regional financial and a general code of conduct. They are expected to markets. The human capital at BLOM is considered the adhere to the highest standards of ethical behavior most valuable resource, and the talents of employees in what relates to confidentiality, professionalism, are recognized as essential for the effective functioning transparency, conflict of interest, and integrity. of the Bank. The most visible characteristic of BLOM BANK employees People at BLOM BANK are managed in a fair, ethical, and is their high level of education, in addition to their relatively transparent manner. A set of standards and procedures young age. At the end of 2012 the majority of employees guide the treatment of employees in regard to hiring, (77.91 percent) held a university level degree or higher, advancement, compensation, training, and other terms while the average age of employees was 33.7 years. The and privileges of employment. BLOM BANK policies in following table presents the structure and distribution this regard, prohibit discrimination of any type, and offer of BLOM BANK employees across the various units of equal opportunities to all employees and applicants BLOM Group, and according to various criteria. without regard to sex, religion, ethnical background or, age, and disability.
Distribution of BLOM BANK Group Employees Across the Various Geographic Regions by Gender, Age, Level of Education and Functions as at December 2012
Banks & Financial Subsidiaries Insurance Total Subsidiaries Lebanon MENA Gulf Europe Gender Male 1,046 1,212 85 82 224 2,649 Female 932 483 55 88 207 1,765 Total 1,978 1,695 140 170 431 4,414 Age < 25 422 201 18 5 103 749 26-35 853 1,019 56 44 207 2,179 36-45 306 297 28 44 79 754 46-55 246 130 25 44 27 472 56-64 151 48 13 33 15 260 Total 1,978 1,695 140 170 431 4,414 Average Age 34.2 32.0 39.8 43.9 32.5 33.7 Level of Education Graduate Degrees 505 81 26 35 26 673 Professional Certificates 15 14 4 2 2 37 Bachelor Degrees 983 1,332 71 78 265 2,729 Technical Certificates 56 144 5 31 58 294 Others 419 124 34 24 80 681 Total 1,978 1,695 140 170 431 4,414 Functions Managers and Deputies 224 219 39 44 50 576 Assistants & Supervisors 234 235 5 27 30 531 Employees 1,520 1,241 96 99 351 3,307 Total 1,978 1,695 140 170 431 4,414 Number of Branches 69 67 5 9 56 206
63 Management Discussion & Analysis 2012
13.2 Policies and Procedures evaluation of the need for new employees based on our geographical expansion and business needs. Unit BLOM BANK recognizes the importance of a talented managers identify open positions early enough to allow labor force in keeping the bank highly competitive. for timely recruitment, and applicants are interviewed Appropriate policies were implemented so that the by unit managers and recruitment officers, and for creation and development of talent is maintained by high level positions, by the General Manager. The attracting, developing, and retaining the best and the final decision is made by the HR committee, andthe brightest employees. accepted applicants are then reference checked and screened by the compliance department. 13.2.1 Recruitment To widen the candidate pool for each vacancy, Providing the bank with the required human capital to different sources are exploited including current BLOM meet its operational and strategic goals is a challenging employees, internal candidate database, on-line task that we continuously strive to accomplish. To this recruitment systems, job fairs, university career service end, we adopt a strategic approach for recruiting and centers, interns and other external recruitment partners. selecting the right number of people with the right set of During the year 2012, the various units of BLOM skills at the time they are needed. BANK group recruited a total of 495 new employees to support the expansion of the bank across the region The recruitment and selection process ensures the and to replace departing and retiring employees (see recruitment of the best available and most appropriate table below). The majority of the new recruits were in staff in line with the principles of non-discrimination and Lebanon, (50.12%), followed by the MENA (41.61%), equal opportunities for all. It commences upon complete the Gulf (5.65%) and Europe (2.62%).
New Recruits and Turnover Rates of BLOM BANK Group Units Operating in Various Geographic Regions in 2012
Banks & Financial Subsidiaries Insurance Total Lebanon MENA Gulf Europe Subsidiaries New Recruits 225 161 28 13 68 495
Banks & Financial Subsidiaries Insurance Total Lebanon MENA Gulf Europe Subsidiaries Turnover Rate 6.58 11.77 30.77 9.41 12.48 10.11
13.2.2 Training
BLOM BANK considers continuous training as essential seminars are usually developed and delivered by field to ensure a competent workforce that is able to adapt to experts from BLOM BANK, while soft skill development the constantly changing business environment. BLOM seminars are delivered by professional trainers from BANK invests in different types of in–house and external local and international training firms. trainings covering a wide range of topics among which are Banking Techniques, Management, Marketing & BLOM Group delivered 135,493 training hours during Sales, Information Technology and Languages. The 2012 amounting to an average of 30.68 training hours HR department, in collaboration with line mangers, per employee. performs the Training Needs Assessment (TNA) during the last quarter of every year and the training plan for the coming year is set accordingly. Technical in-house
64 BLOM BANK s.a.l. Annual Report 2012 Management Discussion & Analysis 2012
Distribution of Training Activities of BLOM BANK Group Units Operating in Various Geographic Regions in 2012
Banks & Financial Subsidiaries Insurance Total Lebanon MENA Gulf Europe Subsidiaries
Hours of training 64,940 41,341 315 823 28,074 135,493
13.2.3 Career development and promotion
Career development at BLOM is considered a powerful and completing short-term assignments, the FTP employee motivator and retention tool, and gives allows the participants to gain in-depth knowledge in a the bank a competitive strength in attracting new particular area of expertise. talent. Career development is emphasized due to its importance in creating large pools of highly competitive The selection of candidates for these programs follows and qualified people who have the necessary skills and a very rigorous and transparent process where the competencies required for top-level performance. immediate supervisors, the line managers and the HR In addition to the individual training programs that are department are all involved to ensure that the best designed for high potential employees, two particular performers with the highest potential are selected from programs, the Management Training Program (MTP), the pool of young, ambitious and motivated employees. and the Fast Track Program (FTP), were designed to provide the bank with the needed talent in the future. Because we strongly believe that the bank’s value lies in its While the MTP gives participants the opportunity to human capital, we try to keep our people on the frontiers branch out through serving on cross-functional teams of their professions to better serve our customers.
14. Bank’s Operational Efficiency
In 2012, although the group’s operational efficiency expanded by 2.5%. In addition, average assets per decreased slightly, it remained nonetheless at a high branch showed an increase by 5.5% to reach USD level. Net profit per branch decreased by 1.2% to reach 121,607,569 at the end of year 2012. USD 1,630,720 at a time when the number of branches
BLOM BANK Group’s Operational Efficiency Indicators
2012 2011 Number of Branches 206 201 Average Assets per Branch (USD) 121,607,569 115,251,106 Net Profit per Branch (USD) 1,630,720 1,649,496
65 66 BLOM BANK s.a.l. Annual Report 2012 67 Consolidated Financial Statements 31 December 2012
BLOM BANK S.A.L. CONSOLIDATED FINANCIAL STATEMENTS 70 1. Auditors’ Report 71 2. Consolidated Income Statement for the year ended 31 December 2012 72 3. Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 73 4. Consolidated Statement of Financial Position at 31 December 2012 74 5. Consolidated Statement of Changes in Equity for the year ended 31 December 2012 78 6. Consolidated Statement of Cash Flows for the year ended 31 December 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 79 1. Corporate Information 79 2. Accounting Policies 2.1 Basis of Preparation 2.2 Changes in Accounting Policies and Disclosures 2.3 Standards Issued but not yet Effective 2.4 Summary of Significant Accounting Policies 2.5 Significant Accounting Judgments and Estimates 104 3. Segmental Information 108 4. Interest and Similar Income 108 5. Interest and Similar Expense 108 6. Net Fee and Commission Income 109 7. Net Gain on Financial Assets and Liabilities Designated at Fair Value Through Profit or Loss 109 8. Net Gain from Derecognition of Financial Assets at Amortized Costs 110 9. Other Operating Income 110 10. Net Credit Losses 111 11. Personnel Expenses 111 12. Other Operating Expenses 111 13. Income Tax Expenses 112 14. Earnings Per Share 113 15. Cash and Balances with Central Banks 113 16. Due from Banks and Financial Institutions 114 17. Loans to Banks and Financial Institutions 114 18. Derivative Financial Instruments 115 19. Financial Assets at Fair Value Through Profit or Loss 115 20. Net Loans and Advances to Customers at Amortized Cost 117 21. Financial Assets at Amortized Cost 118 22. Financial Assets at Fair Value Through Other Comprehensive Income 118 23. Property and Equipment 119 24. Intangible Assets 120 25. Assets Obtained in Settlement of Debts 120 26. Other Assets 121 27. Goodwill 122 28. Due to Central Banks under Repurchase Agreements 122 29. Due to Banks and Financial Institutions 123 30. Financial Liabilities at Fair Value Through Profit or Loss 123 31. Customers’ Deposits at Amortized Cost 123 32. Other Liabilities 124 33. Provisions for Risks and Charges 125 34. Share Capital and Premiums 126 35. Non-Distributable Reserves 127 36. Distributable Reserves 127 37. Treasury Shares 128 38. Returned Earnings 128 39. Revaluation Reserve of Real Estate 128 40. Change in Fair Value of Financial Assets at Fair Value Through Other Comprehensive Income 129 41. Cash and Cash Equivalents 129 42. Dividends Declared and Paid 130 43. Related Party Transactions 132 44. Contingent Liabilities, Commitments and Leasing Arrangements 134 45. Fiduciary Deposits, Assets Under Management and Custody Accounts 134 46. Fair Value of the Financial Instruments 138 47. Maturity Analysis of Assets and Liabilities 139 48. Risk Management 48.1 Credit Risk 48.2 Liquidity Risk and Funding Management 48.2.1 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities 48.3 Market Risk 48.3.1 Interest Rate Risk 48.3.2 Currency Risk 48.3.3 Equity Price Risk 48.3.4 Prepayment Risk 48.4 Operational Risk 156 49. Capital Management 157 50. Early Adoption of IFRS9 157 51. Comparative Information Independent Auditors’ Report to the Shareholders of BLOM BANK SAL
We have audited the accompanying consolidated financial statements of BLOM Bank SAL (the “Bank”) and its subsidiaries (collectively the “Group”), which comprise the consolidated statement of financial position as at 31 December 2012 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
70 BLOM BANK s.a.l. Annual Report 2012 Consolidated Financial Statements 31 December 2012
Consolidated Income Statement For the year ended 31 December 2012
Notes 2012 2011 LL Million Interest and similar income 4 1,946,653 1,850,916 Interest and similar expense 5 (1,158,894) (1,073,397)
Net interest income 787,759 777,519
Fee and commission income 196,587 200,443 Fee and commission expense (26,909) (24,451)
Net fee and commission income 6 169,678 175,992 Net gain from financial instruments at fair value 7 194,378 7,984 through profit or loss Net gain from derecogniton of financial assets at 8 32,501 119,538 amortized cost Revenue from financial assets at fair value 22 257 217 through other comprehensive income Other operating income 9 12,916 14,807
Total operating income 1,197,489 1,096,057
Net credit losses 10 (158,382) (60,869)
Net operating income 1,039,107 1,035,188
Personnel expenses 11 (247,498) (237,460) Other operating expenses 12 (149,101) (143,191) Depreciation of property and equipment 23 (30,957) (33,100) Amortization of intangible assets 24 (1,898) (2,620)
Total operating expenses (429,454) (416,371)
Operating profit 609,653 618,817
Net gain (loss) on disposal of other assets 1,863 (208)
Profit before tax 611,516 618,609
Income tax expense 13 (105,104) (118,799)
Profit for the year 506,412 499,810
Attributable to: Equity holders of the parent 501,210 487,878 Non-controlling interests 5,202 11,932 506,412 499,810 Basic/diluted earnings per share attributable to equity holders of the parent for the year 14 LL 2,304 LL 2,233
The accompanying notes 1 to 51 form part of these consolidated financial statements.
71 Consolidated Financial Statements 31 December 2012
Consolidated Statement of Comprehensive Income For the year ended 31 December 2012
2012 2011 LL Million Profit for the year 506,412 499,810
Net gain on sale of financial assets at fair value through other 180 145 comprehensive income Net unrealized gain (loss) from financial assets at fair value 544 (953) through other comprehensive income Exchange differences on translation of foreign operations (50,754) (55,528)
Other comprehensive loss for the year (50,030) (56,336)
Total comprehensive income for the year 456,382 443,474
Attributable to: Equity holders of the parent 478,471 451,960 Non-controlling interests (22,089) (8,486) 456,382 443,474
The accompanying notes 1 to 51 form part of these consolidated financial statements.
72 BLOM BANK s.a.l. Annual Report 2012 Consolidated Financial Statements 31 December 2012
Consolidated Statement of Financial Position At 31 December 2012
Notes 2012 2011 LL Million Assets Cash and balances with central banks 15 7,458,577 6,062,381 Due from banks and financial institutions 16 5,070,495 4,845,533 Loans to banks and financial institutions 17 114,610 116,781 Derivative financial instruments 18 37,082 25,548 Financial assets at fair value through profit or loss 19 847,367 857,466 Net loans and advances to customers at amortized cost 20 9,070,287 8,409,450 Net loans and advances to related parties at amortized cost 43 16,197 18,270 Debtors by acceptances 104,191 240,277 Financial assets at amortized cost 21 14,308,536 13,648,659 Financial assets at fair value through other comprehensive 22 5,958 6,645 income Property and equipment 23 492,092 443,831 Intangible assets 24 3,865 4,278 Assets obtained in settlement of debt 25 27,467 27,966 Other assets 26 147,690 152,988 Goodwill 27 60,208 61,879 Total assets 37,764,622 34,921,952 Liabilities and equity Liabilities Due to Central banks under repurchase agreements 28 140,499 - Due to banks and financial institutions 29 618,780 337,388 Derivative financial instruments 18 52,494 13,751 Financial liabilities at fair value through profit or loss 30 22,053 41,054 Customers' deposits at amortized cost 31 32,649,831 30,366,543 Deposits from related parties at amortized cost 43 177,376 188,721 Engagements by acceptances 104,191 240,277 Other liabilities 32 590,982 635,326 Provisions for risks and charges 33 119,408 109,509 Total liabilities 34,475,614 31,932,569 Equity Share capital - common shares 34 258,000 258,000 Share capital - preferred shares 34 24,000 24,000 Share premium on common shares 34 374,059 374,059 Share premium on preferred shares 34 277,500 277,500 Non distributable reserves 35 709,310 612,470 Distributable reserves 36 395,042 363,961 Treasury shares 37 (67,302) (83,162) Retained earnings 38 745,955 557,835 Revaluation reserve of real estate 39 14,727 14,727 Change in fair value of financial assets at fair value through 40 (406) (950) other comprehensive income Foreign currency translation reserve (36,597) (13,134) Profit for the year 501,210 487,878 Equity attributable to equity holders of parent 3,195,498 2,873,184 Non-controlling interests 93,510 116,199 Total equity 3,289,008 2,989,383 Total liabilities and equity 37,764,622 34,921,952
The consolidated financial statements were authorized for issue in accordance with a resolution of the board of directors on 21 March 2013 by:
______Saad Azhari Habib Rahal Talal Baba Chairman and General Manager General Manager Chief Financial Officer
The accompanying notes 1 to 51 form part of these consolidated financial statements.
73 Consolidated Financial Statements 31 December 2012
Consolidated Statement of Changes in Equity For the year ended 31 December 2012
Attributable to equity holders of the parent 2012 Change in fair Share Share Share value of financial Foreign Non- Share Non Retained Revaluation Available- capital- premium premium on Distributable Treasury assets at fair value currency Profit for controlling Total equity capital- on distributable earnings reserves of for-sale Total common preferred preferred reserves shares through other translation the year interests common reserves real estate reserve shares shares shares shares comprehensive reserve LL Million income
Balance at 1 January 2012 258,000 24,000 374,059 277,500 612,470 363,961 (83,162) 557,835 14,727 - (950) (13,134) 487,878 2,873,184 116,199 2,989,383
Profit for the year ------501,210 501,210 5,202 506,412 Profit from sale of shares at fair value through ------180 - - - - - 180 - 180 other comprehensive income Other comprehensive income ------544 (23,463) - (22,919) (27,291) (50,210)
Total comprehensive income ------180 - - 544 (23,463) 501,210 478,471 (22,089) 456,382
Appropriation of 2011 profits - - - - 100,384 31,081 - 194,238 - - - - (325,703) - - -
Dividends distributions (note 42) ------(162,175) (162,175) - (162,175) Adjustments related to change in ownership ------(54) - - - - - (54) 51 (3) in subsidiaries Purchase of treasury shares (note 37) ------(85,028) ------(85,028) (32) (85,060)
Sale of treasury shares (note 37) ------100,888 ------100,888 32 100,920
Net loss on sale of treasury shares - - - - (3,544) ------(3,544) (37) (3,581)
Non-controlling interest from dividends ------(670) (670) distributions in a subsidiary company
Non-controlling interest share in capital ------56 56 increase of a subsidiary company
Other adjustment related to a subsidiary ------(6,244) - - - - - (6,244) - (6,244)
Balance at 31 December 2012 258,000 24,000 374,059 277,500 709,310 395,042 (67,302) 745,955 14,727 - (406) (36,597) 501,210 3,195,498 93,510 3,289,008
The accompanying notes 1 to 51 form part of these consolidated financial statements.
74 BLOM BANK s.a.l. Annual Report 2012 Consolidated Financial Statements 31 December 2012
Attributable to equity holders of the parent 2012 Change in fair Share Share Share value of financial Foreign Non- Share Non Retained Revaluation Available- capital- premium premium on Distributable Treasury assets at fair value currency Profit for controlling Total equity capital- on distributable earnings reserves of for-sale Total common preferred preferred reserves shares through other translation the year interests common reserves real estate reserve shares shares shares shares comprehensive reserve LL Million income
Balance at 1 January 2012 258,000 24,000 374,059 277,500 612,470 363,961 (83,162) 557,835 14,727 - (950) (13,134) 487,878 2,873,184 116,199 2,989,383
Profit for the year ------501,210 501,210 5,202 506,412 Profit from sale of shares at fair value through ------180 - - - - - 180 - 180 other comprehensive income Other comprehensive income ------544 (23,463) - (22,919) (27,291) (50,210)
Total comprehensive income ------180 - - 544 (23,463) 501,210 478,471 (22,089) 456,382
Appropriation of 2011 profits - - - - 100,384 31,081 - 194,238 - - - - (325,703) - - -
Dividends distributions (note 42) ------(162,175) (162,175) - (162,175) Adjustments related to change in ownership ------(54) - - - - - (54) 51 (3) in subsidiaries Purchase of treasury shares (note 37) ------(85,028) ------(85,028) (32) (85,060)
Sale of treasury shares (note 37) ------100,888 ------100,888 32 100,920
Net loss on sale of treasury shares - - - - (3,544) ------(3,544) (37) (3,581)
Non-controlling interest from dividends ------(670) (670) distributions in a subsidiary company
Non-controlling interest share in capital ------56 56 increase of a subsidiary company
Other adjustment related to a subsidiary ------(6,244) - - - - - (6,244) - (6,244)
Balance at 31 December 2012 258,000 24,000 374,059 277,500 709,310 395,042 (67,302) 745,955 14,727 - (406) (36,597) 501,210 3,195,498 93,510 3,289,008
75 Consolidated Financial Statements 31 December 2012
Consolidated Statement of Changes in Equity For the year ended 31 December 2012
Attributable to equity holders of the parent 2011 Change in fair value of Share Share Share Foreign Non- Share Non Revaluation Available- financial assets Profit capital- premium premium on Distributable Treasury Retained currency controlling Total equity capital- on distributable reserve of for-sale at fair value for the Total common preferred preferred reserves shares earnings translation interests common reserves real estate reserve through other year shares shares shares shares reserve comprehensive LL Million income
Balance at 1 January 2011 223,600 18,200 374,059 246,310 516,936 360,385 (75,793) 444,115 14,727 96,221 - 21,976 483,376 2,724,112 126,470 2,850,582
Effect of IFRS 9 early adoption (note 50) ------(72,534) - (96,221) - - - (168,755) (818) (169,573)
Adjusted balance at 1 January 2011 223,600 18,200 374,059 246,310 516,936 360,385 (75,793) 371,581 14,727 - - 21,976 483,376 2,555,357 125,652 2,681,009
Profit for the year ------487,878 487,878 11,932 499,810 Profit from sale of shares at fair value through ------145 - - - - - 145 - 145 other comprehensive income Other comprehensive income ------(953) (35,110) - (36,063) (20,418) (56,481)
Total comprehensive income ------145 - - (953) (35,110) 487,878 451,960 (8,486) 443,474
Capital increase 34,400 24,000 - 277,500 (76) (34,400) - (1,160) - - - - - 300,264 (24) 300,240
Redemption of preferred shares - (18,200) - (246,310) - 700 ------(263,810) - (263,810)
Appropriation of 2010 profits - - - - 93,707 37,270 - 187,275 - - - - (318,252) - - -
Dividends distributions (note 42) ------(165,124) (165,124) - (165,124) Adjustments related to change in ownership - - - - 13 6 - (6) - - 3 - - 16 (13) 3 in subsidiaries Purchase of treasury shares (note 37) ------(27,639) ------(27,639) (11) (27,650)
Sale of treasury shares (note 37) ------20,270 ------20,270 11 20,281
Net gain on sale of treasury shares - - - - 1,890 ------1,890 - 1,890 Non-controlling interest from dividends ------(930) (930) distributions in a subsidiary company
Balance at 31 December 2011 258,000 24,000 374,059 277,500 612,470 363,961 (83,162) 557,835 14,727 - (950) (13,134) 487,878 2,873,184 116,199 2,989,383
The accompanying notes 1 to 51 form part of these consolidated financial statements.
76 BLOM BANK s.a.l. Annual Report 2012 Consolidated Financial Statements 31 December 2012
Attributable to equity holders of the parent 2011 Change in fair value of Share Share Share Foreign Non- Share Non Revaluation Available- financial assets Profit capital- premium premium on Distributable Treasury Retained currency controlling Total equity capital- on distributable reserve of for-sale at fair value for the Total common preferred preferred reserves shares earnings translation interests common reserves real estate reserve through other year shares shares shares shares reserve comprehensive LL Million income
Balance at 1 January 2011 223,600 18,200 374,059 246,310 516,936 360,385 (75,793) 444,115 14,727 96,221 - 21,976 483,376 2,724,112 126,470 2,850,582
Effect of IFRS 9 early adoption (note 50) ------(72,534) - (96,221) - - - (168,755) (818) (169,573)
Adjusted balance at 1 January 2011 223,600 18,200 374,059 246,310 516,936 360,385 (75,793) 371,581 14,727 - - 21,976 483,376 2,555,357 125,652 2,681,009
Profit for the year ------487,878 487,878 11,932 499,810 Profit from sale of shares at fair value through ------145 - - - - - 145 - 145 other comprehensive income Other comprehensive income ------(953) (35,110) - (36,063) (20,418) (56,481)
Total comprehensive income ------145 - - (953) (35,110) 487,878 451,960 (8,486) 443,474
Capital increase 34,400 24,000 - 277,500 (76) (34,400) - (1,160) - - - - - 300,264 (24) 300,240
Redemption of preferred shares - (18,200) - (246,310) - 700 ------(263,810) - (263,810)
Appropriation of 2010 profits - - - - 93,707 37,270 - 187,275 - - - - (318,252) - - -
Dividends distributions (note 42) ------(165,124) (165,124) - (165,124) Adjustments related to change in ownership - - - - 13 6 - (6) - - 3 - - 16 (13) 3 in subsidiaries Purchase of treasury shares (note 37) ------(27,639) ------(27,639) (11) (27,650)
Sale of treasury shares (note 37) ------20,270 ------20,270 11 20,281
Net gain on sale of treasury shares - - - - 1,890 ------1,890 - 1,890 Non-controlling interest from dividends ------(930) (930) distributions in a subsidiary company
Balance at 31 December 2011 258,000 24,000 374,059 277,500 612,470 363,961 (83,162) 557,835 14,727 - (950) (13,134) 487,878 2,873,184 116,199 2,989,383
77 Consolidated Financial Statements 31 December 2012
Consolidated Statement of Cash Flows For the year ended 31 December 2012
Notes 2012 2011 LL Million Operating Activities Profit for the year before income tax 611,516 618,609 Adjustments for: Depreciation of property and equipment 23 30,957 33,100 Amortization of intangible assets 24 1,898 2,620 (Gain) loss on disposal of property and equipment (1,863) 208 Provision for loans and advances to customers, net 10 158,377 59,622 Provision for impairment of other financial assets 10 - 937 Provision for placements with other banks 16 703 2,689 Net provision for risks and charges 73,367 39,692 Gain on disposal of assets obtained in settlement of debt (421) (343) Gain from sale of financial assets at amortized cost 8 (32,501) (119,538) Unrealized fair value (gains) losses on financial assets at 7 (94,371) 65,036 fair value through profit or loss Adjustment related to a subsidiary company (6,244) - 741,418 702,632 Changes in operating assets and liabilities: Term deposits with central banks (891,745) (2,451,974) Due from banks and financial institutions (290,811) 678,980 Loans to banks and financial institutions 2,171 (13,761) Derivative financial instruments – debit (11,534) 21,144 Financial assets at fair value through profit or loss 104,470 178,740 Net loans and advances to customers at amortized cost (819,214) (671,936) Net loans and advances to related parties at amortized 2,073 (8,872) cost Other assets 5,298 (24,710) Due to banks and financial institutions 37,347 (4,184) Derivative financial instruments – credit 38,743 (22,714) Financial liabilities at fair value through profit or loss (19,001) (7,873) Customers' deposits at amortized cost 2,283,288 1,052,293 Deposits from related parties at amortized cost (11,345) (3,996) Other liabilities (17,944) 100,410 Cash from (used in) operations 1,153,214 (475,821) Taxes paid (128,283) (113,821) Provisions for risks and charges paid (59,111) (43,379) Net cash from (used in) operating activities 965,820 (633,021) Investing Activities Financial assets at amortized cost (627,376) (104,058) Financial assets at fair value through other comprehensive 1,411 291 income Assets obtained in settlement of debt 356 (417) Purchase of property and equipment 23 (104,357) (77,973) Purchase of intangible assets 24 (1,162) (1,688) Cash proceeds from the sale of property and equipment 7,489 435 and intangible assets Acquisition of a subsidiary - (5,821) Net cash used in investing activities (723,639) (189,231) Financing Activities Redemption of preferred shares - (263,810) Issuance of preferred shares - 301,500 Sale (purchase) of treasury shares, net 15,860 (7,369) Net (loss) gain on sale of treasury shares (3,544) 1,890 Non-controlling interests (27,945) (22,203) Dividends paid 42 (162,175) (165,124) Net cash used in financing activities (177,804) (155,116) Effect of exchange rate changes (9,616) (27,943) Increase (decrease) in cash and cash equivalents 54,761 (1,005,311) Cash and cash equivalents at 1 January 5,065,263 6,070,574 Cash and cash equivalents at 31 December 41 5,120,024 5,065,263 Operational cash flows from interest and dividends Interest paid 1,148,480 1,080,911 Interest received 1,933,400 1,920,182 Dividends received 1,458 1,465
The accompanying notes 1 to 51 form part of these consolidated financial statements.
78 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
1. Corporate Information
BLOM BANK s.a.l. (the “Bank”), a Lebanese joint stock company, was incorporated in 1951 and registered under No 2464 at the commercial registry of Beirut and under No 14 on the banks’ list published by the Central Bank of Lebanon. The Bank’s head office is located in Verdun, Rashid Karameh Street, Beirut, Lebanon. The Bank’s shares are listed on the Beirut Stock Exchange and Luxembourg Stock Exchange.
The Bank, together with its affiliated banks and subsidiaries (collectively “the Group”), provides a wide range of retail, commercial, investment and private banking activities, insurance and brokerage services through its headquarter as well as its branches in Lebanon and its presence in Europe, the Middle East and North Africa.
2. Accounting Policies
2.1 Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis except for: a) the restatement of certain tangible real estate properties in Lebanon according to the provisions of law No 282 dated 30 December 1993, and b) the measurement at fair value of derivative financial instruments, financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and financial liabilities at fair value through profit or loss.
The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.
The consolidated financial statements are presented in Lebanese Pounds (LL) and all values are rounded to the nearest million, except when otherwise indicated.
Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (IASB), and the regulations of the Central Bank of Lebanon and the Banking Control Commission.
Presentation of the consolidated financial statements The Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within one year after the statement of financial position date (current) and more than 1 year after the statement of financial position date (non-current) is presented in the risk management notes.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously.
This is not generally the case with master netting agreements, therefore the related assets and liabilities are presented gross in the consolidated statement of financial position. Income and expense will not be offset in the consolidated income statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.
79 Notes to the Consolidated Financial Statements 31 December 2012
Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at 31 December 2012.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly by the Bank. Non- controlling interests are presented separately in the consolidated income statement, consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, but separate from parent shareholders’ equity. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
- Derecognizes the assets (including goodwill) and liabilities of the subsidiary - Derecognizes the carrying amount of any non-controlling interest - Derecognizes the cumulative translation differences, recorded in equity - Recognizes the fair value of the consideration received - Recognizes the fair value of any investment retained - Recognizes any surplus or deficit in profit or loss - Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.
Where the Group loses control of a subsidiary, such that the former subsidiary becomes an associate accounted for under the equity method, the effect is that the Group’s interest in the former subsidiary (associate) is reported:
- using the equity method from the date on which control is lost in the current reporting period; and - using full consolidation for any earlier part of the current reporting period, and of any earlier reporting period, during which the associate was controlled.
80 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
The consolidated financial statements include the financial statements of BLOM Bank SAL and the subsidiaries listed in the following table:
% effective equity interest Country of Notes Activities incorporation 31 December 31 December 2012 2011 % % BLOM Bank France SA France Banking activities 99.998 99.998 BLOM Bank (Switzerland) SA Switzerland Banking activities 99.998 99.998 BLOMInvest Bank SAL Lebanon Banking activities 99.925 99.925 BLOM Development Bank SAL Lebanon Islamic banking activities 99.900 99.900 Bank of Syria and Overseas SA a Syria Banking activities 49.000 49.000 Arope Insurance SAL Lebanon Insurance activities 88.936 88.932
Syria International Insurance (Arope Syria) b Syria Insurance activities 42.688 42.687 SA
BLOM Bank Egypt SAE Egypt Banking activities 99.419 99.419 BLOM Egypt Securities SAE Egypt Brokerage activities 99.644 99.644 BLOM Invest – Saudi Arabia Saudi Arabia Banking activities 59.963 59.963 BLOM Bank Qatar LLC Qatar Banking activities 99.750 99.750 Arope Life Insurance Egypt SAE Egypt Insurance activities 91.033 91.041 Arope Insurance of Properties and Egypt Insurance activities 93.130 93.138 Responsibilities Egypt SAE Syria and Overseas Company for Financial a and c Syria Brokerage activities 48.962 48.962 Services
Experts Company for Financial Services d Jordan Brokerage activities 99.000 93.330
(a) Effective 1 January 2004, the Group obtained control, by virtue of agreement with other investors, over Bank of Syria and Overseas SA, and consequently, the financial statements of Bank of Syria and Overseas SA have been consolidated with those of the Group.
In its meeting held on 5 May 2010, the Bank’s board of directors approved the increase of ownership in Bank of Syria and Overseas SA up to 60% as follows:
• At a first stage, increase the ownership from 39% to 49% by acquiring International Finance Corporation’s (IFC) shares (720,000 shares) in Bank of Syria and Overseas SA. • The remaining 11% increase to reach 60% will be performed at a later stage through acquisition from the market.
(b) Effective 1 January 2006, the Group obtained control, by virtue of agreement with other investors, over Syria International Insurance (Arope Syria) SA, and consequently, the financial statements of Syria International Insurance (Arope Syria) SA have been consolidated with those of the Group.
(c) Syria and Overseas Company for Financial Services is 52% owned by Bank of Syria and Overseas SA. Consequently, the financial statements of Syria and Overseas Company for Financial Services have been consolidated with those of the Group.
(d) The ownership interests of this subsidiary were affected by the purchase of some non-controlling interest’s shares.
81 Notes to the Consolidated Financial Statements 31 December 2012
2.2 Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS effective as of 1 January 2012:
IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements.
2.3 Standards issued but not yet effective
Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.
IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (OCI) The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example net gain on hedge of net investment, exchange differences on translation of foreign operations and net movement on cash flow hedges) would be presented separately from items that will never be reclassified (for example actuarial gains and losses on defined benefit plans, revaluation of land and buildings and net loss or gain on financial assets at fair value through OCI). The amendment affects presentation only and has no impact on the Group’s financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012.
IAS 19 Employee Benefits (Revised) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. These amendments are not expected to impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013.
IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revised standard is not expected to impact the Group’s financial position or performance and becomes effective for annual periods beginning on or after 1 January 2013.
82 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
IAS 32 Offsetting Financial Assets and Financial Liabilities — Amendments to IAS 32 These amendments clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2014.
IFRS 7 Disclosures — Offsetting Financial Assets and Financial Liabilities — Amendments to IFRS 7 These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013.
IFRS 10 Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The Group is currently assessing the impact that this standard will have on its financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly- Controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. IFRS 11 is not expected to impact the Group’s financial position or performance and becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 12 Disclosure of Involvement with Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required, but has no impact on the Group’s financial position or performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.
83 Notes to the Consolidated Financial Statements 31 December 2012
IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard will require the Group to review its fair value measurement policies across all asset and liabilities classes. The Group is currently assessing the impact that this standard will have on its financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.
Annual Improvements May 2012 These improvements will not have an impact on the Group, but include:
IAS 1 Presentation of Financial Statements This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period.
IAS 32 Financial Instruments, Presentation This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes.
IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures.
These improvements are effective for annual periods beginning on or after 1 January 2013.
2.4 Summary of significant accounting policies
(1) Foreign currency translation The consolidated financial statements are presented in Lebanese Lira which is the Bank’s presentation currency.
Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
(i) Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the date of the statement of financial position. All differences are taken to “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non–monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when
84 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
the fair value was determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized in other comprehensive income or profit or loss respectively).
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.
(ii) Group companies On consolidation, the assets and liabilities of subsidiaries and overseas branches are translated into the Bank’s presentation currency at the rate of exchange as at the reporting date, and their income statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated income statement.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.
(2) Financial instruments – classification and measurement
(i) Date of recognition All financial assets and liabilities are initially recognized on the trade date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
(ii) Classification and measurement of financial investments a. Financial assets The classification of financial assets depends on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs. Assets are subsequently measured at amortized cost or fair value.
An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. An entity is required to disclose such financial assets separately from those mandatorily measured at fair value.
85 Notes to the Consolidated Financial Statements 31 December 2012
Financial assets at amortized cost Debt instruments are subsequently measured at amortized cost less any impairment loss (except for debt instruments that are designated at fair value through profit or loss upon initial recognition) if they meet the following two conditions:
• The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and • The contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
These financial assets are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost of investment. After initial measurement, these financial assets are measured at amortized cost using the effective interest rate method (EIR), less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in “Interest and similar income” in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in “Net credit losses”.
Although the objective of an entity’s business model may be to hold financial assets in order to collect contractual cash flows, the entity need not hold all of those instruments until maturity. Thus an entity’s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur. However, if more than an infrequent number of sales are made out of a portfolio, the entity needs to assess whether and how such sales are consistent with an objective of collecting contractual cash flows. If the objective of the entity’s business model for managing those financial assets changes, the entity is required to reclassify financial assets.
Gains and losses arising from the derecognition of financial assets measured at amortized cost are reflected under “Net gain from derecognition of financial assets at amortized cost” in the consolidated income statement.
Balances with central banks, due from banks and financial institutions, loans to banks and financial institutions and net loans and advances to customers and related parties – at amortized cost After initial measurement, “Balances with central banks”, “Due from banks and financial institutions”, “Loans to banks and financial institutions” and “Net loans and advances to customers and related parties” are subsequently measured at amortized cost using the EIR method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in ‘Interest and similar income’ in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in “Net credit losses”.
Financial assets at fair value through profit or loss Included in this category are those debt instruments that do not meet the conditions in “Financial assets at amortized cost” above, debt instruments designated at fair value through profit or loss upon initial recognition and equity instruments at fair value through profit or loss.
86 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
i. Debt instruments at fair value through profit or loss These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and interest income are recorded under “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value.
Gains and losses arising from the derecognition of debt instruments at fair value through profit or loss are also reflected under “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value. ii. Equity instruments at fair value through profit or loss Investments in equity instruments are classified at fair value through profit or loss, unless the Group designates at initial recognition an investment that is not held for trading as at fair value through other comprehensive income.
These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and dividend income are recorded under “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
Gains and losses arising from the derecognition of equity instruments at fair value through profit or loss are also reflected under “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
Financial assets at fair value through other comprehensive income Investments in equity instruments designated at initial recognition as not held for trading are classified at fair value through other comprehensive income.
These financial assets are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated under equity. The cumulative gain or loss will not be reclassified to the consolidated income statement on disposal ofthe investments.
Dividends on these investments are recognized under “Revenues from financial assets at fair value through other comprehensive income” in the consolidated income statement when the entity’s right to receive payment of dividend is established in accordance with IAS 18: “Revenue”, unless the dividends clearly represent a recovery of part of the cost of the investment. b. Financial liabilities Liabilities are initially measured at fair value plus, in the case of a financial liability not at fair value through profit or loss, particular transaction costs. Liabilities are subsequently measured at amortised cost or fair value.
The Group classifies all financial liabilities as subsequently measured at amortised cost using the effective interest method, except for:
- financial liabilities at fair value through profit or loss (including derivatives); - financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. - financial guarantee contracts and commitments to provide a loan at a below-market interest rate which after initial recognition are subsequently measured at the higher of the amount determined
87 Notes to the Consolidated Financial Statements 31 December 2012
in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.
Fair value option The Group may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when:
- doing so results in more relevant information, because it either eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or - a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel.
The amount of changes in fair value of a financial liability designated at fair value through profit or loss at initial recognition that is attributable to changes in credit risk of that liability is recognized in other comprehensive income, unless such recognition would create an accounting mismatch in the consolidated income statement. Changes in fair value attributable to changes in credit risk are not reclassified to consolidated income statement.
As at 31 December 2012, financial liabilities designated at fair value through profit or loss by the Group consist of certain customers’ deposits. Financial liabilities designated at amortized cost consist of Due to Central banks under repurchase agreements, due to banks and financial institutions, and customers’ and related parties’ deposits.
Due to Central banks under repurchase agreements, due to banks and financial institutions, customers’ deposits and related parties deposits After initial measurement, Due to Central banks under repurchase agreements, due to banks and financial institutions, customers’ and related parties’ deposits are measured at amortised cost less amounts repaid using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate method.
c. Derivatives recorded at fair value through profit or loss The Group uses derivatives such as interest rate swaps and futures, credit default swaps, cross currency swaps, forward foreign exchange contracts and options on interest rates, foreign currencies and equities.
Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are recognised in “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
An embedded derivative is separated from the host and accounted for as a derivative if, and only if:
(a) the hybrid contract contains a host that is not an asset within the scope of IFRS 9 (b) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host (c) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (d) the hybrid contract is not measured at fair value with changes in fair value recognised in profit or loss
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(iii) Day 1 profit or loss When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognizes the difference between the transaction price and fair value (a “Day 1” profit or loss) in the consolidated income statement. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated income statement when the inputs become observable, or when the instrument is derecognized.
(iv) Reclassification of financial assets The Group reclassifies financial assets if the objective of the business model for managing those financial assets changes. Such changes are expected to be very infrequent. Such changes are determined by the Group’s senior management as a result of external or internal changes when significant to the Group’s operations and demonstrable to external parties.
If financial assets are reclassified, the reclassification is applied prospectively from the reclassification date, which is the first day of the first reporting period following the change in business model that results in the reclassification of financial assets. Any previously recognised gains, losses or interest are not restated.
If a financial asset is reclassified so that it is measured at fair value, its fair value is determined at the reclassification date. Any gain or loss arising from a difference between the previous carrying amount and fair value is recognised in profit or loss. If a financial asset is reclassified so that it is measured at amortised cost, its fair value at the reclassification date becomes its new carrying amount.
(3) Derecognition of financial assets and financial liabilities
(i) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:
• the rights to receive cash flows from the asset have expired; • the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either:
(a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
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(ii) Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in the consolidated income statement.
Repurchase and reverse repurchase agreements Securities sold under agreements to repurchase at a specified future date are not derecognised from the consolidated statement of financial position as the Group retains substantially all the risks and rewards of ownership. The corresponding cash received is recognised in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within “Due to Central banks under repurchase agreements”, reflecting the transaction’s economic substances as a loan to the Group. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agreement using the EIR. When the counterparty has the right to sell or repledge the securities, the Group reclassifies those securities in its consolidated statement of financial position to “Financial assets given as collateral” as appropriate.
Conversely, securities purchased under agreements to resell at a specified future date are not recognised in the consolidated statement of financial position. The consideration paid, including accrued interest is recorded in the consolidated statement of financial position within “Cash collateral on securities borrowed and reverse purchase agreements”, reflecting the transaction’s economic substance as a loan by the Group. The difference between the purchase and resale prices is recorded in “Net interest income” and is accrued over the life of the agreement using the EIR.
If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within “Financial liabilities at fair value through profit or loss” and measured at fair value with any gains or losses included in “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
(4) Determination of fair value The fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.
Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models, credit models and other relevant valuation models. Also, profit or loss calculated when such financial instruments are first recorded (“Day 1” profit or loss)is
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deferred and recognized only when the inputs become observable or on derecognition of the instrument.
An analysis of fair values of financial instruments and further details as to how they are measured are provided in the notes.
(5) Impairment of financial assets The Group assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
(i) Financial assets carried at amortized cost For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated income statement.
Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised; the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the “Net credit losses” in the consolidated income statement.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs of obtaining and selling the collateral, whether or not the foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical
91 Notes to the Consolidated Financial Statements 31 December 2012
location, collateral type, past-due status and other relevant factors.
Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
(ii) Renegotiated loans Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original effective interest rate as calculated before the modification of terms and the loan is no longer considered past due. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.
(iii) Collateral repossessed The Group occasionally acquires properties in settlement of loans and advances. Upon initial recognition, those assets are measured at fair value as approved by the regulatory authorities. Subsequently these properties are measured at the lower of carrying value or net realizable value.
Upon sale of repossessed assets, any gain or loss realized is recognized in the consolidated income statement under “Other operating income” or “Other operating expenses”. Gains resulting from the sale of repossessed assets are transferred to “Reserves for capital increase” in the following financial year.
(6) Hedge accounting The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions and firm commitments. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.
At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship.
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 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. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated are expected to offset in a
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range of 80% to 125% and are expected to achieve such offset in future periods. Hedge ineffectiveness is recognized in the consolidated income statement in “Net gain from financial instruments at fair value through profit or loss”. For situations where that hedged item is a forecast transaction, the Group also assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated income statement.
(i) Fair value hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in the consolidated income statement. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, the difference between the carrying value of the hedged item on termination and the face value is amortised over the remaining term of the original hedge using the effective interest rate. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the consolidated income statement.
(ii) Cash flow hedges For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is initially recognised directly in equity in the “Cash flow hedge” reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the consolidated income statement. When the forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in the other comprehensive income are removed from the reserve and included in the initial cost of the asset or liability.
When the hedged cash flow affects the consolidated income statement, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the consolidated income statement. When a hedging instrument expires, or is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement.
(iii) Hedge of a net investment Hedges of net investments in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the consolidated income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the consolidated income statement.
(7) Leasing The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an
93 Notes to the Consolidated Financial Statements 31 December 2012
assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Group as a lessee Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the lease term. Contingent rental payable are recognised as an expense in the period in which they are incurred.
Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
(8) Recognition of income and expenses Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.
(i) Interest and similar income and expense For all financial instruments measured at amortized cost, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.
The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in the carrying amount is recorded as “Interest and similar income” for financial assets and “Interest and similar expense” for financial liabilities.
Once the recorded value of a financial asset on a group of similar financial assets has been reduced due to an impairment loss, interest income continue to be recognized using the rate of interest used to discount the future cash flows of the purpose of measuring the impairment loss.
(ii) Fee and commission income The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:
Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.
Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognized as an adjustment to the EIR on the loan. When it is unlikely that a loan be drawn
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down, the loan commitment fees are recognized over the commitment period on a straight line basis.
Fee income from providing transaction services Fee arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognized on completion of the underlying transaction. Fee or components of fee that are linked to a certain performance are recognized after fulfilling the corresponding criteria.
Fee and commission income from providing insurance services Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognized as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognized over those future periods.
(iii) Dividend income Dividend income is recognised when the right to receive the payment is established.
(iv) Net gain from financial instruments at fair value through profit or loss Results arising from financial assets at fair value through profit or loss include all gains and losses from changes in fair value and related income or expense and dividends for financial assets at fair value through profit or loss. This includes any ineffectiveness recorded in hedging transactions. This caption also includes the results arising from trading activities including all gains and losses from changes in fair value and related income or expense and dividends for financial assets held for trading.
(v) Insurance revenue For the insurance subsidiaries, net premiums and accessories (gross premiums) are taken to income over the terms of the policies to which they relate using the prorate temporise method for non-marine business and 25% of gross premiums for marine business. Unearned premiums reserve represents the portion of the gross premiums written relating to the unexpired period of coverage.
If the unearned premiums reserve is not considered adequate to cover future claims arising on these premiums a premium deficiency reserve is created.
(9) Cash and cash equivalents Cash and cash equivalents as referred to in the cash flow statement comprise balances with original maturities of a period of three months or less including: cash and balances with the central banks, deposits with banks and financial institutions, and deposits due to banks and financial institutions.
(10) Property and equipment Property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the property and equipment. When significant parts of property and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated income statement as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
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Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate and treated as changes in accounting estimates.
Depreciation is calculated using the straight line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:
Buildings 50 years Furniture, office installations and computer (2– 16.67) years equipment Vehicles 6.67 years
Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in “Net gain (loss) on disposal of fixed assets” in the year the asset is derecognized.
The asset’s residual lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively if applicable.
(11) Assets obtained in settlement of debt Assets obtained in settlement of debt are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition, management has committed to the sale, and the sale is expected to have been completed within one year from the date of classification.
(12) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non- controlling interest in the acquiree. For each business combination, the Group measures the non controlling interest in the acquiree at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated income statement.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
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Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
(13) Intangible assets An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite of indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement.
Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows:
Key money lower of lease period or 5 years Software development cost 2.5 years
(14) Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual
97 Notes to the Consolidated Financial Statements 31 December 2012
impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognized in the consolidated income statement.
Impairment losses relating to goodwill cannot be reversed in future periods.
(15) Provisions for risks and charges Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement.
(16) Employees’ end-of-service benefits For the Group and its subsidiaries operating in Lebanon, end-of-service benefit subscriptions paid and due to the National Social Security Fund (NSSF) are calculated on the basis of 8.5% of the staff salaries. The final end- of-service benefits due to employees after completing 20 years of service, at the retirement age, or if the employee permanently leaves employment, are calculated based on the last salary multiplied by the number of years of service. The Group is liable to pay to the NSSF the difference between the subscriptions paid and the final end-of-service benefits due to employees. The Group provides for end-of-service benefits on that basis.
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End-of-service benefits for employees at foreign branches and subsidiaries are accrued for in accordance with the laws and regulations of the respective countries in which the branches and subsidiaries are located.
(17) Taxes Taxes are provided for in accordance with regulations and laws that are effective in the countries where the Group operates.
(i) Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
(ii) Deferred tax Deferred tax is provided on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:
• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • In respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except:
• Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
99 Notes to the Consolidated Financial Statements 31 December 2012
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.
Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the consolidated income statement.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(18) Assets under management and assets held in custody and under administration The Group provides custody and administration services that result in the holding or investing of assets on behalf of its clients. Assets held in trust, under management or under custody or under administration, are not treated as assets of the Group and accordingly are recorded as off balance sheet items.
(19) Dividends on ordinary shares Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank.
Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.
(20) Treasury shares Own equity instruments of the Group which are acquired by it or by any of its subsidiaries (treasury shares) are deducted from equity and accounted for at weighted average cost. Consideration paid or received on the purchase sale, issue or cancellation of the Group’s own equity instruments is recognized directly in equity. No gain or loss is recognized in the consolidated income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
100 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
When the Group holds own equity instruments on behalf of its clients, those holdings are not included in the Group’s consolidated statement of financial position. Contracts on own shares that require physical settlement of a fixed number of own shares for a fixed consideration are classified as equity and added to or deducted from equity. Contracts on own shares that require net cash settlement or provide a choice of settlement are classified as trading instruments and changes in the fair value are reported in the consolidated income statement.
(21) Financial guarantees In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within “Other liabilities”) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less, when appropriate, cumulative amortization recognised in the consolidated income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the consolidated income statement. The premium received is recognised in the consolidated income statement on a straight line basis over the life of the guarantee.
(22) Customers’ acceptances Customers’ acceptances represent term documentary credits which the Group has committed to settle on behalf of its clients against commitments by those clients (acceptances). The commitments resulting from these acceptances are stated as a liability in the statement of financial position for the same amount.
(23) Segment reporting The Group’s segmental reporting is based on the following operating segments: retail banking; corporate banking; treasury, money and capital markets; and asset management and private banking.
2.5 Significant accounting judgments and estimates
In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements:
101 Notes to the Consolidated Financial Statements 31 December 2012
Going concern The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going concern basis.
Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset backed securities.
Impairment losses on loans and advances The Group reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the consolidated income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgments about the borrower’s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
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 similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilization, loan to collateral ratios etc.), concentrations of risks and economic date (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups).
102 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Deferred tax assets Deferred tax assets are recognized in respect to tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Judgment is required to determined the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.
Business model In making an assessment whether a business model’s objective is to hold assets in order to collect contractual cash flows, the Group considers at which level of its business activities such assessment should be made. Generally, a business model is a matter of fact which can be evidenced by the way business is managed and the information provided to management. However, in some circumstances it may not be clear whether a particular activity involves one business model with some infrequent asset sales or whether the anticipated sales indicate that there are two different business models.
In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows the Group considers:
- management’s stated policies and objectives for the portfolio and the operation of those policies in practice; - how management evaluates the performance of the portfolio; - whether management’s strategy focuses on earning contractual interest revenues; - the degree of frequency of any expected asset sales; - the reason for any asset sales; and - whether assets that are sold are held for an extended period of time relative to their contractual maturity.
Contractual cash flows of financial assets The Group exercises judgment in determining whether the contractual terms of financial assets it originates or acquires give rise on specific dates to cash flows that are solely payments of principal and interest onthe principal outstanding and so may qualify for amortised cost measurement. In making the assessment the Group considers all contractual terms, including any prepayment terms or provisions to extend the maturity of the assets, terms that change the amount and timing of cash flows and whether the contractual terms contain leverage.
103 Notes to the Consolidated Financial Statements 31 December 2012
3. Segmental Information
The Group operates in four major business segments: retail; corporate; treasury, money and capital markets; and asset management and private banking.
Retail Banking Retail Banking provides a diversified range of products and services to meet the personal banking and consumer finance needs of individuals. The range includes deposits, housing loans, consumer loans, credit cards, funds transfers, foreign exchange and other branch related services.
Corporate Banking Corporate Banking provides a comprehensive product and service offering to corporate and institutional customers, including loans and other credit facilities, deposits and current accounts, trade finance and foreign exchange operations.
Treasury, money and capital markets It is mostly responsible for the liquidity management and market risk of the Group as well as managing the Group’s own portfolio of stocks, bonds and other financial instruments. In addition, this segment provides treasury and investments products and services to investors and other institutional customers.
Asset management and private banking Asset management and private banking provides investment products and services to institutional investors and intermediaries.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the consolidated financial statements. Income taxes, personnel expenses, other operating expenses and net gain (loss) on disposal of other assets are managed on a group basis and are not allocated to operating segments.
Interest income is reported net since the majority of the segments’ revenues are from interest. Management primarily relies on net interest revenue as performance measure, not the gross revenue and expense amounts.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
104 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
The following table presents net operating income, profit and total assets and liabilities information in respect of the Group’s operating segments:
Profit for the year information
2012 Treasury, Asset money and Corporate Retail management capital banking banking and private Unallocated* Total LL Million markets banking
Net interest income (**) 528,676 145,837 109,738 3,508 - 787,759
Net fee and commission income 30,267 43,080 50,187 24,759 21,385 169,678
Net gain from financial instruments at fair value through 164,963 - 29,415 - - 194,378 profit or loss
Net gain from derecognition of 32,501 - - - - 32,501 financial assets at amortized cost
Revenue from financial assets at fair value through other 257 - - - - 257 comprehensive income Other operating income - - 12,916 - - 12,916
Net credit losses - (129,285) (29,097) - - (158,382)
Net operating income 756,664 59,632 173,159 28,267 21,385 1,039,107
Extracts of results Depreciation and amortization (32,855)
Segment loss Unallocated expenses (394,736) Income tax expense (105,104)
Profit for the year 506,412
(*) “Unallocated” include insurance premiums’ commissions from insurance subsidiaries. (**) Net interest income comprises of interest income allocated by operating segment and interest expense prorated according to interest income.
105 Notes to the Consolidated Financial Statements 31 December 2012
2011 Treasury, Asset money and Corporate Retail management capital banking banking and private Unallocated* Total LL Million markets banking Net interest income (**) 516,594 150,364 106,873 3,688 - 777,519
Net fee and commission income 36,885 49,585 23,671 26,980 38,871 175,992
Net gain from financial instruments at fair value through (23,744) - 31,728 - - 7,984 profit or loss
Net gain from derecognition of 119,538 119,538 - - - - financial assets at amortized cost
Revenue from financial assets at fair value through other 217 - - - - 217 comprehensive income
Other operating income - - 14,807 - - 14,807 Net credit losses (937) (45,555) (14,377) - - (60,869)
Net operating income 648,553 154,394 162,702 30,668 38,871 1,035,188
Extracts of results Depreciation and amortization (35,720)
Segment loss Unallocated expenses (380,859) Income tax expense (118,799)
Profit for the year 499,810
(*) “Unallocated” include insurance premiums’ commissions from insurance subsidiaries. (**) Net interest income comprises of interest income allocated by operating segment and interest expense prorated according to interest income.
Financial position information
2012
Treasury, Asset money and Corporate Retail management capital banking banking and private Other*** Total markets banking LL Million Total assets 27,842,626 5,891,758 3,164,319 134,597 731,322 37,764,622
Total liabilities 22,660,301 6,250,934 4,703,641 150,348 710,390 34,475,614
2011 Treasury, Asset money and Corporate Retail management capital banking banking and private Other*** Total LL Million markets banking Total assets 25,563,013 5,710,878 2,774,417 182,702 690,942 34,921,952
Total liabilities 20,721,550 6,031,358 4,286,877 147,949 744,835 31,932,569
(***) Other includes activities related to property and equipment, intangible assets, assets obtained in settlement of debt, other assets and goodwill.
106 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Geographic information
The Group operates in two geographic markets based on the location of its markets and customers. The local market represents the Lebanese market, and the international market represents markets outside Lebanon. The following table shows the distribution of the Group’s external net operating income and non-current assets.
2012
Domestic International Total LL Million Total operating income 831,382 366,107 1,197,489 Net credit losses (1,415) (156,967) (158,382) Net operating income1 829,967 209,140 1,039,107
Non-current assets2 292,896 290,736 583,632
2011
Domestic International Total LL Million Total operating income 860,991 235,066 1,096,057 Net credit losses (559) (60,310) (60,869) Net operating income1 860,432 174,756 1,035,188
Non-current assets2 258,062 279,892 537,954
1 Net operating income is attributed to the geographical segment on the basis of the location where the income is generated.
2 Non-current assets consist of property and equipment, intangible assets, assets obtained in settlement of debt and goodwill.
107 Notes to the Consolidated Financial Statements 31 December 2012
4. Interest and Similar Income
2012 2011 LL Million Interest income on debt instruments at amortized cost 1,018,927 1,049,345 Deposits and similar accounts with banks and financial 287,499 180,428 institutions Loans and advances to customers at amortized cost 639,725 620,443 Loans and advances to related parties at amortized cost 502 700 1,946,653 1,850,916
5. Interest and Similar Expense
LL Million 2012 2011 Deposits and similar accounts from banks and financial 11,091 11,792 institutions Deposits from customers and other credit balances 1,140,556 1,053,521 Deposits from related parties at amortized cost 7,247 8,084 1,158,894 1,073,397
6. Net Fee and Commission Income
LL Million 2012 2011 Fee and commission income Trade finance 26,537 32,507 Credit related fees and commissions 30,366 27,133 Asset management and private banking 26,112 26,980 Electronic banking 20,679 17,513 General banking income 34,842 36,885 Commission on insurance related activities 36,381 37,202 Trust and fiduciary activities 1,199 1,669 Other services 20,471 20,554 196,587 200,443 Fee and commission expense Correspondents’ accounts (26,909) (24,451) 169,678 175,992
108 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
7. Net Gain on Financial Assets and Liabilities Designated at Fair Value Through Profit or Loss
LL Million 2012 2011 Interest and similar income from debt instruments and other financial assets at fair value though profit or loss Governmental debt securities 4,647 3,393 Corporate debt securities 19,497 22,031 24,144 25,424
Interest expense on liabilities at fair value through profit or loss (1,334) (1,656)
Gain from sale of debt instruments and other financial assets at fair value through profit or loss Governmental debt securities 13,445 931 Corporate debt securities 13,057 4,524 Funds (2) 195 26,500 5,650
Unrealized (loss) gain from revaluation of debt instruments and other financial assets at fair value through profit or loss Government debt securities 10 (6,531) Corporate debt securities 88,095 (57,215) Funds 1,177 (962) 89,282 (64,708)
Net (loss) gain from debt instruments and other financial assets at 138,592 (35,290) fair value through profit or loss
Net gain from equity instruments at fair value through profit or loss Unrealized gian (loss) from revaluation 5,089 (328) Dividend income 1,201 1,126 Gain from sale 1,620 274
Net gain from equity instrument at fair value through profit & loss 7,910 1,072 Foreign exchange 47,876 42,202 194,378 7,984
Foreign exchange income includes gains and losses from spot and forward contracts, other currency derivatives and the revaluation of the daily open trading and structural positions.
8. Net Gain from Derecognition of Financial Assets at Amortized Cost
Derecognition of financial assets at amortized cost were made during the year due to the following reasons: - Liquidity gap and yield management; - Swap of financial instruments by the Central Bank of Lebanon; and - Redemption of corporate debt securities.
109 Notes to the Consolidated Financial Statements 31 December 2012
The schedule below details the gains and losses arising from derecognition of these financial assets:
2012
Gains (Losses) Total LL Million Lebanese sovereign and Central Bank of Lebanon Certificates of deposit 964 - 964 Treasury bills and bonds 15,286 (4,137) 11,149 16,250 (4,137) 12,113
Other sovereign Treasury bills and bonds 844 - 844
Private Sector and other securities Corporate debt securities 19,649 (105) 19,544 36,743 (4,242) 32,501
2011
Gains (Losses) Total LL Million Lebanese sovereign and Central Bank of Lebanon Certificates of deposit 92,327 (1,114) 91,213 Treasury bills and bonds 26,151 (141) 26,010 118,478 (1,255) 117,223
Other sovereign Treasury bills and bonds 154 - 154
Private Sector and other securities Corporate debt securities 2,161 - 2,161 120,793 (1,255) 119,538
9. Other Operating Income
2012 2011 LL Million Net gain from sale of assets obtained in settlement of debt 598 343 Write back of provisions for risks and charges 185 28 Others 12,133 14,436 12,916 14,807
10. Net Credit Losses
2012 2011 LL Million Provision for sundry debtors (5) (177)
Provision on financial assets at amortized cost (note 21) - (937)
Provision for loans and advances Commercial loans (note 20) (143,002) (65,757) Consumer loans (note 20) (38,855) (16,489) Commitment by signature (note 33) - (133) (181,857) (82,379)
Write-back of provisions for loans and advances Commercial loans (note 20) 2,755 5,086 Consumer loans (note 20) 9,757 2,112 Unrealized interest (note 20) 2,979 14,224 Recoveries from loans reflected as off-financial position (note 20) 7,693 1,202 Recoveries from sundry debtors (note 26) 286 - Recoveries from commitment by signature (note 33) 10 - 23,480 22,624 (158,382) (60,869)
110 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
11. Personnel Expenses
2012 2011 LL Million Salaries and related charges 131,969 127,598 Social security contributions 22,241 23,028 Provisions for retirement benefits obligation (note 33) 8,417 7,323 Additional allowances 28,984 27,603 Bonus paid 55,887 51,908 247,498 237,460
12. Other Operating Expenses
2012 2011 LL Million Marketing and advertising 14,339 11,789 Professional fees 14,234 12,791 Maintenance and repairs 13,630 13,742 Provision for guarantee of deposits 12,382 11,438 Postage and telecommunications 9,886 10,568 Rent and related charges 9,694 10,311 Stationary and printings 6,823 6,365 Fiscal stamps 6,223 10,306 Electricity and fuel 6,020 5,542 Taxes and fees 5,075 6,922 Provision for risks and charges (note 33 (i)) 4,690 9,483 Travel expenses 3,770 3,948 Board of directors’ attendance fees 1,755 1,488 Insurance 1,089 1,199 Others 39,491 27,299 149,101 143,191
13. Income Tax Expenses
The tax rates applicable to the parent and subsidiaries vary from 0% to 40% in accordance with the income tax laws of the countries where the Group operates. For the purpose of determining the taxable results of the subsidiaries for the year, the accounting results have been adjusted for tax purposes. Such adjustments include items relating to both income and expense and are based on the current understanding of the existing tax laws and regulations and tax practices.
111 Notes to the Consolidated Financial Statements 31 December 2012
Reconciliation of total tax charge The relationship between taxable profit and accounting profit is as follow:
2012 2011 LL Million Profit before income tax 611,516 618,609 Less: Results of the subsidiary insurance company located in (24,980) (20,533) Lebanon(*)
Accounting profit before income tax 586,536 598,076 Add: Provisions non tax deductible 43,139 58,922 Unrealized losses from revaluation of debt instruments and other 64 47,080 financial assets at fair value through profit or loss Other non tax deductible charges 60,686 53,701 Unrealized loss on difference of exchange - 402 690,425 758,181 Less: Unrealized gains from revaluation of debt instruments and other (74,283) - financial assets at fair value through profit or loss Dividends received and previously subject to income tax (670) (6,911) Remunerations already taxed (8,707) (7,223) 4% of a subsidiary’s capital eligible to be tax deductible (400) (400) Unrealized gain on difference of exchange (17,037) (9,922) Write-back of provisions previously subject to income tax (43,721) (10,564) Non taxable income (50,498) (29,696) Others - (64) Taxable profit 495,109 693,401
Effective income tax rate 17.18% 19.20% Income tax expense in the consolidated income statement 105,104 118,799
(*) The insurance company in Lebanon is subject to income tax at the rate of 15% calculated based on gross insurance premiums weighted differently for each class of business.
14. Earnings Per Share
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year.
The following table shows the income and share data used in the basic earnings per share calculations:
2012 2011
Net profit for the year LL Million 506,412 499,810
Less: Proposed dividends on preferred shares LL Million (21,105) (21,105)
Non-controlling interests LL Million (5,202) (11,932) Net profit attributable to ordinary equity holders LL Million 480,105 466,773 of the parent Weighted average number of ordinary shares for 208,366,740 209,009,890 basic earnings per share Basic earnings per share LL 2,304 2,233
112 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
No figure for diluted earnings per share has been presented as the Bank has not issued any instruments which would have an impact on earnings per share when exercised.
There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of approval of these consolidated financial statements.
15. Cash and Balances with Central Banks
2012 2011 LL Million Cash on hand 186,457 181,023 Current accounts with Central Banks 1,692,117 1,189,584 Deposits with the Central Banks 5,580,003 4,691,774 7,458,577 6,062,381
Cash and balances with the Central Banks include non-interest bearing balances held by the Group at the Central Bank of Lebanon in coverage of the obligatory reserve requirements for all banks operating in Lebanon on deposits in Lebanese Lira as required by the Lebanese banking rules and regulations. This obligatory reserve is calculated on the basis of 25% of sight commitments and 15% of term commitments, after taking into account certain waivers relating to subsidized loans denominated in Lebanese Lira. Accordingly, the obligatory reserve amounted to LL 396,385 million at 31 December 2012 (2011: LL 369,136 million).
In addition to the above, all banks operating in Lebanon are required to deposit with the Central Bank of Lebanon interest-bearing placements at the rate of 15% of total deposits in foreign currencies regardless of nature. These placements amounted to US$ 1,695,583 thousands (equivalent to LL 2,556,091 million) as at 31 December 2012 (2011: US$ 1,571,117 thousands equivalent to LL 2,368,458 million)
Foreign subsidiaries are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are located.
16. Due from Banks and Financial Institutions
2012 2011 LL Million Current accounts Current accounts 979,740 717,557
Time deposits Time deposits 4,090,755 4,127,976 Doubtful accounts with banks 20,980 20,277 Less: Impairment allowance for doubtful accounts with banks (17,473) (17,473) Less: Unrealized interest for doubtful accounts with banks (3,507) (2,804) 4,090,755 4,127,976 5,070,495 4,845,533
Movement of impairment allowance and unrealized interest for doubtful accounts with banks is as follows:
2012 2011 LL Million Balance at 1 January 20,277 17,588 Provision for unrealized interest 703 2,689
Balance at 31 December 20,980 20,277
113 Notes to the Consolidated Financial Statements 31 December 2012
17. Loans to Banks and Financial Institutions
2012 2011 LL Million Loans to banks and financial institutions 113,802 115,966 Accrued interest receivable 808 815
Balance at 31 December 114,610 116,781
18. Derivative Financial Instruments
The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year end and are indicative of neither the market risk nor the credit risk.
2012 2011 Total Total Assets Liabilities notional Assets Liabilities notional LL Million amount amount Derivatives held-for-trading Forward foreign exchange contracts 33,564 39,323 2,733,349 6,374 4,998 1,865,264 Equity swaps and options - 1,442 22,355 358 4,118 44,814 Futures on commodities 3,518 7,241 773,203 7,090 4,635 567,766 37,082 48,006 3,528,907 13,822 13,751 2,477,844
Derivatives used as fair value hedges Currency swaps - - 77,194 - - 176,690
Hedge of net investment in foreign operations Forward foreign exchange contracts - 4,488 214,491 11,726 - 210,261 37,082 52,494 3,820,592 25,548 13,751 2,864,795
Derivatives often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the value of the asset, rate or index underlying a derivative contract may have a significant impact on the profit or loss of the Group.
Over-the-counter derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position.
The Group’s exposure under derivative contracts is closely monitored as part of the overall management of the Group’s market risk.
Options The Group purchases and sells options through regulated exchanges and in the over-the-counter markets. Options purchased by the Group provide the Group with the opportunity to purchase (call options) or sell (put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Group is exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value.
Derivative financial instruments held-for-trading purposes Most of the Group’s derivative trading activities relate to deals with customers which are normally offset by transactions with other counterparties. The Group may also take positions with the expectation of profiting from favorable movements in prices, rates or indices. Also included under this heading are any derivatives entered into for hedging purposes which do not meet the IAS 39 hedge accounting criteria.
114 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Derivative financial instruments held for hedging purposes As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its exposure to currency risk.
The Group uses forward foreign exchange contracts to hedge against specifically identified currency risks.
Hedge of net investment in foreign operations Forward foreign exchange contracts (to sell Euros and buy US Dollars) designated as a hedge of the Group’s net investment in its French subsidiary, and is being used to hedge the Group’s investment exposure to foreign exchange risk on this investment amounting to Euro 107,904 thousand (2011: same). The notional amount of these contracts amounted to Euro 107,904 thousand (LL 214,491 million) as at 31 December 2012 (2011: LL 210,261 million). The forward foreign exchange contracts were revalued as of 31 December 2012 and resulted in unrealized loss of LL 4,488 million (2011: unrealized gain of LL 11,726 million). The contracts mature on 4 March 2013 at the latest.
19. Financial Assets at Fair Value through Profit or Loss
2012 2011 LL Million Equity instruments at fair value through profit or loss 36,777 28,530 Debt and other instruments at fair value through profit or loss 810,590 828,936 847,367 857,466
Financial assets at fair value through profit or loss consist of the following:
2012 2011 LL Million Quoted equity securities at fair value through profit or loss 25,359 17,796 Unquoted equity securities at fair value through profit or loss 11,418 10,734 Quoted government debt securities 46,584 21,852 Unquoted government debt securities 84,674 11,823 Quoted corporate debt securities 648,778 731,403 Funds 30,554 27,599 Investments related to unit-linked contracts - 36,259 847,367 857,466
20. Net Loans and Advances to Customers at Amortized Cost
2012 2011 LL Million Commercial loans 6,271,667 5,884,115 Consumer loans (*) 3,227,208 2,824,597 9,498,875 8,708,712
Less: Individual impairment allowances (270,492) (154,645) Collective impairment allowances (**) (101,915) (102,697) Unrealized interest (56,181) (41,920) 9,070,287 8,409,450
(*) Included under consumer loans as at 31 December 2012, an amount of LL 1,603,659 million (31 December 2011: LL 1,321,600 million) representing housing loans.
(**) Included under collective impairment allowances as at 31 December 2011, an amount of LL 39,298 million representing provision for certain clients which were allocated to individual impairment allowances during 2012.
115 Notes to the Consolidated Financial Statements 31 December 2012
Movement of unrealized interest on substandard, doubtful, and bad loans during the years ended 31 December was as follows:
2012 2011
LL Million Commercial loans Commercial loans Balance at 1 January 41,920 45,886 Add: Unrealized interest for the year 48,826 52,761 Foreign exchange difference (1,270) 1,071 Transfer from provision 411 2,131 89,887 101,849 Less: Recoveries of unrealized interest (2,979) (14,224) Amounts written-off (22,638) (45,705) Transferred to off-financial position (8,089) -
Balance at 31 December 56,181 41,920
Unrealized interest on substandard loans 7,954 5,239 Unrealized interest on doubtful loans 48,227 36,681 56,181 41,920
A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows:
2012 2011
Commercial Consumer Commercial Consumer Total Total loans loans loans loans LL Million Balance at 1 January 207,162 50,180 257,342 158,120 32,266 190,386 Add: Charge for the year 143,002 38,855 181,857 65,757 16,489 82,246 Foreign exchange difference (8,665) (2,463) (11,128) (4,603) (1,468) (6,071) Reclassification - - - (5,060) 5,060 - Transfer to unrealized interest (411) - (411) (2,131) - (2,131) Transfer from provision for risks and charges - - - 2,596 - 2,596 (note 33) 341,088 86,572 427,660 214,679 52,347 267,026 Less: Provisions written-off (7,199) (5,724) (12,923) (2,431) (55) (2,486) Write-back of provisions (2,755) (9,757) (12,512) (5,086) (2,112) (7,198) Provision transferred to off financial position (21,617) (8,201) (29,818) - - - (31,571) (23,682) (55,253) (7,517) (2,167) (9,684) Balance at 31 December 309,517 62,890 372,407 207,162 50,180 257,342
Individual impairment 240,340 30,152 270,492 118,909 35,736 154,645 Collective impairment 69,177 32,738 101,915 88,253 14,444 102,697 309,517 62,890 372,407 207,162 50,180 257,342 Gross amount of loans individually 436,434 80,814 517,248 209,454 69,683 279,137 determined to be impaired
116 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
In accordance with the Banking Control Commission Circular No. 240, bad loans and related provisions and unrealized interest which fulfill certain requirements have been transferred to off financial position accounts. The gross balance of these loans amounted to LL 137,300 million as of 31 December 2012 (2011: LL 99,205 million).
The fair value of collateral that the Group holds relating to loans and advances to corporate customers individually determined to be impaired amounts to LL 337,693 million as of 31 December 2012 (LL 247,207 million as of 31 December 2011). The collateral consists of cash, securities, letters of guarantee and properties.
The movement of allowance for impairment losses and allowance for unrealized interest against fully impaired loans included in the off financial position accounts is as follows:
LL Million 2012 2011 Balance at 1 January 99,205 92,834 Add: Unrealized interest for the year 9,123 8,455 Provision and unrealized interest transferred from the statement of 37,908 - financial position 146,236 101,289 Less: Recoveries / Provisions written-back (7,693) (1,202) Amounts written-off (1,269) (551) Foreign exchange difference 26 (331) (8,936) (2,084) Balance at 31 December 137,300 99,205
21. Financial Assets at Amortized Cost
2012 2011 LL Million Quoted Government debt securities 2,427,884 2,606,333 Corporate debt securities 823,330 817,782 3,251,214 3,424,115 Unquoted Government debt securities 4,305,889 3,570,701 Corporate debt securities 78,531 77,934 Certificates of deposit – Central Banks 6,123,551 6,176,147 Certificates of deposit – Commercial banks and financial institutions 549,351 399,762 11,057,322 10,224,544 14,308,536 13,648,659
The movement in the impairment allowances during the year was as follows:
LL Million 2012 2011 Balance at 1 January (937) - Charge for the year (note 10) - (937)
Balance at 31 December (937) (937)
117 Notes to the Consolidated Financial Statements 31 December 2012
22. Financial Assets at Fair Value Through Other Comprehensive Income
2012 2011 LL Million Equity securities 3,108 2,445
Funds 2,850 4,200
5,958 6,645
The table below details the financial assets at fair value through other comprehensive income as at 31 December:
2012 2011 Cumulative Cumulative Carrying Dividend Carrying Dividend fair value fair value amount income amount income LL Million changes changes Equity securities 3,108 (129) 257 2,445 (370) 217 Funds 2,850 405 - 4,200 102 - 5,958 276 257 6,645 (268) 217
Dividend income amounted to 257 million for the year ended 31 December 2012 (2011: LL 217 million) and resulted from equity instruments held at year end (2011: the same).
23. Property and Equipment
Advances on Furniture, office acquisition Freehold land installations and Vehicles of fixed assets Total and buildings computer and construction equipment LL Million in progress Cost At 1 January 2012 325,470 6,222 256,830 75,742 664,264 Additions 43,190 1,000 15,893 44,274 104,357 Disposals (4,928) (597) (3,901) (5) (9,431) Transfers 28,047 33 14,174 (43,176) (922) Translation difference (15,150) (190) (10,591) (1,890) (27,821)
At 31 December 2012 376,629 6,468 272,405 74,945 730,447
Depreciation At 1 January 2012 52,298 3,547 164,588 - 220,433 Charge for the year 7,998 1,051 21,908 - 30,957 Relating to disposals (168) (553) (3,114) - (3,835) Translation difference (1,976) (160) (7,064) - (9,200)
At 31 December 2012 58,152 3,885 176,318 - 238,355
Net carrying value At 31 December 2012 318,477 2,583 96,087 74,945 492,092
118 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Advances on Furniture, office acquisition Freehold land installations and Vehicles of fixed assets Total and buildings computer and construction equipment LL Million in progress Cost At 1 January 2011 301,047 6,160 238,479 67,774 613,460 Additions 20,011 1,149 22,853 33,960 77,973 Disposals - (814) (6,256) (14) (7,084) Transfers 14,077 25 8,700 (23,422) (620) Translation difference (9,665) (298) (6,946) (2,556) (19,465)
At 31 December 2011 325,470 6,222 256,830 75,742 664,264
Depreciation At 1 January 2011 46,628 3,374 150,513 - 200,515 Charge for the year 7,072 1,075 24,953 - 33,100 Relating to disposals - (768) (6,007) - (6,775) Translation difference (1,402) (134) (4,871) - (6,407)
At 31 December 2011 52,298 3,547 164,588 - 220,433
Net carrying value At 31 December 2011 273,172 2,675 92,242 75,742 443,831
Certain freehold land and buildings purchased prior to 1 January 1999 were restated in previous years for the changes in the general purchasing power of the Lebanese Lira giving rise to a net surplus amounting to LL 14,727 million, which was credited to equity under “reserves for revaluation variance – real estate”.
24. Intangible Assets
Advances on Software Key money acquisition of Total development intangible assets LL Million Cost At 1 January 2012 11,783 5,960 95 17,838 Additions 1,120 - 42 1,162 Transfers 889 - - 889 Disposals (19) - (30) (49) Translation difference 6 (649) (78) (721)
At 31 December 2012 13,779 5,311 29 19,119
Amortization At 1 January 2012 9,256 4,304 - 13,560 Charge for the year 1,799 99 - 1,898 Relating to disposals (19) - - (19) Translation difference 10 (195) - (185)
At 31 December 2012 11,046 4,208 - 15,254
Net carrying value At 31 December 2012 2,733 1,103 29 3,865
119 Notes to the Consolidated Financial Statements 31 December 2012
Advances on Software Key money acquisition of Total development intangible assets LL Million Cost At 1 January 2011 13,936 6,665 369 20,970 Additions 1,670 - 18 1,688 Transfers 34 - - 34 Disposals (3,602) (188) (283) (4,073) Translation difference (255) (517) (9) (781)
At 31 December 2011 11,783 5,960 95 17,838
Amortization At 1 January 2011 10,140 4,549 - 14,689 Charge for the year 2,477 143 - 2,620 Related to disposals (3,551) (188) - (3,739) Translation difference 190 (200) - (10)
At 31 December 2011 9,256 4,304 - 13,560
Net carrying value At 31 December 2011 2,527 1,656 95 4,278
25. Assets Obtained in Settlement of Debts
2012 2011 LL Million Cost At 1 January 30,751 30,847 Additions 1,747 2,076 Disposals (1,682) (1,316) Translation difference (564) (856)
At 31 December 30,252 30,751
Impairment At 1 January and 31 December (2,785) (2,785)
Net carrying value At 31 December 27,467 27,966
26. Other Assets
2012 2011 LL Million Compulsory deposits (i) 15,584 17,307 Precious metals and stamps 987 770 Customers’ transactions between head office and branches 14,879 12,726 Prepaid expenses 21,524 24,485 Sundry debtors (ii) 16,682 19,676 Other revenues to be collected 6,030 3,981 Reinsurer’s share of technical reserves 40,605 37,595 Other assets 31,399 36,448 147,690 152,988
120 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
(i) Compulsory deposits represent amounts deposited with local authorities based on local regulations of the countries in which the subsidiaries are located, and are detailed as follows:
2012 2011 LL Million BLOMInvest SAL 1,500 1,500 Bank of Syria and Overseas SA 9,475 11,107 BLOM Development Bank SAL 4,500 4,500 BLOM Bank France 55 56 Experts Company for Financial Services 54 144 15,584 17,307
(ii) Sundry debtors
2012 2011 LL Million Sundry debtors 19,431 22,817 Less: Provision against sundry debtors (2,749) (3,141) 16,682 19,676
The movement of provision against sundry debtors is summarized as follows:
2012 LL Million 2011 Balance at 1 January 3,141 2,730 Charge for the year 5 415 Translation difference (111) (4) Write-back of provisions (note 10) (286) - Balance at 31 December 2,749 3,141
27. Goodwill
2012 2011 LL Million Cost At 1 January 61,879 63,145 Translation difference (1,671) (2,316) Goodwill from purchase of “Experts Company for Financial Services” - 1,050 At 31 December 60,208 61,879
Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to groups of cash-generating units, which are also reportable segments, for impairment testing as follows:
2012 2011 LL Million Corporate and retail banking (BLOM Bank Egypt SAE) 58,033 59,556 Asset management and private banking (BLOM Bank (Switzerland) SA) 1,308 1,273 Financial Services (Experts Company for Financial Services) 867 1,050 60,208 61,879
121 Notes to the Consolidated Financial Statements 31 December 2012
Key assumptions used in value in use calculations The recoverable amount of BLOM Bank Egypt SAE has been determined based on a value in use calculation, using cash flow projections based on financial budgets approved by senior management covering a ten-year period. The following rates are used by the Group.
2012 2011 % Discount rate 16 16 Projected growth rate (average during the first 5 years) 5 5 Projected growth rate beyond the five year period 0 0
The calculation of value in use for BLOM Bank Egypt SAE is most sensitive to the following assumptions:
• Interest margins; • Discount rates; • Projected growth rates; • Gross domestic product of the country where the subsidiary operates; • Local inflation rates.
Interest margins Interest margins are based on average values achieved in the 13 months proceeding of the budget period. These are increased over the budget period for anticipated market conditions.
Discount rates Discount rates reflect management’s estimate of return on capital employed. Discount rates are calculated by using the cost of equity.
Projected growth rates, GDP and local inflation rates Assumptions are based on management analysis and published industry research.
Sensitivity to changes in assumptions Management believes that no reasonable possible change in any of the above key assumptions would cause the carrying value of the units to exceed their recoverable amount.
28. Due to Central Banks Under Repurchase Agreements
Jordan Egypt LL Million Total Central Banks 117,846 22,653 140,499
Carrying value of collateral 117,873 22,653 140,526 Interest expense 68 43 111 Annual interest rate 4.25% 9.75% Maturity date 2 January 2013 2 January 2013
29. Due to Banks and Financial Institutions
2012 2011 LL Million Current accounts 228,872 181,739 Time deposits 389,908 155,649 618,780 337,388
122 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
30. Financial Liabilities at Fair Value through Profit or Loss
2012 2011 LL Million Customers’ time deposits 22,053 41,054
At 31 December 2012, the derivative contracts’ fair value related to customers’ deposits at fair value through profit or loss amounted to a net liability of LL million 1,443 (2011: net liability of LL million 3,760).
31. Customers’ Deposits at Amortized Cost
2012 2011 LL Million Customers’ deposits at amortized cost Sight deposits 4,771,806 4,192,070 Time deposits 14,902,872 13,906,752 Saving accounts 11,234,871 10,770,447 Credit accounts and deposits against debit accounts 1,677,432 1,409,796 Margins on letters of credit 62,850 87,478 32,649,831 30,366,543
Customers’ deposits include coded deposit accounts in BLOM Bank SAL and BLOMInvest Bank SAL amounting to LL 125,848 million as of 31 December 2012 (2011: LL 129,495 million).
32. Other Liabilities
2012 2011 LL Million Current tax liabilities 46,096 72,496 Sundry creditors 113,591 107,136 Dividends payable 686 678 Accrued expenses 49,629 59,589 Transactions pending between branches 55,086 66,397 Unearned premiums and liability related to insurance contracts 275,070 278,478 Complementary taxes due related to a subsidiary bank (i) 30,270 20,901 Other taxes due 14,047 14,599 Other liabilities 6,507 15,052 590,982 635,326
(i) Complementary taxes due related to BLOM Bank Egypt SAE represent mainly accruals for additional complementary taxes resulting from inspection by tax authorities.
123 Notes to the Consolidated Financial Statements 31 December 2012
33. Provisions for Risks and Charges
2012 2011 LL Million Provision for risks and charges (i) 22,812 19,597 Provision for outstanding claims and IBNR reserves related to 42,414 39,775 subsidiary- insurance companies Retirement benefits obligation (ii) 52,997 48,948 Provision on commitment by signature (iii) - 10 Other provisions 1,185 1,179 119,408 109,509
(i) Provisions for risks and charges
2012 2011 LL Million Balance at 1 January 19,597 13,036 Charge for the year (note 12) 4,690 9,483 Provisions paid during the year (108) (1,862) Provisions written-back during the year (185) (28) Provisions written-off (1,041) - Transfer to commitment by signature - (10) Exchange difference (141) (1,022) Balance at 31 December 22,812 19,597
(ii) Retirement benefits obligation
2012 2011 LL Million Balance at 1 January 48,948 45,075 Charge for the year (note 11) 8,417 7,323 Benefits paid (4,135) (3,029) Exchange difference (233) (421) Balance at 31 December 52,997 48,948
(iii) Provision on commitment by signature
2012 2011 LL Million Balance at 1 January 10 2,463 Charge for the year (note 10) - 133 Provisions written-back during the year (10) - Transfer to collective provision on commercial loans (note 20) - (2,596) Transfer from provision for risks and charges - 10 Balance at 31 December - 10
124 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
34. Share Capital and Premiums
2012 2011
Share Share Share Share LL Million capital premium capital premium Common shares – Authorized, issued and fully paid
215,000,000 shares at LL 1,200 per share as of 31 December 2012 258,000 374,059 258,000 374,059 (31 December 2011: the same)
2012 2011
Share Share Share Share capital premium capital premium LL Million Preferred shares – Authorized, issued and fully paid
20,000,000 preferred shares (2011 issue) at LL 1,200 per share as of 31 24,000 277,500 24,000 277,500 December 2012 (31 December 2011: the same)
a- Preferred shares outstanding as of 31 December 2012 and 31 December 2011 consist of:
According to the provisions of Law no 308 dated 3 April 2001, the Extraordinary General Assembly Meeting of Shareholders held on 4 April 2011, resolved to issue preferred shares at the following conditions:
2011 issue
Number of shares 20,000,000
Par value of issued shares (LL 1,200 share) LL 24,000 million
LL 277,500 million Premium (denominated in USD) (USD 184,080 thousands)
2011 distributions to be based on a fixed amount of USD 0.7 per share (subject to the approval of the Non cumulative benefits Shareholders’ General Assembly Meeting and the availability of a non- consolidated distributable net income for the year).
These preferred shares are redeemable 60 days after the annual general assembly dealing with the accounts for the year 2016 at the discretion of the Bank at the issue price.
All of the Bank’s common and preferred shares are listed in the Beirut Stock Exchange starting 20 June 2008. Out of the total common shares, 73,896,010 shares are listed as Global Depository Receipts (GDRs) in the Luxembourg Stock Exchange.
125 Notes to the Consolidated Financial Statements 31 December 2012
35. Non Distributable Reserves
Reserve for Reserve for Other general banking Legal increase of Total reserve reserves LL Million risks share capital At 1 January 2011 155,904 244,824 58,643 57,565 516,936 Appropriation of 2010 profits 45,750 47,627 - 330 93,707 Capital increase - (76) - - (76) Adjustments related to change in ownership 3 7 3 - 13 in subsidiaries Net gain on sale of treasury shares - - 1,890 - 1,890 Transfer to reserve for increase in share - - 102 (102) - capital At 31 December 2011 201,657 292,382 60,638 57,793 612,470
Appropriation of 2011 profits 49,915 48,812 1,230 427 100,384 Net loss on sale of treasury shares - - (3,544) - (3,544)
At 31 December 2012 251,572 341,194 58,324 58,220 709,310
Reserves for general banking risks According to the Central Bank of Lebanon regulations, banks in Lebanon are required to appropriate from their annual net profit a minimum of 0.2 percent and a maximum of 0.3 percent of total risk weighted assets and off statement of financial position items based on rates specified by the Central Bank of Lebanon to cover general banking risks. The consolidated ratio should not be less than 1.25 percent of these risks at the end of year ten (2017) and 2 percent at the end of year twenty (2027). This reserve is part of the Group’s equity and cannot be distributed as dividends.
The appropriation in 2012 from the profits of the year 2011 amounted to LL 49,915 million (2011: LL 45,750 million).
Legal reserve According to the Lebanese Code of Commerce and to the Money and Credit Act, banks and companies operating in Lebanon have to transfer 10% of their annual net profit to a legal reserve. In addition, subsidiaries and branches are also subject to legal reserve requirements based on the rules and regulations of the countries in which they operate. This reserve cannot be distributed as dividends.
During 2012, the Group appropriated LL 48,812 million from 2011 profits to the legal reserve in accordance with the General Assembly of Shareholders’ resolution (2011: LL 47,627 million).
Reserve for increase of share capital The balance amounting to LL 58,324 million (2011: LL 60,638 million) represents a regulatory reserve pursuant to circular no. 167, dated 24 January 1994, issued by the Banking Control Commission. This reserve cannot be distributed as dividends.
Details of the reserve for increase of share capital are as follows:
2012 2011 LL Million Recoveries of provisions for doubtful debts 40,712 39,482 Revaluation reserves for fixed assets sold 668 668 Gain on sale of treasury shares 16,842 20,386 Transfer from other reserves 102 102 58,324 60,638
126 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Other reserves Other reserves consist of non-distributable reserves of subsidiaries appropriated from retained earnings as required by the laws applicable in the countries in which they operate. During 2012, the Group transferred an amount of LL 427 million from retained earnings to other reserves (2011: LL 330 million).
36. Distributable Reserves
2012 2011 LL Million General reserves 395,042 363,961
General reserves The Group appropriates general reserves from its retained earnings to strengthen its equity. This reserve amounting to LL 395,042 million (2011: LL 363,961 million) is available for dividend distribution.
37. Treasury Shares
Movement of treasury shares recognized in the consolidated statement of financial position is as follows:
2012 No. of Amount common shares LL Million At 1 January 6,698,360 83,162 Purchase of treasury shares 7,686,271 85,060 Sale of treasury shares (8,737,714) (100,920)
At 31 December 5,646,917 67,302
2011 No. of Amount common shares LL Million At 1 January 6,104,211 75,793 Purchase of treasury shares 2,154,425 27,650 Sale of treasury shares (1,560,276) (20,281)
At 31 December 6,698,360 83,162
The treasury shares represent Global Depository Receipts (GDR) purchased by the Bank. The market value of one GDR was USD 7.95 as of 31 December 2012 (2011: US$ 7.45).
The Group realized a loss of LL 3,544 million from the sale of treasury shares during the year 2012 (2011: a gain of LL 1,890 million). Gains and losses are reflected in the “Non distributable reserves”.
127 Notes to the Consolidated Financial Statements 31 December 2012
38. Retained Earnings
As of 31 December, retained earnings include the following non distributable amounts:
2012 2011 LL Million Group’s share of accumulated unrealized gain on revaluation of 2,957 - structural position of subsidiary bank Unrealized gain on financial assets at fair value through profit or loss 11,932 15,616 14,889 15,616
Appropriation of profit during the year attributable to equity holders of the parent includes non-distributable amounts of LL 14,889 million (2011: LL 15,616 million).
In accordance with decision 362 of the Council of Money and Credit of Syria, unrealized accumulated foreign exchange profits from the revaluation of the structural position in foreign currency maintained by the subsidiary bank in Syria are non-distributable. These are classified as non- distributable amounts in retained earnings after the closing of each financial year ending 31 December, upon transfer of the profit for the period to retained earnings.
39. Revaluation Reserve of Real Estate
2012 LL Million 2011 Revaluation reserve accepted in Tier II capital 14,727 14,727
40. Change in Fair Value of Financial Assets at Fair Value Through Other Comprehensive Income
Movement of the change in fair value of financial assets at fair value through other comprehensive income during the year was as follows:
2012 2011 LL Million At 1 January (950) - Net changes in fair values during the year 544 (953)
Adjustments related to change in ownership in subsidiaries - 3
Balance at 31 December (406) (950)
128 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
41. Cash and Cash Equivalents
2012 2011 LL Million Cash and balances with central banks 2,077,323 1,572,872 Deposits with banks and financial institutions (whose original 3,692,468 3,757,614 maturities are less than 3 months) 5,769,791 5,330,486 Less: Due to Central banks under repurchase agreements (140,499) - Due to banks and financial institutions (whose original maturities are (509,268) (265,223) less than 3 months) 5,120,024 5,065,263
Non cash transactions due to the early adoption of IFRS 9 included in the consolidated statement of cash flows for the year ended 31 December 2011 are as follows:
2011 LL Million Operating activities Decrease in retained earnings (72,534) Decrease in financial assets held-for-trading 54,816 Increase in debt instruments at fair value through profit or loss (888,567) Increase in funds at fair value through profit or loss (25,969) Increase in equity instruments at fair value through profit or loss (22,181) (954,435)
2011 LL Million Investing activities Decrease in available-for-sale reserve (96,221) Decrease in financial investments – available-for-sale 4,116,261 Decrease in other financial assets classified as loans and receivables 9,455,986 Decrease in financial investments – held-to-maturity 912,295 Increase in financial assets at amortized cost (13,426,000) Increase in equity instruments at fair value through other comprehensive income (7,886) 954,435
42. Dividends Declared and Paid
According to the resolution of the General Assembly meeting held on 19 May 2012, the following dividends were declared and paid, from the 2011 profits.
2012
Number Dividends per Total of shares share in LL LL Million
Dividends on preferred shares – 2011 issue 20,000,000 1,055.25 21,105 Dividends on common shares 208,992,695 675 141,070 162,175
129 Notes to the Consolidated Financial Statements 31 December 2012
The dividends on common shares, declared on 19 May 2012, were paid net of the treasury shares as of that date.
According to the resolution of the General Assembly meeting held on 8 April 2011, the following dividends were declared and paid, from the 2010 profits.
2011
Number of Dividends per Total shares share in LL LL Million
Dividends for preferred shares – 2004 issue 7,500,000 1,281.375 9,611 Dividends for preferred shares – 2005 issue 10,000,000 1,432.125 14,322 Dividends for common shares 209,170,479 675 141,191 165,124
The dividends on common shares, declared on 8 April 2011, were paid net of the treasury shares as of that date.
43. Related Party Transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operation decisions, or one other party controls both. The definition includes subsidiaries, key management personnel and their close family members, as well as entities controlled or jointly controlled by them.
A list of the Group’s principal subsidiaries is shown in note 2. Transactions between the Bank and its subsidiaries meet the definition of related party transactions. However, where these are eliminated on consolidation, they are not disclosed in the Group’s financial statements.
Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Bank, directly or indirectly.
Loans to related parties, (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with others and (c) did not involve more than a normal risk of collectability or present other unfavorable features.
Related party balances included in the Group’s Statement of Financial Position are as follows as of 31 December:
2012
Key management Other related Total Personnel parties
Outstanding Outstanding Outstanding LL Million balance balance balance Deposits 79,548 97,828 177,376 Net loans and advances 9,998 6,199 16,197 Guarantees given 432 218 650
130 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
2011
Key management Other related Total Personnel parties
Outstanding Outstanding Outstanding LL Million balance balance balance Deposits 80,351 108,370 188,721 Net loans and advances 9,903 8,367 18,270 Guarantees given 508 56 564
Related party transactions included in the Group’s Income Statement are as follows for the year ended 31 December:
2012
Key management Other related Total LL Million Personnel parties Interest received from net loans and advances 360 142 502 Interest paid on deposits 1,901 5,346 7,247 Accounting services’ revenues - 240 240
2011
Key management Other related Total LL Million Personnel parties Interest received from net loans and advances 335 365 700 Interest paid on deposits 2,031 6,053 8,084 Accounting services’ revenues - 240 240
Key Management Personnel Total remuneration awarded to key management personnel represents the awards made to individuals that have been approved by the Board Remuneration Committee as part of the latest pay round decisions. Figures are provided for the period that individuals met the definition of key management personnel.
2012 2011 LL Million Short-term benefits 43,361 35,434 Post-employment benefits (charge for the year) 2,424 1,993
Short-term benefits comprise of salaries, bonuses, profit-sharing, attendance fees and other benefits.
131 Notes to the Consolidated Financial Statements 31 December 2012
Credit – related commitments and contingent liabilities To meet the financial needs of customers, the Group enters into various commitments, guarantees andother contingent liabilities, which are mainly credit-related instruments including both financial and non-financial guarantees and commitments to extend credit. Even though these obligations may not be recognized on the consolidated statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group. The table below discloses the nominal principal amounts of credit-related commitments and contingent liabilities. Nominal principal amounts represent the amount at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being withdrawn, the total of the nominal principal amount is not indicative of future liquidity requirements.
44. Contingent Liabilities, Commitments and Leasing Arrangements
2012
Banks Customers Total LL Million Guarantees issued 107,055 712,900 819,955 Commitments Documentary credits 170,642 - 170,642 Undrawn credit lines - 1,814,219 1,814,219 Other commitments 814,857 169,694 984,551 1,092,554 2,696,813 3,789,367
2011
Banks Customers Total LL Million Guarantees issued 143,165 771,252 914,417 Commitments Documentary credits 231,288 - 231,288 Undrawn credit lines - 2,355,288 2,355,288 Other commitments 622,722 160,771 783,493 997,175 3,287,311 4,284,486
Guarantees issued Guarantees are given as security to support the performance of a customer to third parties. The main types of guarantees provided are:
• Financial guarantees given to banks and financial institutions on behalf of customers to secure loans, overdrafts, and other banking facilities; and • Other guarantees are contracts that have similar factures to the financial guarantee contracts but fail to meet the strict definition of a financial guarantee contract under IFRS. These include mainly performance and tender guarantees.
Documentary credits Documentary credits commit the Group to make payments to third parties, on production of documents, which are usually reimbursed immediately by customers.
Undrawn credit lines Undrawn credit lines and other commitments to lend are agreements to lend a customer in the future, including revocable agreements, subject to certain conditions. Such commitments are either made for a fixed period, or have no specific maturity but are cancelable by the lender subject to notice requirements.
132 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Legal claims Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Group has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Group had several unresolved legal claims.
Based on advice from legal counsel, management believes that legal claims will not result in any material financial loss to the Group.
Capital and operating lease commitments Capital expenditures and lease payments that were not provided for as of the consolidated statement of financial position date are as follows:
2012 2011 LL Million Capital commitments Property and equipment 25,603 24,665 Operatisng lease commitments – Group as lessee Future minimum lease payments under operating leases: During one year 2,357 2,581 More than 1 year and less than five years 7,016 7,497 More than five years 7,923 8,245
Total operating lease commitments at the statement of financial 17,296 18,323 position date
Other commitments and contingencies Financial assets at amortized cost include Jordanian and Egyptian treasury bills amounting to LL 140,499 million pledged against Due to Central banks under repurchase agreements (note 28).
The Bank’s books in Lebanon were reviewed by the tax authorities for the years 2006 and 2007 inclusive. The outcome of this review resulted in additional taxes and penalties amounting to LL 3,038 million which were paid in 2012. The Bank’s books in Lebanon have not been reviewed by the tax authorities for the years 2008 to 2012.
The Bank’s books in Lebanon remain subject to the review of the National Social Security Fund (NSSF) for the period from 1 January 1998 to 31 December 2012. In addition, the subsidiaries’ books and records are subject to review by the tax and social security authorities in the countries in which they operate. Management believes that adequate provisions were recorded against possible review results to the extent that they can be reliably estimated.
Contingent liabilities During 2011 and 2012, Syria, one of the significant credit markets of the Group, witnessed a period of political and civil unrest together with adverse events which can affect the economic environment of future periods. As part of its collective provisioning process, management performed a stress test on the loan portfolio exposed to the Syrian market risks and, as a result, the necessary provisions were booked. The Group’s management continues to monitor its loan portfolio and evaluate the impact of these events during 2013.
133 Notes to the Consolidated Financial Statements 31 December 2012
45. Fiduciary Deposits, Assets Under Management and Custody Accounts
2012 2011 LL Million Fiduciary deposits 388,652 916,549 Financial assets under management and custody accounts 7,458,223 7,475,946 7,846,875 8,392,495
The Group provides safekeeping of securities and other financial assets on behalf of clients, in addition to various support functions including the valuation of portfolios of securities and other financial assets, which complements the custody business.
46. Fair Value of the Financial Instruments
Financial instruments recorded at fair value The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
Derivatives Derivative products valued using a valuation technique with market observable inputs are mainly currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.
Financial assets at fair value through other comprehensive income These assets are valued using models that use both observable and unobservable data. The unobservable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.
Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss valued using a valuation technique consists of certain debt securities. The Group values the securities using discounted cash flow valuation models which incorporate observable and unobservable data. Observable inputs include assumptions regarding current rates of interest and broker statements. Unobservable inputs include assumptions regarding expected future default rates, prepayment rates and market liquidity discounts.
A. Determination of fair value and fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
134 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
2012
Level 1 Level 2 Total LL Million Financial assets Derivative financial instruments: Forward foreign exchange contracts - 33,564 33,564 Futures on commodities 3,518 - 3,518 3,518 33,564 37,082 Financial assets at fair value through profit or loss: Unquoted equity securities - 11,418 11,418 Quoted equity securities 25,359 - 25,359 Quoted government debt securities 46,584 - 46,584 Unquoted government debt securities - 84,674 84,674 Quoted corporate debt securities 648,778 - 648,778 Funds - 30,554 30,554 720,721 126,646 847,367
Financial assets at fair value through other comprehensive income
Equity securities - 3,108 3,108 Funds - 2,850 2,850 - 5,958 5,958 Financial liabilities Derivative financial instruments Forward foreign exchange contracts - 43,811 43,811 Equity swaps and options - 1,442 1,442 Futures on commodities 7,241 - 7,241 7,241 45,253 52,494 Financial liabilities at fair value through profit or loss 22,053 - 22,053
135 Notes to the Consolidated Financial Statements 31 December 2012
2011
Level 1 Level 2 Total LL Million Financial assets
Derivative financial instruments:
Forward foreign exchange contracts - 18,100 18,100
Equity swaps and options - 358 358
Futures on commodities 7,090 - 7,090
3,518 18,458 25,548
Financial assets at fair value through profit or loss:
Unquoted equity securities - 10,734 10,734
Quoted equity securities 17,796 - 17,796
Quoted government debt securities 21,852 - 21,852
Investments related to unit-linked contracts - 36,259 36,259
Unquoted government debt securities - 11,823 11,823
Quoted corporate debt securities 731,403 - 731,403
Funds - 27,599 27,599
771,051 86,415 857,466
Financial assets at fair value through other comprehensive income
Equity securities - 2,445 2,445
Funds - 4,200 4,200
- 6,645 6,645
Financial liabilities
Derivative financial instruments
Forward foreign exchange contracts - 4,998 4,998
Equity swaps and options - 4,118 4,118
Futures on commodities 4,635 - 4,635 4,635 9,116 13,751 Financial liabilities at fair value through profit or loss 41,054 - 41,054
136 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Set out below is a comparison, by class, of the carrying amounts and fair values of the Group’s financial instruments that are not carried at fair value in the consolidated financial statements. This table does not include the fair value of non-financial assets and non-financial liabilities.
2012 2011 Carrying Carrying Fair value Fair value LL Million value value Financial assets Cash and balances with central banks 7,458,577 7,584,684 6,062,381 6,131,421 Due from banks and financial institutions 5,070,495 5,070,368 4,845,533 4,845,049 Loans to banks and financial institutions 114,610 127,192 116,781 135,311 Net loans and advances to customers at amortized cost 9,070,287 9,190,768 8,409,450 8,536,658 Debtors by acceptances 104,191 104,191 240,277 240,277 Net loans and advances to related parties at amortized cost 16,197 16,315 18,270 18,380 Financial assets at amortized cost 14,308,536 14,622,486 13,648,659 14,187,730 Government debt securities 6,733,773 6,779,910 6,177,034 6,200,682 Certificates of deposit – Central Banks 6,123,551 6,349,260 6,176,147 6,710,737 Corporate debt securities 901,861 939,259 895,716 874,329 Certificates of deposit – Commercial banks and financial institutions 549,351 554,057 399,762 401,982
Financial liabilities Due to Central banks under repurchase agreements 140,499 140,499 - - Due to banks and financial institutions 618,780 618,755 337,388 337,396 Customers' deposits at amortized cost 32,649,831 32,737,842 30,366,543 30,402,077 Deposits from related parties at amortized cost 177,376 177,624 188,721 213,742 Engagements by acceptances 104,191 104,191 240,277 240,277
Fair value of financial assets and liabilities not carried at fair value The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the consolidated financial statements:
Assets for which fair value approximates carrying value For financial assets and financial liabilities that have a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, and savings accounts without a specific maturity.
Fixed rate financial instruments The fair value of fixed rate financial assets and liabilities carried at amortized cost are estimated by comparing market interest rates when they were first recognized with current market rates for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money- market interest rates for debts with similar credit risk and maturity. For quoted debt issued, the fair values are determined based on quoted market prices. For those notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads. For other variable rate instruments, an adjustment is also made to reflect the change in required credit spread since the instrument was first recognized.
137 Notes to the Consolidated Financial Statements 31 December 2012
Fair value of loans and advances In order to compute the fair value of loans and advances to customers, the Group considers that these loans will mature in principal and interest at the first day in which interest is repriced. These future cash flows have been discounted using the appropriate benchmark rate at the statement of financial position date for the remaining term to maturity plus the appropriate risk premium of the customer.
47. Maturity Analysis of Assets and Liabilities
The table below shows an analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled.
The maturity profile of the Group’s assets and liabilities as at 31 December is as follows:
2012 Less than More than Total LL Million one year one year Assets Cash and balances with central banks 2,327,182 5,131,395 7,458,577 Due from banks and financial institutions 5,004,316 66,179 5,070,495 Loans to banks and financial institutions 54,808 59,802 114,610 Derivative financial instruments 37,082 - 37,082 Financial assets at fair value through profit or loss 31,191 816,176 847,367 Net loans and advances to customers at amortized cost 6,650,695 2,419,592 9,070,287 Net loans and advances to related parties at amortized cost 13,353 2,844 16,197 Debtors by acceptances 102,206 1,985 104,191 Financial assets at amortized cost 1,906,451 12,402,085 14,308,536 Financial assets at fair value through other comprehensive income - 5,958 5,958 Property and equipment - 492,092 492,092 Intangible assets - 3,865 3,865 Assets obtained in settlement of debt - 27,467 27,467 Other assets 136,210 11,480 147,690 Goodwill - 60,208 60,208 Total Assets 16,263,494 21,501,128 37,764,622
Liabilities Due to Central banks under repurchase agreements 140,499 - 140,499 Due to banks and financial institutions 618,780 - 618,780 Derivative financial instruments 52,494 - 52,494 Financial liabilities at fair value through profit or loss 22,053 - 22,053 Customers' deposits at amortized cost 31,689,419 960,412 32,649,831 Deposits from related parties at amortized cost 177,376 - 177,376 Engagements by acceptances 102,206 1,985 104,191 Other liabilities 588,457 2,525 590,982 Provisions for risks and charges 47,223 72,185 119,408 Total Liabilities 33,438,507 1,037,107 34,475,614
Net (17,175,013) 20,464,021 3,289,008
138 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
2011
Less than More than Total LL Million one year one year Assets Cash and balances with central banks 2,646,664 3,415,717 6,062,381 Due from banks and financial institutions 4,463,337 382,196 4,845,533 Loans to banks and financial institutions 48,465 68,316 116,781 Derivative financial instruments 25,548 - 25,548 Financial assets at fair value through profit or loss 111,938 745,528 857,466 Net loans and advances to customers at amortized cost 6,025,234 2,384,216 8,409,450 Net loans and advances to related parties at amortized cost 17,791 479 18,270 Debtors by acceptances 240,277 - 240,277 Financial assets at amortized cost 2,370,664 11,277,995 13,648,659 Financial assets at fair value through other comprehensive income 2,445 4,200 6,645 Property and equipment - 443,831 443,831 Intangible assets - 4,278 4,278 Assets obtained in settlement of debt - 27,966 27,966 Other assets 138,921 14,067 152,988 Goodwill - 61,879 61,879 Total Assets 16,091,284 18,830,668 34,921,952
Liabilities Due to banks and financial institutions 319,298 18,090 337,388 Derivative financial instruments 13,751 - 13,751 Financial liabilities at fair value through profit or loss 41,054 - 41,054 Customers' deposits at amortized cost 29,609,572 756,971 30,366,543 Deposits from related parties at amortized cost 188,721 - 188,721 Engagements by acceptances 240,277 - 240,277 Other liabilities 613,720 21,606 635,326 Provisions for risks and charges 22,807 86,702 109,509 Total Liabilities 31,049,200 883,369 31,932,569
Net (14,957,916) 17,947,299 2,989,383
48. Risk Management
The Group manages its business activities within risk management guidelines as set by the Group’s “Risk Management Policy” approved by the Board of Directors. The Group recognizes the role of the Board of Directors and executive management in the risk management process as set out in the Banking Control Commission circular 242. In particular, it is recognized that ultimate responsibility for establishment of effective risk management practices and culture lies with the Board of Directors as does the establishing of the Group’s risk appetite and tolerance levels. The Board of Directors delegates through its Risk Management Committee the day–to–day responsibility for establishment and monitoring of risk management process across the Group to the Chief Risk Officer, who is directly appointed by the Board of Directors, in coordination with executive management at BLOM Bank SAL.
The Group is mainly exposed to credit risk, liquidity risk, market risk and operational risk.
139 Notes to the Consolidated Financial Statements 31 December 2012
The Board’s Risk Management Committee has the mission to periodically (1) review and assess the risk management function of the Group, (2) review the adequacy of the Group’s capital and its allocation within the Group, and (3) review risk limits and reports and make recommendations to the Board.
The Chief Risk Officer undertakes his responsibilities through the “Risk Management Department” in Beirut which also acts as Group Risk Management, overseeing and monitoring risk management activities throughout the Group. The Chief Risk Officer is responsible for establishing the function of Risk Management and its employees across the Group.
BLOM Bank’s Group Risk Management aids executive management in monitoring, controlling and actively managing and mitigating the Group’s overall risk. The department mainly ensures that:
• Risk policies and methodologies are consistent with the Group’s risk appetite. • Limits and risk across banking activities are monitored throughout the Group.
Through a comprehensive risk management framework, transactions and outstanding risk exposures are quantified and compared against authorized limits, whereas non-quantifiable risks are monitored against policy guidelines as set by the Group’s “Risk Management Policy”. Any discrepancies, breaches or deviations are escalated to executive senior management in a timely manner for appropriate action.
In addition to the Group’s Risk Management in Lebanon, risk managers and / or risk officers were assigned within the Group’s foreign subsidiaries or branches to report to the Group Risk Management and executive senior management in a manner that ensures:
• Standardization of risk management functions and systems developed across the Group. • Regional consistency of conducted business in line with the Board’s approved risk appetite.
The major objective of risk management is the implementation of sound risk management practices and the Basel II framework as well as all related regulatory requirements within the Group. The Group is setting appropriate infrastructure for the anticipated Basel III implementation. Pillar I capital adequacy calculations have been generated since December 2004, while preparations for moving on to the more advanced approaches of pillar I have been initiated. Group Risk Management is progressively complying with the requirements of pillars II and has submitted its first Internal Capital Adequacy Assessment Process (ICAAP) for BLOM Bank onan individual and consolidated basis and is awaiting the regulatory Supervisory Review Process by the Banking Control Commission. The Group has documented a Board approved Disclosure Policy taking into account the requirements of pillar III of the Basel framework.
Excessive risk concentration Concentrations arise when the Group has significant exposure to one borrower or a group of related borrowers or to a number of counter parties engaging in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance developments affecting a particular industry or geographic location.
In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Group to manage risk concentrations at both the relationship and industry levels. The Group applies stress testing on its concentrations in order to assess their effect on the Group financial standing and capital adequacy in a stressed situation.
140 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
48.1 Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counter parties, and continuously assessing the creditworthiness of counter parties.
The Group manages credit risk in line with the guidelines set by the Basel Framework and regulatory guidance. The Group has set a credit risk policy which lays down norms for credit risk governance, methodologies and procedures for credit risk management and measurement. It consists of the following:
• The permissible activities, segments, programs and services that the Group intends to deliver and the acceptable limits; • The mechanism of the approval on credit-facilities; • The mechanism for managing and following up credit-facilities; and • The required actions for analyzing and organizing credit files.
The debt securities included in investments are mainly sovereign risk and standard grade securities. For details of the composition of the net loans and advances refer to note 20. Information on credit risk relating to derivative instruments is provided in note 18 and for commitments and contingencies in note 44. The information on the Group’s net maximum exposure by economic sectors is given in note (A) below.
The Group’s Risk Management is designed to identify and to set appropriate risk limits and to monitor the risk adherence to limits. Actual exposures against limits are monitored daily, monthly and periodically. Group Risk Management is responsible for monitoring the risk profile of the Group’s loan portfolio by producing internal reports highlighting any exposure of concern in corporate, commercial and consumer lending. The Group examines the level of concentration whether by credit quality, client groupings or economic sector and collateral coverage. Further, the Group monitors non-performing loans and takes the required provisions for these loans.
The Group in the ordinary course of lending activities holds collaterals and guarantees as security to mitigate credit risk in the net loans and advances. Collaterals and guarantees are continuously monitored and revaluated. These collaterals mostly include cash collateral, quoted shares and debt securities, real estate mortgages, personal guarantees and others. In addition, the Recovery Unit in the Group dynamically manages and takes remedial actions for non-performing loans.
The Group uses an internal classification system based on risk ratings for its corporate and middle market customers. The risk rating system, which is managed by an independent unit, provides a rating based on client and transaction level. The classification system includes six grades, of which three grades relate to the performing portfolio (regular credit facilities: risk ratings “1” and “2” and special mention – watch list: risk rating “3”), one grade relates to substandard loans (risk rating “4”) and two grades relate to non-performing loans (risk ratings “5” and “6”). Credit cards, personal loans, car loans, housing loans and other loans related to these loans are classified as regular as they are performing and have timely repayment with no past dues; except for those loans that have unsettled payments due for more than 90 days. Each individual borrower is rated based on an internally developed debt rating model that evaluates risk based on financial as well as qualitative inputs. The associated loss estimate norms for each grade have been calculated based on the Group’s historical default rates for each rating. These risk ratings are reviewed on a regular basis.
Introduction of the Moody’s Risk Analyst credit analysis and internal ratings system in the domestic market has provided the Group with an additional tool to enhance risk measurement and assessment of the corporate and commercial loan portfolios. This system will be gradually extended to all group entities over time.
At the same time, implementation of consumer loan application and behavioral scorecards will aid significantly in meeting Basel II requirements for the retail portfolio as well as making available new quality management resources.
141 Notes to the Consolidated Financial Statements 31 December 2012
Non-performing loans are closely monitored and well provisioned as required with remedial actions taken and managed proactively by a dedicated Recovery Unit. In line with Basel II, the Group considers payments that are past due for more than 90 days as being non-performing.
The Group uses its internal grading system and Moody’s for the classification of the financial assets portfolio.
A- Analysis of risk concentration
The Group concentrations of risk are managed by client/counterparty, by geographical region. The maximum credit exposure to any client or counterparty as at 31 December 2012 was LL 447,930 million (2011: LL 280,608 million). The collateral’s fair value as at 31 December 2012 amounted to LL 518,681 million (2011: LL 287,253 million).
The following table shows the maximum exposure to credit risk for the components of the consolidated statement of financial position, including derivatives, by geography of counterparty before the effect of mitigation through the use of master netting and collateral agreements. Where financial instruments are recorded at fair value, the amounts shown represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.
2012
LL Million Domestic International Total Financial assets Balances with central banks 5,953,148 1,318,972 7,272,120 Due from banks and financial institutions 453,411 4,617,084 5,070,495 Loans to banks and financial institutions 60,477 54,133 114,610 Derivative financial instruments 4,605 32,477 37,082 Financial assets at fair value through profit or loss 94,208 753,159 847,367 Government debt securities 59,009 72,249 131,258 Corporate debt securities 279 648,499 648,778 Funds 19,417 11,137 30,554 Shares 15,503 21,274 36,777 Net loans and advances to customers at amortized cost 6,175,350 2,894,937 9,070,287 Commercial loans 3,796,973 2,108,995 5,905,968 Consumer loans 2,378,377 785,942 3,164,319 Net loans and advances to related parties at amortized cost 6,143 10,054 16,197 Debtors by acceptances 66,683 37,508 104,191 Financial assets at amortized cost 11,894,199 2,414,337 14,308,536 Government debt securities 5,391,559 1,342,214 6,733,773 Corporate debt securities 37,736 864,125 901,861 Certificates of deposit – Central Banks 6,123,551 - 6,123,551
Certificates of deposit – Commercial banks and financial institutions 341,353 207,998 549,351
Financial assets at fair value through other comprehensive income - 5,958 5,958
Total credit exposure 24,708,224 12,138,619 36,846,843
142 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
2011
LL Million Domestic International Total Financial assets Balances with central banks 5,040,827 840,531 5,881,358 Due from banks and financial institutions 735,092 4,110,441 4,845,533 Loans to banks and financial institutions 69,079 47,702 116,781 Derivative financial instruments 13,601 11,947 25,548 Financial assets at fair value through profit or loss 165,572 691,894 857,466 Government debt securities 28,928 4,747 33,675 Corporate debt securities 109,304 658,358 767,662 Funds 16,314 11,285 27,599 Shares 11,026 17,504 28,530 Net loans and advances to customers at amortized cost 5,139,055 3,270,395 8,409,450 Commercial loans 3,061,058 2,573,976 5,635,034 Consumer loans 2,077,997 696,419 2,774,416 Net loans and advances to related parties at amortized cost 10,629 7,641 18,270 Debtors by acceptances 148,820 91,457 240,277 Financial assets at amortized cost 11,382,646 2,266,013 13,648,659 Government debt securities 5,103,225 1,073,809 6,177,034 Corporate debt securities 42,234 853,482 895,716 Certificates of deposit – Central Banks 6,176,147 - 6,176,147 Certificates of deposit – Commercial banks and financial institutions 61,040 338,722 399,762 Financial assets at fair value through other comprehensive income 1,778 4,867 6,645
Total credit exposure 22,707,099 11,342,888 34,049,987
Analysis to maximum exposure to credit risk and collateral and other credit enhancements The following table shows the maximum exposure to the credit risk by class of financial asset. It further shows the total fair value of collateral, capped to the maximum exposure to which it relates and the net exposure to credit risk.
2012 Letters of Maximum Cash Securities credit / Real estate Net credit exposure Other LL Million guarantees exposure Balances with central banks 7,272,120 - - - - - 7,272,120 Due from banks and financial 5,070,495 - - - - - 5,070,495 institutions Loans to banks and financial 114,610 - - - 60,477 - 54,133 institutions Derivative financial instruments 37,082 - - - - - 37,082 Financial assets at fair value 847,367 - - - - - 847,367 through profit or loss Net loans and advances to 9,070,287 1,317,497 219,114 88,204 3,591,782 2,092,486 1,761,204 customers at amortized cost: Commercial loans 5,905,968 1,317,497 219,114 88,204 1,900,489 725,235 1,655,429 Consumer loans 3,164,319 - - - 1,691,293 1,367,251 105,775 22,411,961 1,317,497 219,114 88,204 3,652,259 2,092,486 15,042,401 Net loans and advances to 16,197 9 - - 13,400 - 2,788 related parties at amortized cost Debtors by acceptances 104,191 - - - - - 104,191 Financial assets at amortized 14,308,536 - - - - - 14,308,536 cost 36,840,885 1,317,506 219,114 88,204 3,665,659 2,092,486 29,457,916 Financial guarantees 2,773,535 Non financial guarantees 12,933,601 Documentary credits 140,635 15,847,771
143 Notes to the Consolidated Financial Statements 31 December 2012
2011 Letters of Maximum Cash Securities credit / Real estate Net credit exposure Other LL Million guarantees exposure Balances with central banks 5,881,358 - - - - - 5,881,358 Due from banks and financial 4,845,533 - - - - - 4,845,533 institutions Loans to banks and financial 116,781 - - - 69,079 - 47,702 institutions Derivative financial instruments 25,548 - - - - - 25,548 Financial assets at fair value 857,466 - - - - - 857,466 through profit or loss Net loans and advances to 8,409,450 1,139,862 288,284 62,469 2,862,468 2,198,721 1,857,646 customers at amortized cost: Commercial loans 5,635,034 1,139,862 288,284 62,469 1,524,922 884,771 1,734,726 Consumer loans 2,774,416 - - - 1,337,546 1,313,950 122,920 20,136,136 1,139,862 288,284 62,469 2,931,547 2,198,721 13,515,253 Net loans and advances to 18,270 31 - - 15,438 26 2,775 related parties at amortized cost Debtors by acceptances 240,277 - - - - - 240,277 Financial assets at amortized 13,648,659 - - - - - 13,648,659 cost 34,043,342 1,139,893 288,284 62,469 2,946,985 2,198,747 27,406,964 Financial guarantees 2,533,895 Non financial guarantees 12,321,241 Documentary credits 84,803 14,939,939
The schedules shown above exclude the undrawn commitments to lend of LL 1,814,219 million and of LL 2,355,288 million for the year ended 31 December 2012 and 2011 respectively.
Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.
Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.
The main types of collateral obtained are as follows:
Securities: The balances shown above represent the fair value of the securities and are net of any surplus collateral.
Letters of credit / guarantees: The Group holds in some cases guarantees, letters of credit and similar instruments from banks and financial institutions which enable it to claim settlement in the event of default on the part of the counterparty. The balances shown represent the notional amount of these types of guarantees held by the Group and are net of any surplus collateral.
Real estate (commercial and residential): The Group holds in some cases a first degree mortgage over residential property (for housing loans) and commercial property (for commercial loans). The value shown above reflects the fair value of the property limited to the related mortgaged amount and are net of any surplus collateral.
144 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Other: The Group also obtains guarantees from parent companies for loans to their subsidiaries, personal guarantees for loans to companies owned by individuals and assignments of insurance proceeds and revenues. The balances shown above represent the notional amount of these types of guarantees held by the Group and are net of any surplus collateral.
B- Credit quality by class of financial assets
The credit quality of financial assets is managed by the Group using external credit ratings. The credit quality of loans and advances is managed using the internal credit ratings as well as Supervisory ratings in accordance with Central Bank of Lebanon main circular 58.
The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group’s credit rating system. The amounts presented are gross of impairment allowances.
2012
Sovereign Non-Sovereign
Neither past Neither past Past due but due nor due nor Individually impaired not impaired impaired impaired Regular Regular Regular and special and special and special Sub-standard Non Total performing LL Million mention mention mention Balances with central banks 7,272,120 - - - - 7,272,120 Due from banks and financial - 5,070,495 - - 20,980 5,091,475 institutions Loans to banks and financial - 114,610 - - - 114,610 institutions Derivative financial instruments - 37,082 - - - 37,082 Financial assets at fair value 131,258 679,332 - - - 810,590 through profit or loss Government debt securities 131,258 - - - - 131,258 Corporate debt securities - 648,778 - - - 648,778 Fund - 30,554 - - - 30,554 Net loans and advances to - 8,364,815 541,160 75,652 517,248 9,498,875 customers at amortized cost Commercial loans - 5,469,813 289,768 75,652 436,434 6,271,667 Consumer loans - 2,895,002 251,392 - 80,814 3,227,208
Net loans and advances to related - 16,197 - - - 16,197 parties at amortized cost
Financial assets at amortized cost 12,857,324 1,451,212 - - - 14,308,536
Government debt securities 6,733,773 - - - - 6,733,773 Corporate debt securities - 901,861 - - - 901,861 Certificates of deposit – Central 6,123,551 - - - - 6,123,551 Banks Certificates of deposit – Commercial banks and financial - 549,351 - - - 549,351 institutions Total 20,260,702 15,733,743 541,160 75,652 538,228 37,149,485
145 Notes to the Consolidated Financial Statements 31 December 2012
2011
Sovereign Non-Sovereign
Neither past Neither past Past due but due nor due nor Individually impaired not impaired impaired impaired Regular Regular Regular and special and special and special Sub-standard Non Total performing LL Million mention mention mention Balances with central banks 5,881,358 - - - - 5,881,358 Due from banks and financial - 4,845,533 - - 20,277 4,865,810 institutions Loans to banks and financial - 116,781 - - - 116,781 institutions Derivative financial instruments - 25,548 - - - 25,548 Financial assets at fair value 69,934 759,002 - - - 828,936 through profit or loss Government debt securities 33,675 - - - - 33,675 Corporate debt securities - 731,403 - - - 731,403 Fund - 27,599 - - - 27,599 Investments related to credit 36,259 - - - - 36,259 linked contracts Net loans and advances to - 7,858,151 503,072 68,352 279,137 8,708,712 customers at amortized cost Commercial loans - 5,340,570 267,530 66,561 209,454 5,884,115 Consumer loans - 2,517,581 235,542 1,791 69,683 2,824,597 Net loans and advances to related - 18,270 - - - 18,270 parties at amortized cost Financial assets at amortized cost 12,353,181 1,295,478 - - - 13,648,659 Government debt securities 6,177,034 - - - - 6,177,034 Corporate debt securities - 895,716 - - - 895,716 Certificates of deposit – Central 6,176,147 - - - - 6,176,147 Banks Certificates of deposit – Commercial banks and financial - 399,762 - - - 399,762 institutions Total 18,304,473 14,918,763 503,072 68,352 299,414 34,094,074
C- Aging analysis of past due but not impaired financial assets, by class
2012
Less than 30 More than 30 to 60 days 61 to 90 days days 90 days Total LL Million Commercial loans 172,303 38,495 41,336 37,634 289,768 Consumer loans 175,172 53,867 12,231 10,122 251,392 347,475 92,362 53,567 47,756 541,160
2011
Less than 30 More than 30 to 60 days 61 to 90 days days 90 days Total LL Million Commercial loans 164,868 54,065 42,465 6,132 267,530 Consumer loans 165,180 54,325 16,008 29 235,542 330,048 108,390 58,473 6,161 503,072
146 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
See note 20 for more detailed information with respect to the allowance for impairment losses on net loans and advances to customers.
Renegotiated Loans Restructuring activity aims to manage customer relationships, maximize collection opportunities and, if possible, avoid foreclosure or repossession. Such activities include extended payment arrangements, deferring foreclosure, modification, loan rewrites and/or deferral of payments pending a change in circumstances.
Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that repayment will probably continue. The application of these policies varies according to the nature of the market and the type of the facility.
LL Million 2012 2011 Commercial loans 16,584 7,559
48.2 Liquidity Risk and Funding Management
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required.
The Group maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. In addition, the Group maintains statutory deposits with Central Banks. As per Lebanese banking regulations, the Bank must retain obligatory reserves with the Central Bank of Lebanon calculated on the basis of 25% of the sight deposits and 15% of term deposits denominated in Lebanese Pounds, in addition to interest bearing placements equivalent to 15% of all deposits in foreign currencies regardless of their nature.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. The Group maintains a solid ratio of highly liquid net assets in foreign currencies to deposits and commitments in foreign currencies taking market conditions into consideration.
Regulatory ratios and limits In accordance with the Central Bank of Lebanon circulars, the ratio of net liquid assets to deposits in foreign currencies should not be less than 10%. The net liquid assets consist of cash and all balances with the Central Bank of Lebanon (excluding reserve requirements), certificates of deposit issued by the Central Bank of Lebanon irrespective of their maturities and deposits due from other banks that mature within one year, less deposits due to the Central Bank of Lebanon and deposits due to banks that mature within one year. Deposits are composed of total customer deposits (excluding blocked accounts) and due from financial institutions irrespective of their maturities and all certificates of deposits and acceptances and other debt instruments issued by the Group and loans from the public sector that mature within one year.
147 Notes to the Consolidated Financial Statements 31 December 2012
Besides the regulatory requirements, the liquidity position is also monitored through internal limits, such as the loans-to-deposits ratio, the core funding ratio and the liquidity tolerance level of the Group, also referred to as Liquidity Coverage Ratio.
Liquidity ratios 2012 2011 Loans to deposit ratios (%) Year-end 27.66 27.54 Maximum 27.84 27.78 Minimum 27.48 27.09 Average 27.65 27.39
48.2.1 Analysis of financial assets and liabilities by remaining contractual maturities
The table below summarizes the maturity profile of the Group’s financial assets and liabilities as of 31 December based on contractual undiscounted cash flows. The contractual maturities have been determined based on the period remaining to reach maturity as per the statement of financial position actual commitments. Repayments which are subject to notice are treated as if notice were to be given immediately. Concerning deposits, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay.
2012 Up to Less than 3 to 12 1 to 5 Over 5 Total LL Million 1 month 3 months months years years Financial assets Cash and balances with central 2,262,449 119,721 164,412 4,130,518 2,332,867 9,009,967 banks Due from banks and financial 3,986,460 524,261 496,337 65,979 199 5,073,236 institutions Loans to banks and financial 11,141 921 46,332 14,835 63,938 137,167 institutions Derivative financial instruments 29,369 7,706 7 - - 37,082 Financial assets at fair value 8,045 4,464 35,157 701,733 175,134 924,533 through profit or loss Net loans and advances to customers at amortized cost 2,848,059 1,250,600 2,841,835 2,281,217 667,358 9,889,069 Net loans and advances to related parties at amortized cost 13,300 33 152 3,175 - 16,660 Debtors by acceptances 32,191 61,125 8,890 1,985 - 104,191 Financial assets at amortized cost 345,677 605,679 1,851,235 9,795,895 4,890,406 17,488,892 Financial assets at fair value through other comprehensive - - - 422 5,535 5,957 income Total undiscounted financial 9,536,691 2,574,510 5,444,357 16,995,759 8,135,437 42,686,754 assets
Financial liabilities Due to Central banks under 140,499 - - - - 140,499 repurchase agreements Due to banks and financial 531,873 51,701 35,498 46 - 619,118 institutions Derivative financial instruments 34,382 18,105 8 - - 52,495 Financial liabilities at fair value 20,914 205 950 - - 22,069 through profit or loss Customers' deposits at amortized 19,944,592 9,299,497 2,613,080 1,041,000 12,616 32,910,785 cost Deposits from related parties at 174,016 3,108 559 - - 177,683 amortized cost Engagements by acceptances 32,191 61,125 8,890 1,985 - 104,191 Total undiscounted financial 20,878,467 9,433,741 2,658,985 1,043,031 12,616 34,026,840 liabilities Net undiscounted financial (11,341,776) (6,859,231) 2,785,372 15,952,728 8,122,821 8,659,914 assets / (liabilities)
148 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
2011 Up to Less than 3 to 12 1 to 5 Over 5 Total LL Million 1 month 3 months months years years Financial assets Cash and balances with central 1,877,266 257,285 667,944 2,970,562 1,410,738 7,183,795 banks Due from banks and financial 3,814,719 521,618 148,514 391,697 - 4,876,548 institutions Loans to banks and financial 611 16,246 35,961 17,453 76,191 146,462 institutions Derivative financial instruments 7,324 18,224 - - - 25,548 Financial assets at fair value 41,161 4,439 82,094 421,623 370,385 919,702 through profit or loss Net loans and advances to customers at amortized cost 2,711,926 860,795 2,732,900 2,316,574 582,786 9,204,981 Net loans and advances to related parties at amortized cost 14,926 45 963 973 3,473 20,380 Debtors by acceptances 66,509 125,955 47,813 - - 240,277 Financial assets at amortized cost 336,892 326,523 2,631,843 9,683,325 4,219,319 17,197,902 Financial assets at fair value through other comprehensive 1,895 - 550 - 4,199 6,644 income Total undiscounted financial 8,873,229 2,131,130 6,348,582 15,802,207 6,667,091 39,822,239 assets
Financial liabilities Due to banks and financial 287,279 4,053 31,110 18,845 - 341,287 institutions Derivative financial instruments 8,853 4,898 - - - 13,751 Financial liabilities at fair value 41,054 - - - - 41,054 through profit or loss Customers' deposits at amortized 22,287,797 5,742,071 1,697,471 800,852 26,177 30,554,368 cost Deposits from related parties at 182,710 3,196 2,976 - - 188,882 amortized cost Engagements by acceptances 66,509 125,955 47,813 - - 240,277 Total undiscounted financial 22,874,202 5,880,173 1,779,370 819,697 26,177 31,379,619 liabilities Net undiscounted financial (14,000,973) (3,749,043) 4,569,212 14,982,510 6,640,914 8,442,620 assets / (liabilities)
The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.
2012 Less than 3 to 12 1 to 5 On demand Over 5 Total LL Million 3 months months years years Guarantees issued 819,955 - - - - 819,955 Documentary credits - 170,642 - - - 170,642 Other commitments - 984,551 - - - 984,551 Total 819,955 1,155,193 - - - 1,975,148
2011 Less than 3 to 12 1 to 5 On demand Over 5 Total LL Million 3 months months years years Guarantees issued 914,417 - - - - 914,417 Documentary credits - 231,288 - - - 231,288 Other commitments - 783,493 - - - 783,493 Total 914,417 1,014,781 - - - 1,929,198
The Group expects that not all of the contingent liabilities or commitments will be demanded before maturity.
149 Notes to the Consolidated Financial Statements 31 December 2012
48.3 Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market prices. Market risks arise from open positions in interest rate and currency rate as well as equity positions, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates and foreign exchange rates.
Group Risk Management is responsible for generating internal reports quantifying the Group’s earnings at risk due to extreme movements in interest rates, while daily monitoring the sensitivity of the Group’s trading portfolio of fixed income securities to changes in market prices and / or market parameters. Interest rate sensitivity gaps are reported to executive management and to the Banking Control Commission unconsolidated on a monthly basis and consolidated (Group level) on a semi- annual basis. The Group’s Asset and Liability Management (ALM) policy assigns authority for its formulation, revision and administration to the Asset / Liability Management Committee (ALCO) of BLOM Bank SAL. Group Risk Management is responsible for monitoring compliance with all limits set in the ALM policy ranging from core foreign currency liquidity to liquidity mismatch limits to interest sensitivity gap limits. The Group is implementing an Asset and Liability Management system “Focus ALM” in the process of automating the risk measurement of the Group’s assets and liabilities from static and dynamic perspectives including stress testing and extensive scenario analysis.
48.3.1 Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the fair values of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities and off-financial position items that mature or reprice in a given period. The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies. Positions are monitored on a daily basis by management and, whenever possible, hedging strategies are used to ensure positions are maintained within established limits.
Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s income statement.
The sensitivity of the consolidated income statement is the effect of the assumed changes in interest rates on the profit or loss for one year, based on the floating rate financial assets and financial liabilities and due to the reinvestment or refunding of fixed rated financial assets and liabilities at the assumed rate, including the effect of hedging instruments.
2012
Increase in basis Sensitivity of net points interest income LL Million Currency Lebanese Lira +0.5% (15,786) United States Dollar +0.5% 3,322 Euro +0.25% 1,320 Others +0.25% 1,606
2011
Increase in basis Sensitivity of net points interest income LL Million Currency Lebanese Lira +0.5% (13,650) United States Dollar +0.5% 5,190 Euro +0.25% 1,331 Others +0.25% 1,560
An equivalent decrease would have resulted in an equivalent but opposite impact for the years ended 31 December 2012 and 31 December 2011.
150 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Interest rate sensitivity gap The Group’s interest sensitivity position based on the earlier of contractual re-pricing or maturity date at 31 December was as follows:
2012 Non Up to 1 to 3 months to (1 – 2) (2 – 5) More than interest Total LL Million 1 month 3 months 1 year years years 5 years sensitive Assets Cash and balances 1,300,159 1,107,466 188,840 - 1,170,853 1,720,967 1,970,292 7,458,577 with central banks Due from banks and 3,107,569 530,282 608,649 39,664 25,796 - 758,535 5,070,495 financial institutions Loans to banks and 10,567 13,600 89,636 - - - 807 114,610 financial institutions Derivative financial ------37,082 37,082 instruments Financial assets at fair value through 212,325 96,024 59,298 1,091 322,985 82,391 73,253 847,367 profit or loss Net loans and advances to 2,713,616 2,089,845 1,947,783 865,381 998,533 177,650 277,479 9,070,287 customers at amortized cost Net loans and advances to related 11,191 19 88 85 2,760 2,054 - 16,197 parties at amortized cost Debtors by ------104,191 104,191 acceptances Financial assets at 301,645 546,707 1,053,989 3,349,784 4,416,654 4,430,508 209,249 14,308,536 amortized cost Financial assets at fair value through ------5,958 5,958 other comprehensive income
Total Assets 7,657,072 4,383,943 3,948,283 4,256,005 6,937,581 6,413,570 3,436,846 37,033,300 Liabilities Due to Central banks under repurchase 140,430 - - - - - 69 140,499 agreements Due to banks and 313,052 41,425 32,838 - - - 231,465 618,780 financial institutions Derivative financial ------52,494 52,494 instruments Financial liabilities at fair value through 11,884 9,230 939 - - - - 22,053 profit or loss Customers' deposits 21,881,305 2,867,523 2,069,224 815,286 412,364 11,055 4,593,074 32,649,831 at amortized cost Deposits from related parties at amortized 133,244 3,105 557 - - - 40,470 177,376 cost Engagements by ------104,191 104,191 acceptances Other liabilities 871 - - - - - 590,111 590,982 Total liabilities 22,480,786 2,921,283 2,103,558 815,286 412,364 11,055 5,611,874 34,356,206 Total interest rate (14,823,714) 1,462,660 1,844,725 3,440,719 6,525,217 6,402,515 (2,175,028) 2,677,094 sensitivity gap
151 Notes to the Consolidated Financial Statements 31 December 2012
2011 Non Up to 1 to 3 months to (1 – 2) (2 – 5) More than interest Total LL Million 1 month 3 months 1 year years years 5 years sensitive Assets Cash and balances 1,364,944 1,020,108 24,900 15,617 2,227,917 - 1,408,895 6,062,381 with central banks Due from banks and 3,155,744 503,462 176,091 379,876 - - 630,360 4,845,533 financial institutions Loans to banks and - 24,078 85,488 6,400 - - 815 116,781 financial institutions Derivative financial ------25,548 25,548 instruments Financial assets at fair value through 220,833 154,991 65,074 42,079 180,102 184,272 10,115 857,466 profit or loss Net loans and advances to 3,291,998 1,335,818 1,858,384 617,787 998,010 402,534 (95,081) 8,409,450 customers at amortized cost Net loans and advances to related 14,066 4 21 9 - 3,232 938 18,270 parties at amortized cost Debtors by ------240,277 240,277 acceptances Financial assets at 318,354 456,201 1,590,222 1,256,872 6,035,398 3,787,466 204,146 13,648,659 amortized cost Financial assets at fair value through ------6,645 6,645 other comprehensive income
Total Assets 8,365,939 3,494,662 3,800,180 2,318,640 9,441,427 4,377,504 2,432,658 34,231,010
Liabilities
Due to banks and 111,180 3,361 25,450 - - - 197,397 337,388 financial institutions Derivative financial ------13,751 13,751 instruments Financial liabilities at fair value through 41,054 ------41,054 profit or loss Customers' deposits 15,217,277 8,440,722 2,114,508 271,355 343,870 23,359 3,955,452 30,366,543 at amortized cost Deposits from related parties at amortized 145,772 1,923 1,418 - - - 39,608 188,721 cost Engagements by ------240,277 240,277 acceptances Other liabilities 32,584 - - - - - 602,742 635,326
Total liabilities 15,547,867 8,446,006 2,141,376 271,355 343,870 23,359 5,049,227 31,823,060 Total interest rate (7,181,928) (4,951,344) 1,658,804 2,047,285 9,097,557 4,354,145 (2,616,569) 2,407,950 sensitivity gap
152 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
48.3.2 Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group protects its capital and reserves by holding a foreign currency position in US Dollars representing 60% of its shareholders’ equity after adjustment according to specific requirements set by the Central Bank of Lebanon. The Group is also allowed to hold a net trading position not exceeding 1 percent of its net shareholders’ equity, as long as the global foreign position does not exceed, at the same time, 40 percent of its net shareholders’ equity (Central Bank of Lebanon circular number 32). In addition to regulatory limits, the Group has set limits on positions by currency. In accordance with the Group’s policy positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within regulatory and established limits
The following consolidated statement of financial position as of 31 December 2012, is detailed in Lebanese Lira (LL) and foreign currencies, translated into LL. 2012 Foreign currencies in Lebanese Lira
Lebanese US Dollar Euro Other foreign Total foreign Lira Total LL Million currencies currencies Assets Cash and balances with central 2,322,682 3,145,776 909,628 1,080,491 5,135,895 7,458,577 banks Due from banks and financial 41,904 2,498,378 1,519,264 1,010,949 5,028,591 5,070,495 institutions Loans to banks and financial 60,477 27,590 26,543 - 54,133 114,610 institutions Derivative financial instruments 4,605 30,603 1,463 411 32,477 37,082 Financial assets at fair value 22,038 636,998 22,190 166,141 825,329 847,367 through profit or loss Net loans and advances to 1,512,537 5,217,789 323,488 2,016,473 7,557,750 9,070,287 customers at amortized cost Net loans and advances to related 2,770 3,319 648 9,460 13,427 16,197 parties at amortized cost Debtors by acceptances - 64,778 20,244 19,169 104,191 104,191 Financial assets at amortized cost 6,679,806 6,215,303 125,661 1,287,766 7,628,730 14,308,536 Financial assets at fair value through other comprehensive - 416 30 5,512 5,958 5,958 income Property and equipment 288,939 2,880 1,262 199,011 203,153 492,092 Intangible assets 1,115 - 295 2,455 2,750 3,865 Assets obtained in settlement of (1,898) 4,742 - 24,623 29,365 27,467 debt Other assets 50,422 51,571 7,315 38,382 97,268 147,690 Goodwill - - - 60,208 60,208 60,208 Total Assets 10,985,397 17,900,143 2,958,031 5,921,051 26,779,225 37,764,622 Liabilities Due to Central banks under - - - 140,499 140,499 140,499 repurchase agreements Due to banks and financial 3,222 313,566 115,058 186,934 615,558 618,780 institutions Derivative financial instruments 15,007 9,598 448 27,441 37,487 52,494 Financial liabilities at fair value - 21,115 - 938 22,053 22,053 through profit or loss Customers' deposits at amortized 9,090,158 17,204,070 2,458,204 3,897,399 23,559,673 32,649,831 cost Deposits from related parties at 90,869 49,245 6,916 30,346 86,507 177,376 amortized cost Engagements by acceptances - 64,778 20,244 19,169 104,191 104,191 Other liabilities 198,681 240,884 19,543 131,874 392,301 590,982 Provisions for risks and charges 71,007 7,543 368 40,490 48,401 119,408 Total Liabilities 9,468,944 17,910,799 2,620,781 4,475,090 25,006,670 34,475,614 Net Exposure 1,516,453 (10,656) 337,250 1,445,961 1,772,555 3,289,008
153 Notes to the Consolidated Financial Statements 31 December 2012
The following consolidated statement of financial position as of 31 December 2011, is detailed in Lebanese Lira (LL) and foreign currencies, translated into LL.
2011 Foreign currencies in Lebanese Lira
Lebanese Other foreign Total foreign US Dollar Euro Total LL Million Lira currencies currencies Assets Cash and balances with central 1,575,897 3,676,422 86,504 723,558 4,486,484 6,062,381 banks Due from banks and financial 35,338 1,785,172 1,474,649 1,550,374 4,810,195 4,845,533 institutions Loans to banks and financial 69,079 30,204 17,498 - 47,702 116,781 institutions Derivative financial instruments 13,601 10,124 2 1,821 11,947 25,548 Financial assets at fair value 20,826 733,369 24,471 78,800 836,640 857,466 through profit or loss Net loans and advances to 1,302,738 4,663,121 257,253 2,186,338 7,106,712 8,409,450 customers at amortized cost Net loans and advances to related 7,103 5,715 47 5,405 11,167 18,270 parties at amortized cost Debtors by acceptances - 100,818 61,072 78,387 240,277 240,277 Financial assets at amortized cost 6,491,196 5,974,611 131,393 1,051,459 7,157,463 13,648,659 Financial assets at fair value through other comprehensive - 2,185 29 4,431 6,645 6,645 income Property and equipment 254,488 906 1,277 187,160 189,343 443,831 Intangible assets 693 1 370 3,214 3,585 4,278 Assets obtained in settlement of (2,291) 5,358 - 24,899 30,257 27,966 debt Other assets 67,975 31,963 12,902 40,148 85,013 152,988 Goodwill - - - 61,879 61,879 61,879 Total Assets 9,836,643 17,019,969 2,067,467 5,997,873 25,085,309 34,921,952 Liabilities Due to banks and financial 4,544 229,757 19,142 83,945 332,844 337,388 institutions Derivative financial instruments 595 11,280 1 1,875 13,156 13,751 Financial liabilities at fair value - 41,054 - - 41,054 41,054 through profit or loss Customers' deposits at amortized 8,090,404 16,180,085 1,954,297 4,141,757 22,276,139 30,366,543 cost Deposits from related parties at 95,663 71,168 8,597 13,293 93,058 188,721 amortized cost Engagements by acceptances - 100,818 61,072 78,387 240,277 240,277 Other liabilities 234,847 247,109 27,773 125,597 400,479 635,326 Provisions for risks and charges 67,234 5,987 335 35,953 42,275 109,509 Total Liabilities 8,493,287 16,887,258 2,071,217 4,480,807 23,439,282 31,932,569 Net Exposure 1,343,356 132,711 (3,750) 1,517,066 1,646,027 2,989,383
154 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
Group’s sensitivity to currency exchange rates The table below shows the currencies to which the Group had significant exposure at 31 December on its monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement of the currency rate against the Lebanese Lira, with all other variables held constant, on the income statement (due to the potential change in fair value of currency sensitive monetary assets and liabilities). A negative amount reflects a potential net reduction in income while a positive amount reflects a net potential increase.
2012 2011
Currency Effect on profit Effect on profit Change in currency Change in currency before tax before tax rate % rate % LL Million LL Million
USD ± 1% 3,580 ± 1% ± 2,427
EUR ± 3% 449 ± 3% ± 1,747
48.3.3 Equity Price risk
Equity price risk is the risk that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. Equity price risk exposure arises from equity securities classified at fair value through profit or loss and at fair value through other comprehensive income. A 5 percent increase in the value of the Group’s equities at 31 December 2012 would have increased other comprehensive income by LL 298 million and net income by LL 1,839 million (2011: LL 332 million and LL 1,427 million respectively). An equivalent decrease would have resulted in an equivalent but opposite impact.
48.3.4 Prepayment Risk
Prepayment risk is the risk that the Group incurs a financial loss because its customers and counterparties repay or request repayment earlier than expected, such as fixed rate housing loans when interest rates fall.
Market risks that lead to prepayments are not material with respect to the markets where the Group operates. Accordingly, the Group considers prepayment risk on net profits as not material after considering any penalties arising from prepayments.
48.4 Operational Risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, including the use of internal audit.
155 Notes to the Consolidated Financial Statements 31 December 2012
49. Capital Management
The Bank maintains an actively managed capital base to cover risks, inherent in the business. The adequacy of the Bank’s capital is monitored using, among other measures, the rules and ratios established by the Central Bank of Lebanon and the Banking Control Commission.
The primary objectives of the Bank’s capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Bank maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders’ value.
In accordance with the Central Bank of Lebanon Main Circular 44, the Group should maintain the minimum required capital adequacy ratio for the years ending 31 December 2012 and thereafter as follows:
Tier 1 Capital Ratio Total Capital Ratio
Year ended 31 December 2012 8.0 % 10.0 % Year ended 31 December 2013 8.5 % 10.5 % Year ended 31 December 2014 9.5 % 11.5 % Year ended 31 December 2015 10.0 % 12.0 %
The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years; however, it is under constant scrutiny of the Board.
Regulatory capital
At 31 December 2012 and 2011, the capital consists of the following:
2012 2011 LL Million Tier 1 capital 2,882,900 2,581,364 Tier 2 capital 23,346 14,727 Total capital 2,906,246 2,596,091 Risk weighted assets Credit risk 18,645,292 17,831,152 Market risk 816,709 671,900 Operational risk 1,822,481 1,606,056 Total risk weighted assets 21,284,482 20,109,108
The capital adequacy ratio as of 31 December (including profit for the year less proposed dividends) is as follows:
Tier 1 capital ratio 13.54% 12.84% Total capital ratio 13.65% 12.91%
Tier 1 capital consists of share capital, share premium, reserves, retained earnings including current year profit less proposed dividends, foreign currency translation losses, gross unrealized losses from financial instruments at fair value through other comprehensive income and corresponding amounts of non-controlling interest. Tier 2 capital consists of revaluation variance recognized in the complementary equity, preferred shares, a percentage of foreign currency translation gains, a percentage of gross unrealized gains from financial instruments at fair value through other comprehensive income and corresponding amounts of non-controlling interest. Certain adjustments are made to IFRS based results, reserves, retained earnings, preferred shares and non-controlling interests as prescribed by the Central Bank of Lebanon and the Banking Control Commission.
156 BLOM BANK s.a.l. Annual Report 2012 Notes to the Consolidated Financial Statements 31 December 2012
50. Early Adoption of IFRS 9
In compliance with Circular 265 of the Lebanese Banking Control Commission issued on 23 September 2010, the Group adopted, effective 1 January 2011, Phase I of IFRS 9 as issued in November 2009 and reissued in October 2010 and related consequential amendments to other International Financial Reporting Standards. The effective application date stipulated by the standard is annual periods beginning on or after 1 January 2015. The initial application date of this standard with respect to the Group is 1 January 2011 in accordance with the transitional provisions of the standard.
The Group did not restate comparative information as permitted by the transitional provisions of IFRS 9 and has recognized impact of early adoption of IFRS 9 as at 1 January 2011, in the opening retained earnings and other components of equity as of that date.
The schedule below summarizes the new classification and amendments to the Group financial instruments as at 1 January 2011 following the early adoption of IFRS 9 which resulted in adjustment to the opening retained earnings and cumulative changes in fair value of financial instruments designated at fair value through other comprehensive income as at 1 January 2011.
Financial Other financial assets classified Financial Financial assets investments Total held-for-trading – available-for- as loans and investments – held-to maturity LL Million sale receivables Carrying value as at 31 December 2010 54,816 4,116,261 9,455,986 912,295 14,539,358 according to IAS 39 Reclassification following the early adoption of IFRS 9: Financial assets reclassified at fair value through profit or loss: Government debt securities 17,011 - 15,507 - 32,518 Corporate debt securities 1,527 74,547 420,491 359,484 856,049 Funds 22,398 3,571 - - 25,969 Equity securities 13,880 8,301 - - 22,181 Financial assets reclassified at amortized cost: Government debt securities - 3,479,088 2,736,424 351,283 6,566,795 Corporate debt securities - 163,862 200,384 107,072 471,318 Certificates of deposit – Central Banks - - 5,978,685 - 5,978,685 Certificates of deposit – Commercial banks - 262,572 74,340 72,290 409,202 and financial institutions Financial assets reclassified at fair value through other comprehensive income: Equity securities - 3,415 - - 3,415 Funds - 1,853 - 2,618 4,471 Carrying value as at 1 January 2011 54,816 3,997,209 9,425,831 892,747 14,370,603 following early adoption of IFRS 9 Effect on opening cumulative change in fair values of financial instruments - (117,141) 19,435 1,485 (96,221) designated at fair value through other comprehensive income Effect on opening balance of retained - (1,911) (49,590) (21,033) (72,534) earnings
51. Comparative Information
Loans and advances to related parties were reclassified from “Net loans and advances to related parties at amortized cost” to “Net loans and advances to customers at amortized cost”. Comparative figures amounting to LL million 20,766 were reclassified accordingly.
Deposits from related parties were reclassified from “Deposits from related parties at amortized cost” to “Customers’ deposits at amortized cost”. Comparative figures amounting to LL million 24,730 were reclassified accordingly.
These changes have been made to improve the quality of information presented.
157 158 BLOM BANK s.a.l. Annual Report 2012 159 Worldwide Correspondent Banks
Country Correspondent Bank Australia, Melbourne National Australia Bank Ltd
Australia, Sydney Commonwealth Bank of Australia
Bahrain, Manama National Bank of Bahrain BSC
Canada, Toronto Royal Bank of Canada
China, Beijing Bank of China Limited
China, Beijing Industrial & Commercial Bank of China Limited
Denmark, Copenhagen Danske Bank A/S
France, Paris BLOM Bank France SA
Germany, Frankfurt am Main Commerzbank AG
Germany, Frankfurt am Main Deutsche Bank AG
Italy, Milan Intesa Sanpaolo SpA
Italy, Milan UniCredit SpA
Italy, Rome Banca Nazionale del Lavoro SpA
Japan, Tokyo JPMorgan Chase Bank National Association
Japan, Tokyo Sumitomo Mitsui Banking Corporation
Japan, Tokyo The Bank of Tokyo-Mitsubishi UFJ Ltd
KSA, Jeddah The National Commercial Bank
KSA, Riyadh Riyad Bank
Kuwait, Kuwait City Gulf Bank KSC
Norway, Oslo Dnb Bank ASA
Qatar, Doha BLOM Bank Qatar LLC
Qatar, Doha The Commercial Bank of Qatar (QSC)
Romania, Bucharest BLOM Bank France SA
Spain, Barcelona Banco de Sabadell SA
Spain, Madrid Banco Bilbao Vizcaya Argentaria SA
Sweden, Stockholm Skandinaviska Enskilda Banken AB
Switzerland, Geneva BLOM Bank (Switzerland) SA
Switzerland, Zurich Credit Suisse AG
Switzerland, Zurich UBS AG
Turkey, Istanbul Yapi ve Kredi Bankasi AS
U.A.E., Dubai BLOM Bank France SA
U.K., London BLOM Bank France SA
U.K., London National Westminster Bank Plc
U.S.A., New York Citibank NA
U.S.A., New York Deutsche Bank Trust Company Americas
U.S.A., New York JPMorgan Chase Bank National Association
U.S.A., New York Standard Chartered Bank
U.S.A., New York The Bank of New York Mellon
U.S.A., San Francisco Wells Fargo Bank NA
160 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Banks & Financial Subsidiaries
Insurance Subsidiaries
161 BLOM BANK Group Management & Network
Banks & Financial Subsidiaries
LEBANON Management
Refer to page 17 until 27 of this report for management.
Branch Network
Headquarters (Beirut) Verdun, Rachid Karami St., BLOM BANK Bldg. P.O.Box: 11-1912 Riad El-Solh, Beirut 1107 2807, Lebanon Phone: (961-1) 743300 – 738938 Fax: (961-1) 738946 E-mail: [email protected] Website: www.blombank.com Beirut Branches Burj Abi Haidar Main Branch Salim Salam Highway, Salam Tower Verdun, Rachid Karami St., BLOM BANK Bldg. Phone: (961-1) 310687 – 310677/8 Phone: (961-1) 738938 – 743300 Fax: (961-1) 310679 Fax: (961-1) 343092 Branch Manager: Mr. Samer DAYYA Principal Branch Manager: Mr. Walid ARISS Concord Ain El-Mreisseh Verdun, Rachid Karami St., BLOM BANK Bldg. Ibn Sina St., Mashkhas Bldg. Phone: (961-1) 750160/1/2/3 Fax: (961-1) 738859 Phone: (961-1) 372780 – 370830 Branch Manager: Mr. Marwan NASSER Fax: (961-1) 370237 Senior Branch Manager: Mr. Mahmoud MARRACH Hamra Abdel Aziz St., Daher Bldg. Ashrafieh Phone: (961-1) 346290/1/2/3 Sassine Square, Michel Sassine Bldg. Fax: (961- 1) 744407 Phone: (961-1) 200147/8 Principal Branch Manager: Mr. Sami FARHAT Fax: (961-1) 320949 Senior Branch Manager: Mr. Ara BOGHOSSIAN Hamra - Retail Abdel Aziz St., Daher Bldg. Bab Idriss Phone: (961-1) 747752/59/60 Weygand St., Semiramis Bldg. Fax: (961-1) 747749 Phone: (961-1) 991671/2-6 Retail Branch Manager: Mr. Abbas TANNIR Fax: (961-1) 991670 Branch Manager: Dr. Gladys Younes KREIKER Istiklal Istiklal St., Salhab Bldg. Badaro Phone: (961-1) 738050/1 - 749624 Badaro Main St., Khoury Bldg. Fax: (961-1) 748337 Phone: (961-1) 615818/19/20/21 Branch Manager: Mr. Yehia ORFALI Fax: (961-1) 615825 Jnah Senior Branch Manager: Mr. Raoul CHERFAN United Nations St., Jaber Bldg. Phone: (961-1) 855903/4/5 Bliss Fax: (961-1) 855906 Bliss St., Al Rayess Bldg. Senior Branch Manager: Mr. Abbas KALOT Phone: (961-1) 363734/42 Fax: (961-1) 363732 Maarad Branch Manager: Mr. Wael EL KADI Downtown, Emir Bechir St., Hibat el Maarad Bldg. Phone: (961-1) 983230/1-3 Fax: (961-1) 983234 Senior Branch Manager: Mr. Amer KAMAL
162 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Mar Elias Tariq Al-Jedideh Corniche El Mazraa St., Zantout Bldg. Al Malaab Al Baladi Square, Salim Bldg. Phone: (961-1) 818616/7/8 Phone: (961-1) 818621 – 816985 Fax: (961-1) 818009 Fax: (961-1) 818620 Branch Manager: Mrs. Nahida MEHDI WEHBE Branch Manager: Mr. Marwan PHARAON
Mazraa Verdun Barbir Square, Majdalani Bldg. Takieddine Solh St., Ghalayini Bldg. Phone: (961-1) 648020/1/2 - 664337 Phone: (961-1) 788412/3 – 800081 - 788411 Fax: (961-1) 648020 Fax: (961-1) 800032 Branch Manager: Mr. Marwan MOHTAR Senior Branch Manager: Mr. Hani BAWAB
Mina El Hosn Mount Lebanon Branches Adnan El Hakim St., Beirut Tower Bldg. Phone: (961-1) 365234/5/6/7 Ain El-Remaneh Fax: (961-1)365230 Chiyah District, Lamaa St. Senior Branch Manager: Mr. Samer BOHSALI Phone: (961-1) 386750/1/2 Fax: (961-1) 386753 Noueiri Branch Manager: Mr. Georges NASSIF Al Noueiri Station, Hamada Bldg. Phone: (961-1) 658610 – 658611 – 664489 Airport Road Fax: (961-1) 630319 Airport Road, facing Zaarour Center Branch Manager: Mr. Chafik KOUSSA Phone: (961-70) 475299 – (961-76) 649607/8/9 Branch Manager: Mr. Izzat MELHEM Raouche Raouche Blvd., Al Rayess & Bou Dagher Bldg. Aley Phone: (961-1) 812603/4/5/6 Al Balakine St., Faysal Sultane Wahab Bldg. Fax: (961-1) 801634 Phone: (961-5) 556612/3 Senior Branch Manager: Mr. Fares EL KADI Fax: (961-5) 556614 Branch Manager: Mrs. May Bou Alwan Rmeil Orthodox Hospital St., Medica Center Bldg. Antelias Phone: (961-1) 565454 – 567140 – 567141 Rahbani St., Kheirallah Bldg. Fax: (961-1) 565252 Phone: (961-4) 411472 – 520210 – 410123 Branch Manager: Mrs. Salma RBEIZ ACHKOUTY Fax: (961-4) 523666 Branch Manager: Mr. Bassem MERHEJ Saifi Al Arz St., Akar Bldg. Aramoun Phone: (961-1) 449899 – 586340 – 566794 - 587196 Aramoun Road, Zaynab Center Fax: (961-1) 581683 Phone: (961-5) 808591/2/3 Senior Branch Manager: Mr. Laurent CHEBLI Fax: (961-5) 808594 Senior Branch Manager: Mrs. Nawal Merhi ABOU DIAB Sanayeh Spears St., Chamber of Commerce & Industry Bldg. Baabda Phone: (961-1) 346042/3 – 748339 Baabda Main Road, 610 Bldg., Block A Fax: (961-1) 738404 Phone: (961-5) 921870/1/2/4/5 Branch Manager: Mr. Khodor MNEIMNEH Fax: (961-5) 921864 Branch Manager: Mr. Jad RAAD Sodeco Damascus Road, Sodeco Square Tower Broumana Phone: (961-1) 611360/1/2 Main St., Mrah Ghanem, BLOM BANK Bldg. Fax: (961-1) 423805 Phone: (961-4) 862263/4 Branch Manager: Mrs. Souraya BSHOUTY Fax: (961-4) 862265 Branch Manager: Mr. Paul TOUMA Tabaris Gebran Tueini Square, Sursock Tower Burj Al-Barajneh Phone: (961-1) 203142/3/4 Ain El Sekka St., Rahal Bldg. Fax: (961-1) 203145 Phone: (961-1) 450381/2/3 Principal Branch Manager: Ms. Claire ABOU MRAD Fax: (961-1) 450384 Branch Manager: Mr. Rabih AL HAJJ ALI AHMAD
163 BLOM BANK Group Management & Network
Burj Hammoud Haret Hreik Armenia St., Harboyan Center Sayyed Hadi Nasrallah Highway, Abou Taam & Hoteit Bldg. Phone: (961-1) 266337/8 – 243604/5 Phone: (961-1) 543662 – 543658 – 543659 Fax: (961-1) 266339 Fax: (961-1) 543661 Branch Manager: Mr. Youssef HOMSI Branch Manager: Dr. Hassan JABAK Chiyah Chiyah Blvd., Ariss St., Orient Center Bldg. Hazmieh Phone: (961-1) 270172/3/4 - 275783 Damascus Road, Joseph Chahine Center Fax: (961-1) 270064 Phone: (961-5) 955241/2/3/4 Principal Branch Manager: Mr. Abbas TLAIS Fax: (961-5) 955240 Senior Branch Manager: Mr. Ziad KAREH Choueifat Al Omaraa, Main Road, Mouhtar & Haidar Bldg. Jbeil Phone: (961-5) 433203/6 Voie 13, Canari de Byblos Bldg. Fax: (961-5) 433208 Phone: (961-9) 943701/2/3 Branch Manager: Mr. Kamal SLIM Fax: (961-9) 943704 Branch Manager: Mr. Zakhia SARKIS Dekwaneh Main St., Mohana Center Jounieh Phone: (961-1) 686072- 686035/6 Saraya St., Executive Center Bldg. Fax: (961-1) 686095 Phone: (961-9) 638012/3/4 Branch Manager: Mr. Farid ZOGHBI Fax: (961-9) 638011 Branch Manager: Mr. Rachad YAGHI Dora Dora Highway, Banking Center Bldg. Jdeideh Phone: (961-1) 256527/28/37/38/39 New Jdeideh Road, Etoile Bldg. Fax: (961-1) 256522 Phone: (961-76) 883114 – (961-70) 405575 Branch Manager: Mr. Georges MAMO Fax: (961-1) 883446 Branch Manager: Mrs. Denise JALAKH Elissar Bikfaya Main Road, Ville Marie Bldg. Kaslik Phone: (961-4) 916111/2/3/4 Kaslik Main St., Debs Center Fax: (961-4) 916115 Phone: (961-9) 640273 – 640095 – 636998/9 Branch Manager: Mr. Joseph GHOUSOUB Fax: (961-9) 831113 Principal Branch Manager: Mr. Charles AOUDE Furn el Chebbak Main St., Abraj Center Kfarhbab Phone: (961-1) 293810/3 Kfarhbab, Main St., Oueiss Center Fax: (961-1) 293816 Phone: (961-9) 856810/1/2/3/4 Branch Manager: Mr. Ronald FARAH Fax: (961-9) 856820 Branch Manager: Mrs. Rita Nemer NEHME Ghobeyri Chiah Blvd., Tohme, Jaber & Kalot Bldg. Mansourieh Phone: (961-1) 825509 – 825870 – 821895 New Main Highway, Dar El Ain Plaza Bldg. Fax: (961-1) 820153 Phone: (961-4) 532856/7/8 Senior Branch Manager: Mrs. Majida Alameh MIKATI Fax: (961-4) 532854 Branch Manager: Mr. Ziad SROUJI Hadath Sfeir district, Hoteit Bldg. Sin El Fil Phone: (961-5) 461438 – 461365 Fouad Chehab Avenue, Far Vision Center Fax: (961-5) 461815 Phone: (961-1) 485270/1/2 Branch Manager: Mr. Wassim FAHES Fax: (961-1) 485273 Senior Branch Manager: Mr. Fadi EL MIR
164 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Sin El Fil – Horsh Tabet Jib Jinnine Charles De Gaulle St., Tayar Center Main Road, Chibli Al Hajj Bldg. Phone: (961-1) 489733/9 – 489750/7 Phone: (961-8) 661951 – 660942 Branch Manager: Mrs. Zeina KHATTAB Fax: (961-8) 661092 Branch Manager: Mr. Kamel ABDOUNI Zalka Zalka Interior Road, BLOM BANK Bldg. Zahleh Phone: (961-4) 713074/5/6 Zahleh Entrance, Manara Center, Fakhoury & Kfoury Bldg. Fax: (961-4) 713077 Branch Manager: Mr. Walid LABBAN Phone: (961-8) 807681/2/3/4 Fax: (961-8) 807680 Zouk Mousbeh Branch Manager: Mrs. Sabine Rbeiz KASSIS Main St., Le Paradis Centre Phone: (961-9) 226991/2/3/4/5 South Lebanon Branches Fax: (961-9) 226990 Branch Manager: Mrs. Marlène Mezraany ABOU NAJM Nabatiyeh Hassan Kamel Al Sabbah St., Office 2000 Bldg. North Lebanon Branches Phone: (961-7) 767854/5/6 Fax: (961-7) 767857 Amioun Branch Manager: Mr. Hani HAMMOUD Main St., Nassif Bldg. Phone: (961-6) 951801–7 Fax: (961-6) 951813 Saida Branch Manager: Mrs. Ralda Rouss AZAR Riad Solh St., Al Zaatari, Fakhoury & Bizri Bldg. Phone: (961-7) 724866 – 723266 Tripoli Abi Samra Fax: (961-7) 722801 Al-Dinnawi Square, Khaled Darwiche Bldg. Branch Manager: Mr. Majdi HAMMOUD Phone: (961-6) 423565/6/7/8 Fax: (961-6) 423569 Saida Boulevard Branch Manager: Mrs. Salwa Ajaj MERHI Boulevard Square, Al Saoudi Bldg. Phone: (961-7) 730976 – 730879 Tripoli – Azmi Fax: (961-7) 736299 Azmi St., Fattal Bldg. Branch Manager: Mr. Wafic AL BABA Phone: (961-6) 433064 – 443550/1/2 Fax: (961-6) 435947 Senior Branch Manager: Mr. Fouad AL HAJJ Tyr - Abbassieh Jal El Baher Main St., BLOM BANK Bldg. Tripoli – Al Tell Phone: (961-7) 350861/2/3/4 Abdel Hamid Karameh Square, Ghandour Bldg. Fax: (961-7) 350865 Phone: (961-6) 430153 – 628200/2 Branch Manager: Mr. Ali SROUR Fax: (961-6) 431624 Senior Branch Manager: Mr. Chaina ASSI Tyr Jal Al Baher Main St., BLOM BANK Bldg. Tripoli - Zahrieh Phone: (961-7) 740900 – 741649 Al Tall St., Alam Al Din & Bissar Bldg. Fax: (961-7) 348487 Phone: (961-6) 430150/2 – 423414/5 Senior Branch Manager: Mrs. Maysaa Arab RAHAL Fax: (961-6) 430151 Branch Manager: Mr. Wassim BAGHDADI Tyr – Athar Bekaa Branches Al Athar, Commercial Center, Al Istiraha St., Tajjudin Bldg., Ground Flr. Chtaura Phone: (961-70) 584381 - (961-3) 006617/8/9 Main St., Najim El Din Bldg. Branch Manager: Mr. Ali Daoud HAMADA Phone: (961-8) 540078 - 544329/30 - 544914 Fax: (961-8) 542504 Branch Manager: Mr. Marwan CHAKRA (AL)
165 BLOM BANK Group Management & Network
JORDAN
Management
General Management Dr. Adnan AL ARAJ Regional Manager Mr. Adnan SALLAKH Consultant for General Management in Lebanon Mr. Moder KURDI Assistant Regional Manager / Credit Mr. Anwar AL SAQA Treasury & Investments Manager Mr. Muhannad AL BALBISSI Financial Controller Mr. Omar ABDULLAH Head of Retail Banking Mr. Ayman DARWISH Corporate Manager Mr. Hani DIRANI Legal Department Manager Mr. Said OBEIDALLAH Internal Audit Manager Mr. Muhannad ABYAD Head of Information Technology Mr. Nabil OBALI Head of Risk Management Mr. Maan ZOABI Head of Compliance Mr. Eyad ADI Back Office Operation Manager Mr. Nart LAMBAZ Trade Finance Manager Ms. Mona KHOZAE Personnel Manager Network
Regional Management (Amman) Mecca Street Al Sharif Abdel Hamid Sharaf St., Bldg. #18 Mecca St., Al Husseine Complex, Bldg. #152 P.O. Box: 930321 Shmeisani, Amman 111 93, Jordan Phone: (962-6) 5503130 Phone: (962-6) 5001200 Fax: (962-6) 5521347 Fax: (962-6) 5677177 Branch Manager: Mr. Muhannad YOUNIS E-mail: [email protected] Shmeisani Website: www.blombank.com Al Sharif Abdel Hamid Sharaf St., Bldg. #18 Phone: (962-6) 5001200 Abdoun Fax: (962-6) 5605652 Princess Basmah St., Essam Al-Khateeb Complex, Bldg. #2 Branch Manager: Mr. Abdeljawad AL OWAISI Phone: (962-6) 5929663 Fax: (962-6) 5929662 Sweifieh Branch Manager: Mr. Marwan SALAH Abed Al Rahim Al Hajj Mohammad St., Bldg. #67 Phone: (962-6) 5865527 Al Abdali Fax: (962-6) 5865346 Al Abdali St., Jouba Bldg. Branch Manager: Mr. Jamal MOMANI Phone: (962-6) 5696566 Taj Fax: (962-6) 5693955 Abdoun, Taj Mall Center Branch Manager: Mr. Abdullah HAMDAN Phone: (962-6) 5931912 Branch Manager: Mr. Omar ABU ASSAF Aqaba Sherif Shaker Ben Zeid St. Wihdat Phone: (962-3) 2019340 Al Amir Hassan St., Oum Heiran, Bldg. #453 Fax: (962-3) 2019318 Phone : (962-6) 4750050 Branch Manager: Mr. Shady Adel AL FAKHOURY Fax : (962-6) 4750055 Branch Manager: Mr. Iyad GHEITH Irbid Irbid King Abdallah the second St., Al-Qubba Circle, Bldg. #4 Wadi Saqra Phone: (962-2) 7240006 Wadi Saqra St., Al Reem Complex, Bldg. #244 Phone: (962-6) 5687333 Fax: (962-2) 7240057 Fax: (962-6) 5687888 Branch Manager: Mr. Ahmad DABAAN Branch Manager: Mr. Raed JOUDEH
Jubeiha Zarqa (opened in May 2013) 20 Yajouz St., Bldg. #20 Zarqa, Free Zone Gate ( 1 ) Phone: (962-6) 5336653 Phone : ( 962–5 ) 3824921 Fax: (962-6) 5336657 Fax : ( 962–5 ) 3823931 Branch Manager: Mr. Ammar SAIDI Branch Manager : Mr. Ala’a AHMAD
166 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Cyprus Management
Management Mr. Ziad EL MURR Country Manager
Network
Victory House, 205Z Archbishop Makarios Ave 3030 Limassol P.O.Box: 53243, 3301 Limassol, Cyprus Phone: (357-25) 376433/4/5, Fax: (357-25) 376292 E-mail: [email protected] Website: www.blombank.com
Abu Dhabi Management
Management Mr. Ramzi AKKARI Chief Representative
Network
Representative Office Arab Monetary Fund Bldg., Corniche, Abu Dhabi P.O.Box: 63040 Phone (971-2) 6676100 , Fax (971-2) 6676200 E-mail: [email protected] Website: www.blombank.com
167 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Saad AZHARI Chairman & General Manager Messrs. BLOM BANK S.A.L. Member Mr. Joseph KHARRAT Member Mr. Marwan JAROUDI Member Mr. Samer AZHARI Member Mr. Habib RAHAL Member Mr. Nicolas SAADE Member General Management Mr. Saad AZHARI Chairman & General Manager Dr. Fadi OSSEIRAN General Manager Mr. Michel CHIKHANI Assistant General Manager, Head of Asset Management Mr. Elie CHALHOUB Senior Manager Mr. Georges ABBOUD Head of Private Banking Mr. Stephane ABI CHAKER Head of Investment Banking Mr. Marwan ABOU KHALIL Head of Capital Markets Mr. Walid KADRI Head of Strategic Planning & Organization Mr. Marwan MIKHAEL Head of Research Mr. Alexandre MOURADIAN Head of Communications & Investor Relations Mr. Ramzi TOHME Head of Operations Dr. Ali BOLBOL Economic Advisor Mr. Gladson DOUGLAS Advisor
Network
Headquarters (Beirut) Verdun, Rachid Karami St., BLOM BANK Bldg. P.O. Box: 11-1540, Riad El Solh, Beirut 1107 2080 Lebanon Phone: (961-1) 738938 – 743300 – 348246 Fax: (961-1) 749148 E-mail: [email protected] Website: www.blominvestbank.com
168 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Amr AZHARI Chairman & General Manager Mr. Saad AZHARI Member Mr. Marwan JAROUDI Member Mr. Karim BAALBAKI Member Mr. Nicolas SAADE Member
Mr. Habib RAHAL Representing BLOM BANK S.A.L.
Dr. Fadi OSSEIRAN Representing BLOMINVEST BANK S.A.L. General Management Mr. Amr AZHARI Chairman & General Manager Mr. Mouataz NATAFGI General Manager Mr. Ghassan CHAMMAS Advisor to the Board of Directors & the Management
Network
Headquarters (Beirut) Hamra, Abdel Aziz St., Daher Bldg. Phone: (961-1) 751090/1/2/3 Fax: (961-1) 751094 E-mail: [email protected] Website: www.blomdevelopment.com Branch Manager: Mr. Tarek HOUSSAMI
Tripoli Al Mina Road, Al Ahli Bldg. Phone: (961-6) 429101/2/3 Fax: (961-6) 429104 Branch Manager: Mr. Kamil KASSIR
169 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Samer AZHARI Chairman & General Manager Dr. Naaman AZHARI Honorary President & Permanent Representative of BLOM BANK S.A.L. HE Sheikh Ghassan SHAKER Member (Grand Officier de la Légion d’Honneur) Mr. Christian DE LONGEVIALLE Member Mr. Jean-Paul DESSERTINE Member Mr. Marwan JAROUDI Member General Management Mr. Samer AZHARI Chairman and General Manager Mr. Michel ADWAN Deputy Chief Executive Officer Mr. Iskandar ARAMAN Manager Head Office Mr. Amr TURK Senior Manager – London Mr. Bassem ARISS Regional Manager – UAE Mr. Jean-Pierre BAAKLINI General Manager – Romania Mr. Xavier ELLUIN Risk Manager Mr. Marc ABOU-KHALIL Audit Manager Mr. Dani SAWAYA Finance Manager Network
Headquarters (Paris) 38-40 avenue des Champs-Elysées, 75008 Paris - France ROMANIA Phone: (33-1) 44950606 Fax: (33-1) 44950600 Headquarters (Bucharest) E-mail: [email protected] 66 Unirii Blvd., Bloc K3, S+P+M, 3rd District, Bucharest, Website: www.blomfrance.com Romania 030835 Branch Manager: Mr. Iskandar ARAMAN Phone: (40-21) 3027201 Fax: (40-21) 3185214 UNITED ARAB EMIRATES E-mail: [email protected]
Dubai Branches in Romania Deira, Al Maktoum St., Sheikh Ahmad Ben Rached Al Maktoum Bldg. Unirii - Customer Desk Phone: (971-4) 2307230 Fax: (971-4) 2236260 66 Unirii Blvd., Bloc K3, S+P+M, 3rd District, Bucharest, E-mail: [email protected] Romania 030835 Branch Manager: Mr. Samir HOBEIKA Phone: (40-21) 3027201 Fax: (40-21) 3185214 Jabal Ali (Electronic Branch) Branch Manager: Mrs. Florentina DELA The Galleries, Bldg. 4, Dubai Phone: (971-4) 8849311 Victoria Fax: (971-4) 8849388 72 Buzesti St., 1st District, Bucharest, Romania 011017 E-mail: [email protected] Phone: (40-21) 3154205/6 Fax: (40-21) 3154208/9 Sharjah Khaled Lagoon, Corniche Al Buhairah Branch Manager: Mr. Marius VOICULET Sheikh Nasser Bin Hamad al Thani Bldg. Phone: (971-6) 5736700 – 5736100 Voluntari Fax: (971-6) 5736080 93-95 Voluntari Blvd., Voluntari, Romania 077190 E-mail: [email protected] Phone: (40-21) 2703298/83 Branch Manager: Mr. Rami MATTA Fax: (40-21) 2703771 Branch Manager: Mrs. Monica CALIN UNITED KINGDOM Constanta London 25 bis Mamaia Blvd., Constanţa, Romania 900189 193-195 Brompton Road , London SW3 1LZ, England Phone: (44-20) 75907777 Phone: (40-241) 510950 Fax: (44-20) 78237356 Fax: (40-241) 510951 E-mail: [email protected] Branch Manager: Mr. Mihai BUTCARU Senior Manager: Mr. Amer TURK
170 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Dr. Naaman AZHARI Honorary Chairman Mr. Saad AZHARI Chairman Mr. André CATTIN Vice Chairman Mr. Jean Paul DESSERTINE Member Dr. Werner FREY Member Me. Peter de la GANDARA Member Mr. Ahmad SHAKER Member General Management Mr. Antoine MAZLOUM General Manager Mrs. Eléonore DAESCHER Manager Mr. Salim DIAB Manager Mr. Jean-Marc REBOH Manager
Network
Headquarters (Geneva) 1, Rue de la Rôtisserie P.O. Box: 3040, 1211 Geneva 3, Switzerland Phone: (41-22) 8177100 Fax: (41-22) 8177190 E-mail: [email protected] Website: www.blombank.ch
171 BLOM BANK Group Management & Network
Management
Board of Directors Dr. Ahmad Rateb AL SHALLAH Chairman Mr. Amr AZHARI Chief Executive Officer Dr. Ihsan BAALBAKI Member Mr. Ibrahim SHEIKH DIB Member Mr. Saad AZHARI (Representing BLOM BANK S.A.L.) Member Dr. Fadi OSSEIRAN (Representing BLOM BANK S.A.L.) Member Mr. Samer AZHARI Member Mr. Habib BETINJANEH Member Mr. Mohamed Adib JOUD Advisor Mr. Georges SAYEGH Board Secretary General Management Dr. Ahmad Rateb AL SHALLAH Chairman Mr. Amr AZHARI Chief Executive Officer Mr. Georges SAYEGH General Manager Mr. Michel AZZAM Deputy General Manager, Head of Corporate Banking Mr. Sameer BASSOUS Assistant General Manager, Head of Risk Management Mr. Salem MAHMOUD Senior Manager, Information Technology Mrs. Rima JAWAD ZEIN Senior Manager, Human Resources Mrs. Inaya SOUBRA Senior Manager, International Mr. Firas SAMMAN Information Technology Mr. Samir ASMAR Administration Mr. Ziad KAMAL AL DEEN Compliance
Network
Headquarters (Damascus) Harika, Bab Barid, Lawyers’ Syndicate Bldg. P.O. Box: 3103 Damascus, Syria Phone: (963-11) 2260560 Fax: (963-11) 2260555 E-mail: [email protected] Website: www.bso.com.sy
Damascus
Harika Bab Barid, Lawyers’ Syndicate Bldg. Kafarsusseh Phone: (963-11) 2260560 Damasquino Mall Fax: (963-11) 2260555 Phone: (963-11) 2143701 Branch Manager: Mr. Eyad El Sati Fax: (963-11) 2143705 Branch Manager: Mrs. Hadil DiB Nejmeh Square Al Nejmeh Square, Parliament St. Mazraa Phone: (963-11) 3344001 Al Malek Al Adel St. Fax: (963-11) 3344021 Phone: (963-11) 4430140 Branch Manager: Mr. Fadi ISTWANI Fax: (963-11) 4430145
Kassaa Midan Burj El Rous Phone: (963-11) 8838971 Phone: (963-11) 5431350 Fax: (963-11) 8838975 Fax: (963-11) 5431360 Branch Manager: Ms. Iman OBEID Branch Manager: Mr. Habib SAYEGH Adraa ( temporarily closed) Mezzeh Adraa Industrial Area. Mezzeh Highway Phone: (963-11) 5851350 Phone: (963-11) 6132411 Fax: (963-11) 5851360 Fax: (963-11) 6132409 Acting Branch Manager: Mr. George FAYAD Branch Manager: Mr. Tarek SHIHAB
172 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Rawda Hama Nouri Bacha Square Hama Phone: (963-11) 3314560 Al Kouatli St. Fax: (963-11) 3314565 Phone: (963-33) 2213834 Branch Manager: Mr. Rami AL BESHARA Fax: (963- 33) 2213833 Branch Manager: Mr. Morhaf AL SHAKAKI Free Zone Damasus Free Zone Mharda Phone: (963-11) 2133170 New Church St. Fax: (963-11) 2133173 Phone: (963-33) 4742070 Fax: (963- 33) 4742075 Aleppo Acting Branch Manager : Mr. Firas BASSEEL
Azizieh Tartous Majd El Dine Al Jabiri St. Phone: (963-21) 2258570 Al Thawra St. Fax: (963-21) 2249800 Phone: (963-43) 227474 Branch Manager: Mr. Amr KAYAL Fax: (963-43) 226869 Branch Manager: Mr. Chamel EL MAKARI Medineh (temporarily closed) Saba’ Bahrat St. Homs Phone: (963-21) 3335277 Fax: (963-21) 3335377 City Center (temporarily closed) Branch Manager: Mr. Mohamad Ismail KASSABJI City Center Bldg. Phone: (963-31) 2453925 Muhafaza Fax: (963-31) 2453936 Muhafaza Blvd., Al Kahira St. Phone: (963-21) 2665022 Hussia Fax: (963-21) 2665035 Hussia Industrial City Acting Branch Manager: Ms. Dalia ABDULKAREEM Phone: (963-31) 5360735 Fax: (963-31) 5360735 Sulaimanieh Acting Branch Manager: Mr. Khaled ZAHED Sulaimanieh St. Phone: (963-21) 4611102 Mahata Fax: (963-21) 4611107 Al Mahata area, Bassel El Assad St. Branch Manager: Mrs. Mouna JARJOUR Phone: (963-31) 2131200 Fax: (963-31) 2131251 Town Mall (temporarily closed) Sweida’a Town Mall, Azaz Road Phone: (963-21) 2521020 Tishreen St. Fax: (963-21) 2521025 Phone: (963 –16) 233328 Fax: (963-16) 233478 Al Sheikh Najjar (temporarily closed) Branch Manager: Mr. Toufic BAZ RADWAN Sheikh Najjar Industrial City Phone: (963-21) 4716600 Dara’a Fax: (963-21) 4716605 Al Mahata Blvd., Al Kouatly St. Fourkan ( temporarily closed) Phone: (963-15) 233309 Express St., Syriatel Avenue Fax: (963-15) 233055 Phone: (963–21) 2645820 Branch Manager: Mr. Assem ABAZED Fax: (963-21) 2645825 Al Kameshli Acting Branch Manager: Mr. Mohamad KHATIB Al Kouatly St. Lattakia Phone: (963-52) 4496700 Fax: (963-52) 433105 Al Kamilia Area, March 8th St. Branch Manager: Mrs. Suheila AFRAM Phone: (963-41) 452516 Fax: (963-41) 452573 Branch Manager: Mr. Zafer WAZZAN
173 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Amr AZHARI Chairman Mr. George SAYEGH Vice Chairman Mr. Saad AZHARI Member Dr. Fadi OSSEIRAN Member Mr. Michel CHIKHANI Member General Management Mr. Ziad FARAH General Manager Mr. Stephan ABI CHAKER Head of Financial Analysis
Network
Headquarters (Damascus) Mazraa, Al Malek El Adel St., Damascus, Syria P.O.Box: 8093, Damascus, Syria Phone: (963-11) 4432190 Fax: (963-11) 4432195 E-mail: [email protected] Website: www.sofs.com.sy
174 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Saad AZHARI Chairman Mr. Mohamed OZALP Managing Director & Chief Executive Officer Mr. Hany EL DANA Deputy Managing Director & Chief Executive Officer Mr. Elias ARACTINGI Member Mr. Samir KASSIS Member Mr. Mohamed KAFAFI Member Mr. Magued SHAWKY Member Mr. Ahmed ABU ALI Member General Management Mr. Mohamed OZALP Managing Director & Chief Executive Officer Mr. Hany EL DANA Deputy Managing Director Mrs. Maya EL KADY Assistant Managing Director Mr. Talal IBRAHIM Assistant Managing Director Mr. Tarek METWALLY Assistant Managing Director Mr. Abd El Aziz ALY Head of General Administration Mr. Ahmed KHATTAB Head of Corporate Banking Group Mr. Belal Farouk Group Head, Board Affairs Mr. Ehab EL SWERKY Chief Risk Officer Mr. Ehab KHALIL Head of Retail Banking Mr. Khaled YOUSRY Head of Financial Institutions & Correspondent Banking Mr. Maher ANWAR Head of Legal Affairs Mr. Mohamed RASHWAN Head of Internal Audit Mr. Mohamed SHAWKY Head of Information Technology Mr. Mostafa EZZAT Head of Financial Control Mr. Talaat EL OMDA Head of Human Resources Mr. Yehia RASHED Head of Compliance Mr. Tarek REHAN Acting Head of Central Operations
Network
Headquarters (Cairo) Haram New Cairo, El Tagamoaa El Khames, Ninety St., 61 BLOM Haram St., Nasr El Din, 410 Bldg. BANK Bldg. Phone: (202) 35681223 P.O.Box: 410 , New Cairo - El Tagamoaa El Khames Fax: (202) 35681488 Phone: (202-02) 33322770-9 Branch Manager: Mr. Ahmed SABRI Fax: (202-02) 37494508 – 37494168 Heliopolis Website: www.blombankegypt.com El Hegaz St., 31 Bldg. Call Center (inside Egypt) 19233 Phone: (202) 24543524 – 24519710 Call Center (outside Egypt) (002-02) 33319400 Fax: (202) 24519730 Branch Manager: Mr. Gamal DIAA Greater Cairo Khalifa El Maamoun Abbasia Heliopolis, El Khalifa El Maamoun, Manshiet El Bakry St., Abbasia St., 109 Bldg. 20 Bldg. Phone: (202) 39322342/3/4 Phone: (202) 22575625 - 22575647 Fax: (202) 230222350 Fax: (202) 22575651 Branch Manager: Mr. Tarek TALAAT Branch Manager: Mr. Magdy ZAKI Maadi Dokki New Maadi, El Nasr Road, 4th St., 269 Bldg. Mohie Eldin Aboul Ezz St., 64 Bldg. Phone: (202) 25198840 – 25198244 Phone: (202) 37494572 - 37494643 Fax: (202) 25199293 – 25197232 Fax: (202) 37494652 – 37494679 Branch Manager: Mr. Sherif MOHASEB Senior Branch Manager: Mrs. Wafaa EZZAT
175 BLOM BANK Group Management & Network
Mohandessen Manshia Lebanon St., 54 Bldg. Orabi Square, 9 Bldg. Phone: (202) 33006599 - 33006502 Phone: (203) 4856088 - 4856052 Fax: (202) 33039806 Fax: (203) 4856120 Senior Branch Manager: Mr. Amr HASSAN Branch Manager: Mr. Mohamed ABOU SHOUSHA Nasr City Stadium El Nasr Road, El Akkad Mall Phone: (202) 26906801 - 26906802 Seliman Yosry St., 1 Bldg. Fax: (202) 26906805 Phone: (203) 495164 - 4951643 Senior Branch Manager: Mr. Hesham FOUAD Fax: (203) 4951635 Branch Manager: Mr. Ayman TALAAT New Cairo 61, 90 St.,Tagamoa El Khames Sporting Phone: (202) 29281193 – 29281200 El Horia St., 273 Bldg. Fax: (202) 37494508 Phone: (203) 4270211 - 4200098 Branch Manager: Mr. Mostafa SABRI Fax: (203) 4200094 Branch Manager: Mrs. Magda FAYED New Maadi El Nasr Road, El Laselky St., 17/5 Bldg. GOVERNATES Phone: (202) 25175546 - 25175547 Fax: (202) 25173014 - 25173024 Senior Branch Manager: Mrs. Hanem FAHMY Damietta Borg El Shark Insurance, Corniche El Nile St., 1 Bldg. Opera Phone: (2057) 363470 - 363413 El Gomhoreya St., 17 Bldg. Fax: (2057) 2363453 Phone: (202) 23923197 – 23927885 Branch Manager: Mr. Mohamed EL BERGISY Fax: (202) 22392265 Senior Branch Manager: Mr. Khaled SOKAR Ismalia El Ismalia Canal,144 St., 15 Bldg. Orouba Phone: (2064) 3921758/79 Heliopolis, Cleopatra St., 1 Bldg. Fax: (2064) 3921767 Phone: (202) 24144769 – 24144759 Branch Manager: Mr. Hatem HIGAZY Fax: (202) 24144793 Branch Manager: Mrs. Nayera LABIB Mansoura Shoubra Torail, Saad Zaghloul St., 35 Bldg. El Khalafawy Square, Shoubra St., 232 Bldg. Phone: (250) 2309121 - 3921779 Phone: (202) 24311416 - 22015236 Fax: (250) 2309122 Fax: (202) 24311364 – 24312678 Branch Manager: Mr. Ehab FARHAT Branch Manager: Mrs. Heba SAAD Port Said 6th October Al Gomhoureya St., 37 Bldg. Area No.4, Central Axis, 1st District, Al Madiena Commercial Phone: (2066) 3322962 - 3322964 Center Fax: (2066) 3322963 Phone: (202) 38321024 - 38320537 Acting Branch Manager: Mr. Wassem GALAL Fax: (202) 38339279 Senior Branch Manager: Mr. Mamdoud ZAYED Tanta Zamalek El Guiesh St., 44 Bldg. Abu El Feda St., 15 Bldg. Phone: (240) 3356443 – 3356431 – 3356231 Phone: (202) 27355246 - 27368045 Fax: (240) 3356449 Fax: (202) 27351832 - 27358613 Deputy Branch Manager: Mr. Ashraf EL GINDY Branch Manager: Mrs. Hanaa FOUAD RED SEA ALEXANDRIA Al Hurghada El Shatby Sakallah Square, Elmina St., 7 Bldg. Port Said St., 17 Bldg. Phone: (2065) 3447835 - 3448516 Phone: (203) 5934055 Fax: (2065) 3447834 Fax: (203) 5934058 Branch Manager: Mr. Hussein EL SWEIFY Senior Branch Manager: Mr. Ashraf TAHIO
Montaza Sharm El Sheikh El Mandara, Gamal Abd El Naser St., 414 Bldg. Salam St., Viva mall Phone: (203) 5488550 – 5488593 Phone: (2069) 3664326/7 Fax: (203) 5488713 Fax: (2069) 3664325 Branch Manager: Mr. Magdy SAMAHA Branch Manager: Mr. Alaa METWALLY
176 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Tarek METWALLY Chairman Mr. Hany MAHMOUD Managing Director Mrs. Maya EL KADI Member Mr. Michel CHIKHANI Member Mr. Talal IBRAHIM Member Mr. Mohammed RASHWAN Member Mr. Belal FAROUK Member General Management Mr. Hany MAHMOUD Managing Director Mrs. Ola EL MANDOUH Deputy Managing Director Mr. Emam WAKED Head of Institutional Sales - Local Mrs. Sandy MORCOS Head of Institutional Sales - MENA Mr. Khaled EL ANSARY Head of Retail Banking Mrs. Mayada SAYED Head of Retail Banking
Network
Headquarters (Cairo) Giza, Mohandessin, Gezerat El Arab St., 8 Bldg. Phone: (202) 37617682 - 37617683 Fax: (202) 37617680 Email: [email protected] Website: www.blomegyptsecurities.com
Online Trading Heliopolis Giza, Mohandessin, Gezerat El Arab St., 8 Bldg. Al Orouba, Cleopatra St., 1 Bldg. Phone: (202) 37621712 - (202) 37621729 Phone: (202) 24144801- (202) 24144847 Fax: (202) 37617680 Fax: (202) 24144829
177 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Abdullah Abdullatif ALFOZAN Chairman Mr. Saad AZHARI Member Mr. Waleed ALSAGHYIR Member Mr. Essam ALMUHAIDIB Member Dr. Fadi OSSEIRAN Member Mr. Marwan ALJAROUDI Member Mr. Fawwaz ALKHODARI Member Mr. Emad BABAN Member Mr. Ali GHANDOUR Member General Management Mr. Abdullah Saud ALRASHOUD Chief Executive Officer Mr. Michel CHIKHANI Head of Asset Management Mr. Wael ELTURK Chief Financial Officer Mr. Tony BOU FAYSSAL Head of Compliance & Money Laundering Reporting Officer Mr. Moataz SIDANI Corporate Finance Director
Network
Headquarters (Riyadh) Riyadh, King Fahd Road, Al Oula Bldg., 3rd Flr. P.O.Box: 8151 Riyadh, 11482 Phone: (966-1) 4949555 Fax: (966-1) 4949551 E-mail: [email protected] Website: www.blom.sa
178 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Saad AZHARI Chairman and Executive Director Mr. Izzat NUSEIBEH Executive Director Mr. Marwan AL JAROUDI Vice Chairman Mr. Fahim MO’DAD Member Mr. Nicolas SAADE Member Mr. Fares EL KADI Member General Management Mr. Saad AZHARI Chairman Mr. Izzat NUSEIBEH Chief Executive Officer Mr. Abbas BOU DIAB Head of Compliance & Anti-Money Laundering Mr. Gladson DOUGLAS Head of Private Banking Mr. Dany ABOU JAOUDE Head of Corporate Banking Mrs. Rima EL ETER Risk Manager Mrs. Carine MHANNA Finance Manager Mr. Roger ABOU ZEID Operations Manager Mr. Zaher GHOUSSAINI Human Resources Manager
Network
Headquarters (Doha) West Bay Area, Al Wahda St., NBK (Amwal) Tower P.O.Box: 27700 – Doha, Qatar Phone: (974) 44992999 Fax: (974) 44992990 E-mail: [email protected]
Jordan
Management
Board of Directos Dr. Adnan AL ARAJ Chief Executive Officer Mr. Adnan SALLAKH Deputy Chief Executive Officer Mr. Modar KURDI Member Dr. Mohamed AMRO Member General Management Mr. Anwar Al Saqa General Manager Mr. Khaled ZU’RUB Deputy General Manager Network
Headquarters (Amman) Shmeisani, Rafeeq Al Athem St., MSDR Bldg. P.O. Box: 942341, Amman, 111 94, Jordan Phone: (962-6) 5661608, Fax: (962-6) 5663905 E-mail: [email protected]
179 BLOM BANK Group Management & Network
Insurance Subsidiaries
Management
Board of Directors Mr. Habib RAHAL Chairman & General Manager Mr. Fateh BEKDACHE Vice Chairman & General Manager Mr. Samer AZHARI Member Mr. Victor PEIGNET Member SCOR SE (Represented by Mr. Patrick LOISY) Member Mr. Serge OSOUF Member Mr. Rami HOURIEH Member Mr. Marwan JAROUDI Member General Management Mr. Habib RAHAL Chairman & General Manager Mr. Fateh BEKDACHE Vice Chairman & General Manager Ms. Faten DOUGLAS Deputy General Manager
Network
Headquarters (Beirut) Verdun, Rachid Karami St., AROPE Plaza, BLOM BANK Bldg. P.O.Box: 113-5686 Beirut – Lebanon Phone: (961-1) 759999 Fax: (961-1) 344012 Call Center: (961-1) 747555 Hotline (24/7) 1219 Email: [email protected] Website: www.arope.com
Dora Tripoli Dora Highway, SEBACO Center, Bloc B, GF & 3rd Flr. Al Tall St., Byssar & Alameddine Bldg., 1st Flr. Phone/Fax: (961–1) 262222 Phone/Fax: (961–6) 446877
Jounieh Tyr Jounieh Highway, Damaa Bldg., 1st Flr. Tyr Al Abassia, Al Bass, Towards Jabal Amel, 1st Flr. Phone/Fax: (961–9) 643222 Phone: (961–7) 741037 Fax: (961–7) 348487 Hadath Saint Therese St.,BLOM BANK Branch, Hoteit Bldg., 1st Zahle Flr. Zahle Entrance, Manara Center, 1st Flr. Phone: (961–5) 461438 Phone/Fax: (961–8) 818640 Fax: (961–5) 461243
Saida Riad El Solh St., Fakhoury Bldg., 1st Flr. Phone/Fax: (961–7) 725303
180 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Amr AZHARI Chairman Mr. Fateh BEKDACHE Vice Chairman Mr. Habib BATENJANI Member Mr. Ibrahim SHEIKH DIB Member Mr. Marwan JAROUDI Member Mr. Samer AZHARI Member Mr. Hassan BAALBAKI Member General Management Mr. Amr AZHARI Chairman Mr. Bachar AL HALABI General Manager
Network
Headquarters (Damascus) Tajheez District, Al Brazil St.,P.O. Box: 33015 Phone: (963 – 11) 9279 - 3348350 Fax: (963 – 11) 3348144 - 3348798 E-mail: [email protected] Website: www.aropesyria.com
Aleppo Hama Aziziah, Majdduldin Al Jabiri St. Al Alamayn St., Al Ashek Bldg., 1st Flr. Phone: (963-21) 9279 Phone: (963-33) 9279 Fax: (963-21) 2118800 Fax: (963-33) 523277
Damascus Tartous Abou Remmaneh, Al Mahdi Ben Baraki St. Thawra Avenue, BANK OF SYRIA AND OVERSEAS Bldg. Phone: (963-11) 3329010 Phone: (963-43) 9279 Fax: (963-11) 3348797 Fax: (963-43) 230870
Latakia Al Kamliah, 8 March St., above BANK OF SYRIA AND OVERSEAS Phone: (963-41) 9279 Fax: (963-41) 475223
181 BLOM BANK Group Management & Network
Management
Board of Directors Mr. Hany EL DANA Chairman Mr. Fateh BEKDACHE Vice Chairman & Managing Director Mr. Habib RAHAL Member Mrs. Maya AL KADY Member Mr. Tarek METWALLY Member General Management Mr. Michael KELADA Assistant Managing Director
Management
Board of Directors Mr. Hani EL DANA Chairman Mr. Fateh BEKDACHE Vice Chairman Mr. Habib RAHAL Member Mrs. Maya AL KADY Member Mr. Tarek METWALLY Member General Management Mr. Michael KELADA Assistant Managing Director
Network
Headquarters (Cairo) AROPE Plaza (New Head Office) 8 Gezirat El Arab, Mohandeseen 30, Mesadak Str., Dokki, Giza Phone: (202) 33323299 Phone: (202) 33323299 Fax: (202) 33361482 – 33361483 Fax: (202) 33361482 / 33361483 Hotline: (202) 19243 Hotline: (202) 19243 Email: [email protected] E-mail: [email protected] Website: www.aropeegypt.com Website: www.aropeegypt.com
CAIRO
Opera Dokki 17 Gomhoria St., in front of Abdeen Court 64 Mohie El Din Abou El Azz St. Phone: (202) 23927885 – 23923197 Phone: (202) 37494572 Fax: (202) 23925265 Fax: (202) 37494643
Khalifa El Ma’moun New Maadi 20 Heliopolis, Khalifa El Ma’moun St. 5, 17 Taksim El Laselki, New Maadi Phone: (202) 22575625 – 22575647 Phone: (202) 25175547 – 25175546 Fax: (202) 22575651 Fax: (202) 25173014 - 25173024
182 BLOM BANK s.a.l. Annual Report 2012 BLOM BANK Group Management & Network
Stadium Sharm El Sheikh 1 Soliman Yousry St., in front of the Stadium, El Amir Abdallah St., Commercial Market, Moray Mall, Alexandria Khalig Naama Entry Phone: (203) 4951641 - 4951642 - 4951643 - 4951644 Phone: (2069) 3603592/3/4 Fax: (203) 4951635 - 4951639 Fax: (2069) 3603541
Orouba Hurghada 1 Heliopolis, Kleopatra St., Heliopolis Elsayala Area, Sheraton St., Abou Assr Mall, in front of Sea Phone: (202) 24144796 – 24144759 Gull Hotel Fax: (202) 24144793 Phone: (2065) 3440552
Shoubra Mohandesseen 232 El Khalafawy, Shoubra St. 11, Al Hegaz Str., 3rd Flr. Phone: (202) 22015236 Phone: (202) 33323299 Fax: (202) 24311364 - 24312678 Fax: (202) 33361482 - 33361483
Abassia Alexandria 109 Abassia St. 10, El Moshir Ahmed Ismail St., White Plaza Tower, Phone: (202) 29222342 - 29222343 in front of Seedy Gaber Station Phone: (203) 01095127176 Zamalek 15 Abou El Feda St. Phone: (202) 2736804 Fax: (202) 27351832
El Haram 410 El Haram St. Phone: (202) 35681332 - 35681223 Fax: (202) 35681488
Heliopolis 31 El Hagaz St., in front of El Maryland Phone: (202) 22592030 - 22583120 Fax: (202) 24553517 - 24519710
23, Aswan Str., Heliopolis, 3rd Flr. Phone: (202) 26336469 Fax: (202) 26336426
23, Aswan Str., Heliopolis, 1st Flr. Phone: (202) 26423096 - 2642097 Fax: (202) 26423093
183 www.blombank.com ANNUAL REPORT 2012